TFT: Exit and Entrance Strategy

Aug 13, 2024

You are in a business looking for an exit and want to sell your business. You have worked hard to build a great team, following the steps laid out in the “Hire Right” TFT posts. You have lived and breathed this business and want to see it grow beyond you. So, what do you do when it comes to an exit? On this TFT, we will dig into why this is the right path for you and how to work with the team.

two men facing each other while shake hands and smiling — Photo by Sebastian Herrmann on Unsplash

Why Sellout Now

That verbiage is intentional. The word “sellout” is going to make you feel a little bad for considering it. Generally, when we say someone sold out, we mean they were building something great against the “big guys” and now they are selling to one of the big guys. But maybe that is the right call for you. How could that be? Well, maybe you are the limiting factor to your business growing. Maybe you cannot grow internationally. Or maybe you do not want to spend the time it would take to get from the level you are at to the next level. Maybe you do not have the right skills to go to the next level. These are all good reasons to consider selling to someone else. There is also the ability to get capital infused into the business as part of the sale. Consider that a larger company could invest in your inventory without the need to go on a roadshow to raise money. So consider this a way to step up from a small company to medium-sized, or from medium to large.

Communicate, Communicate, and Communicate Some More

Now that you have made the decision to sell the company, what is the most important next step? Communicate with your team. Do it early and do it often. There will be things that you cannot communicate during the transition, but tell them everything you can. Once the deal is done, tell them before you tell anyone else. Make sure you tell your team how much you will be involved after the sale. Remember, they came to join your team. They have enjoyed working for you and are interested in continuing to work for you. If you are exiting the picture, be honest with them. Will you have time with the replacement? Let them know. Do you risk people looking for new jobs and leaving? Of course, you do. The question is, do you want to keep the respect of your team? Do you want to set your company up for continued success? Or do you just want a payday?

Keep in mind that 70% to 90% of mergers and acquisitions fail to achieve their anticipated strategic and financial objectives. This high failure rate can often be attributed to factors like cultural mismatches, poor integration processes, and unrealistic expectations. That’s according to the Harvard Business review. So how do you become the 10% to 30% instead?

Listen to the Team

Your team is going to have concerns and challenges when it comes to the change. Let’s face it, we all struggle with change; it is just harder for some of us. So, talk to your team about the change. Ask them what questions and concerns they have. How can you help them work through those concerns and answer those questions before you leave for good? Can you negotiate assurances for the team? There is no doubt that the buyer will want to make changes, but that does not mean that they have to make all of them.

I’ll include an unpopular opinion here. Before you agree to the sale, find a small group of trusted employees and ask them what would concern them about a sale. Let them know you are considering it. It may not have the same financial outcome for them, but it will affect their day-to-day work. They will appreciate an opportunity to provide input. Then you also have an opportunity to negotiate some of those items into your purchase agreement. Something to consider.

Consider reading:

Action Step:

Review your three to five-year plan. Is there an exit in your future? Who should you talk to on the team before engaging in a negotiation? Set up an informal discussion with one or two of those people today.

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