Fiddling Founders – Just Take The Money And Run. Please!!!

As many of you know, one of the byproducts of a deal, especially in a privately owned organization, is the mounds of cash that a select few stand to make upon close of the deal. I often refer to these folks as the “walking retired.” This is an inviable position. Many of us would love to be in this position, but few actually find themselves there. Their ongoing involvement in your deal can be a mixed bag.

“I'm looking for a partner. Someone who gets things fixed. Ask yourself this question…Do you want to be rich?” – The Pet Shop Boys

It’s no secret that folks who have started a company from the ground up or where fortunate enough to hitch their wagon to the PE train, worked their fingers to the bone, deserve their payday. For some, a significant uptick in their bank account can be a very liberating event. Some choose to the “peace out” approach and ride off into the sunset. Some aren’t as lucky and while the payoff is good it may not be enough to be life-altering. Then, there is a third group who could easily “ride off into the sunset,” but for a myriad of reasons, including not being able to see themselves anywhere else, stick around.

All three of these groups can be advantageous and challenging. Sometimes in the same deal…

“They got the money, hey, you know they got away. They headed down south and they're still running today.” – The Steve Miller Band

Sometimes the best thing that can happen in a deal is that senior executes skip-off onto their next “thing.” It’s relatively rare that organizations on the trading block are impeccably run. In many cases, there are things lurking under the surface that may or may not come to light until after the deal is closed. PE firms are well aware of this and face it constantly. And, in some cases, the challenges left for the acquirer have the hands of the former leadership team all over them.

So, this begs the question. When should an acquirer keep current leadership in place? The answer is that it depends. I know, I know this feels like ultimate consultant speak, but it is true.

If, for instances, the acquirer is very familiar with the business and was motivated to make the purchase for the people, the product, the client list or other strategic reasons this should give the acquirer confidence in their ability to run operations sooner than later. ?In these situations, where the business will tuck-in nicely with little fanfare, organizations should take a few things into consideration. Will the target leadership have meaty roles upon close? Do they fit the new culture? Are they supportive of the deal? Do they agree with the new strategic direction? Do you see them being accepting of not always being the “shot caller” going forward? All of these are considerations that should be taken into account. If the answer is yes to more of these than not, then perhaps it makes sense to keep some or all of these professionals. But, keep in mind, that even one of these considerations can be damaging enough that it ends up not having been worth it. So, there are times when it just might be easier to cut bait.

I get that it might feel “icky” to immediately dismiss folks that have helped build what you now own. However, while “breaking up is hard to do,” sometimes things have run their course and new leadership is simply needed. Of course, you need to take into account how the recently acquired organization may act upon an executive exit. But, people are resilient, understand that change is to be expected and, in some case, welcome new leadership.

“Get back. I'm alright, Jack. Keep your hands off of my stack” – Pink Floyd

The sychology of letting go of something they sweated over can be too much for some to handle. If during any time you get that sense, then it might be more graceful for all or some of those folks to set off into the sunset. Trust your gut. Founders and/or long-time executive leadership may, may be intoxicated by the idea of selling and cashing in. However, for those who are defined by the organization they helped build, it can be a difficult transition.

As the great Eddie Money once said, “I've got two tickets to paradise. Won't you pack your bags, we'll leave tonight.”

Wave good-bye, wish them luck and tell them not to look back.

I have seen instances where an executive, who just made mountains of money, begins to feel guilty about the fact that they have benefitted immensely while the average employee has not. And, if the transition is a tougher one for the employee population, some executives go rouge and take on the unofficial role of employee spokesperson. This tends to happen in organization that have/had a strong leadership culture or a handful of tightly gripping executives. If the executives does not “tow the line” and begin to quietly tell people that this was not his/her decision that can quickly undermine the blending of two organizations. And, it doesn’t need to be the entire team, all it takes is one..

“Wanna be ballers, shot callers.” - Lil Troy

On top of any guilt that they might be feeling you also need to be aware that a subset might not be capable of letting the decision-making go. The fact is many of these folks are successful because they are every savvy business people, given everything to organization and or have likely surrounded themselves with an excellent team of “Ballers.” These folks pride themselves on being the shot callers,” responsible for much of the organizations success. Of course, this is not always the case and there are numerous examples of executives jumping right in, soothing the transition and serving as excellent leaders in the new organization. It’s an art to assess the target leadership team and ensure you know what you are getting.

Some of you might ask, “But, Scott. What about those that are retained for a specified duration and then skip off into the sunset?” I propose to you that any/all of the issues we have discussed today can still rear their ugly head. Go with your gut. If your organization understands the business, has competent leadership ready to step-in and the workforce seems stable it still might be prudent to consider a strategy of thanking the previous leadership, recognizing their contributions and turning the page.

The decision is not an easy one and should not be taken lightly. At times, making wholesale challenges can result in more turmoil too. If you read the tea leaves and have a gut instinct, do not dismiss it too lightly.

“Simply nothing more to give. There is nothing more for me. Need the end to set me free.” -Metallic

FADE TO BLACK…

Until next week - Stay strong, stay focused, stay sane and stay the course…________________________________________________________________