Ownership Transfer and Employee Security

employee-group-bwWhen we start planning for the sale of a company, many owners ask me about sharing information with employees. They are naturally concerned that an ownership transfer will cause their workers to seek more secure positions elsewhere.

This is true whether you anticipate an external sale to a third party, or an internal sale to employees and/or family. It usually isn’t the new owner who is feared, it’s the absence of the old. If you are the founder of your business, the problem is especially acute.

Most owners don’t harbor delusions of grandeur. They know that building a business is mostly hard work. You have to be smart, but not necessarily a genius. A reasonably intelligent person with the proper skills could likely do your job, especially if you’ve developed management talent throughout your organization.

Selling the business is also something of a self-fulfilling prophesy. If it really can’t survive without you, it isn’t saleable anyway.

Any ownership transfer takes some time. Marketing for and negotiating with a third-party buyer may encompass a year or more. Transitioning to internal buyers is usually a multi-year process. The timing of announcements to employees is driven by both external and internal considerations.

The external forces are defined as those that require cooperation from key personnel. If your managers are to be the buyers, the need is obvious. When you are selling to a third party, the cooperation of key management is usually needed to prepare listing and due diligence information.

If you are informing key personnel early in the process, it is also a good time to discuss “stay bonuses;” incentives for working through a post-closing period. We’ll discuss structuring those in another column.

In most cases, I recommend making a general announcement to employees as soon as a deal is certain. For an internal sale, that is usually when all the ownership acquisition documents are signed, even if the final transfer is several years away.

In an external sale, “certain” is a less definable concept. It is not certain when you sign a Letter of Intent (LOI). It probably isn’t certain when you sign the purchase agreement. After any necessary financing is in place, and the buyer has cleared all the contingencies to purchase, it is usually  time to make the announcement.

There are three “internal considerations” that drive the timing of a general announcement to employees.

  • Clarity: Presenting them with a fait accompli, including details regarding the new owners and timeframes, avoids unnecessary speculation about what might happen.
  • Control: As you disseminate the news to customers, vendors, bankers and other professionals, it will get out. You want the employees to hear the real story from you, not second- or third-hand.
  • Inertia: The longer the time frame between your announcement and the actual event, the more likely the employees are to settle in and take a “wait and see” attitude.

Handled correctly, an ownership transfer offers your staff more security, not less. Ask them if they thought you were immortal. Unless they are deluded, logic dictates that some arrangement was needed to keep their jobs after you moved on. As a caring owner, you’ve taken steps to secure their future.

Do you know a business owner who would enjoy Awake at 2 o’clock? Please share!

 

 

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Generational Differences and Identity Politics

Generational differences are a hot topic for organizational behaviorists. Is this a real issue, or is it just the current management fad?

“Never in history have we seen four generations together in the workplace.” That line starts thousands of articles and hundreds of presentations. A Google search of “four generations in the workplace articles” yields almost 2 million hits.

What is so different? It isn’t like we suddenly see people entering the workplace in their twenties, or staying active into their 70s. That has always been the case. Why is it different now?

We have seminars on generational differences; how Boomers should manage Millennials, and on how Millennials should understand Boomers. There seem to be few, if any, seminars on how GenXer’s work with others.

generational-gearsPart of this “phenomenon” is the truncating of Generation X. Sociologists (I guess that’s who labels generations) have decided that GenX was  a “shorter” generation than any other. Where previous generations are consistently of 20 years duration, GenX is less. Most measure it from 1965 to 1982, although I’ve seen some that claim it only applies to people born from 1966 (lengthening the Boomers’ reign to 21 years) to 1980 (starting the Millennials a full 5 years early.)

That would leave a whole generation that was 50% the size of those coming before and after it. The “baby bust” was dramatic, but statistically it wasn’t that dramatic. Shortening the generation makes a 20% drop in birthrates look like total collapse.

It is interesting that the Boomers have had three presidents (Bill Clinton, George W. Bush and Barack Obama), while the “Greatest Generation” (1905-1924)  had seven, controlling the White House for 28 years, from 1961 until 1989. The “Silent Generation” (1925-1944) had none.

If either Hillary Clinton or Donald Trump serves two terms, the Boomers would claim Presidential membership for 32 years. There might be another generation skipping event. That would fit with my musings about GenX as a Lost Generation back in 2012.

Does any of this matter in your business? It probably does, if only because we are so conscious of our generational identities today, and they are about to become a political football.

When I post articles about the generations, I’m taken aback by the vitriol in some comments. Nasty cracks are to be expected, but these run to a common theme. “You Boomers frittered away our birthright, spent us into bankruptcy and are leaving us (GenX and the Millennials) holding the bag.”

Wait a minute, The Boomers fueled the longest period of sustained economic growth in our history. As workers, they funded the retirement and medical care for two generations who had put little or nothing into the system. The social programs they paid for were clearly created long before 1989. Why should they take the blame for a system they didn’t create, and kept afloat for the last forty years?

Because the bill for those programs is coming due, and paying for it going to be a huge, long-term burden on our economy. Someone must be to  blame, and there is no satisfaction in hanging it on Grandma and Great-grandpa.

The youngest Boomers are turning 51 this year. We will be business owners for another fifteen to twenty years. In another three  years, roughly half of our workers will be Millennials.

The “Generational Differences” seminars that business owners need aren’t just about how to deal with employees who think differently and hold different values. We need some idea of how to deal with workers who are facing a sluggish economy and higher taxes, and who are being told that the blame rests squarely on the boss.

Do you know a business owner who would enjoy Awake at 2 o’clock? Please share!

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2 Responses to Generational Differences and Identity Politics

  1. Eugenia says:

    The boomers and the millennials should appreciate the strength, knowledge and understanding of each generation, by so doing an effective structure can emerge which could yield high valuable growth and benefits for both generation.

  2. Bradley Chilcote says:

    I believe it all comes down to empathetic listening on each generational level. This takes active listening to another level where you connect with another’s core emotional being, in addition to understanding the message. Seek first to understand and apply the platinum rule (treat others the way they want to be treated). Working with multiple generations also requires informed leadership styles: not the leadership based on the “seat of your pants”, but leadership that is adapted based on the study and application of leadership principles. Yes, different generations are products of their political, economic, and cultural environments; but this isn’t a bad thing. It has been established through many studies that the more diverse a team is, the stronger it is!

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Employee Gratitude isn’t Loyalty

Most of us have heard something like this expression of employee gratitude. “I’ve enjoyed working here. You taught me so much, and you’ve always treated me well. But the company down the road is paying a lot more for people with my skills and training. I’m sorry, but I just can’t turn down this opportunity.”

Our first reaction as an owner is usually “What? After all we’ve DONE for you?”

It can be frustrating to see your investment in an employee walk out the door. He or she knew little when they arrived, and you spent many hours and lots of dollars teaching them to be good at a job. You may have paid them more than warranted until they had enough experience to legitimately earn that salary.

It’s especially galling to lose them to a larger organization that doesn’t hire inexperienced people. Instead of investing over time, they just pay more for someone who is already at their desired skill level.

Small business is the training ground for most of the entry-level employees in the US. If a first job is in high school, or as a college student, it is probably somewhere where few skills are needed to be hired. The business teaches those skills, in return for an entry level wage.

new-job-gameboardOnce an employee has mastered the basics; showing up every day, starting on time, following instructions, they quickly move on to a “real” job. They begin seeking a career path. Most understand that the next step may take years instead of weeks or months.

They do, however, expect a next step. Mastering a position is satisfying for a short time. If that results in recognition through additional responsibility or higher production incentives; that works for a while as well, but it isn’t very long.

Why are you a business owner? At whatever point in your career you went into business for yourself, whether it was by purchasing a company or bootstrapping a bare bones startup, you were probably working for someone else at the time. Perhaps it was a bad employer, but maybe it wasn’t. You just wanted more than the job offered.

Where was your employee gratitude? If, like most of us, you went into business doing something you already knew; who taught you? Do you feel remorse for going out on your own?

Have you ever been in a company where no one has ambition? Where the employees do the same job for decades, no one advances and no one leaves? It’s awful, and I’ve yet to see such a business that could be considered a high-performing organization.

You want employees with ambition. The people who tackle a job with enthusiasm and are hungry to learn are the same ones who most want to advance. Unless you have very rapid growth, you can’t satisfy them all.

Retention strategies help. You can document a career path, demand promissory notes for training costs, or even offer equity in your company. If you are smart and lucky, you can retain the best of them for most or all of their careers.

But if you are hiring right, and teaching them well, many will move on to greener pastures. The same traits that make them good employees also make them a flight risk. Acknowledge it and counter it with tangible action, but don’t depend on employee gratitude to keep them around.

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One Response to Employee Gratitude isn’t Loyalty

  1. Mike Wright says:

    Spot On. If you want loyalty get a dog. If you want a good performing business hire people who are ambitious, responsible, hard working and learn new things fast. Have a process to get them productive as soon as possible. Then try to keep them engaged and challenged as long as you can. Keep making them as valuable to the company as possible and pay them proportionally. When they leave, you will feel the impact, but the ability to repeat these steps can be a very valuable CSF for a highly successful organization.

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Is Your Business Built on Individual Heroics?

Great employees are a wonderful gift, but individual heroics aren’t healthy for your business.

Someday, you will start thinking about leaving the business. Perhaps you already do. When you begin planning for your transition, what will your company systems sound like when you describe them to a critical buyer?

“Yes, we have a process for that. It hasn’t been updated, but Martha knows it like the back of her hand.”

“We really don’t have anyone cross-trained on that machine. Bucky likes to work alone, but it’s okay because he hasn’t taken a vacation in three years.”

“We always use Andy on that route. There are lots of traffic snarls, and he’s the only one who seems to be able to finish on schedule.”

You are getting the point. When an employee is especially productive or reliable, it’s easy to become dependent on his or her individual heroics. It’s one fewer function of the business that you have to watch.

heroic workersIt is ironic that the very behaviors that make your life easier appear to be threats in the eyes of a prospective buyer. You know that they could pose a problem, but they haven’t so far. Why fiddle with what’s working?

The answer is because individual heroics discount the value of your business. A buyer worries that key workers might not like his or her management style. As a new owner, he might be immediately approached for pay increases. Worst of all, if one of your heroes’ performance heads south, he may not be able to fix it, or even know what is happening.

For just a moment, look at your best employees as threats. Do you have a contingency plan for each? Can Martha’s process be documented so anyone can do it? Is Bucky just a loner, or is he trying to make himself irreplaceable? Can Andy’s mental map be duplicated by routing software?

And in case you didn’t realize it, “I can do any of those jobs myself. ” is the worst of all possible answers. Those kind of individual heroics will send the buyer towards the exit instead of you.

Dependable high performers are invaluable, but they are frequently protective of their status. Recognize them, but make it plain that that their work needs to be duplicable. (Although, “Of course, not at the level you perform.”)

If you don’t, start looking at them as liabilities rather than assets.

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Maximize Resources – Use What You Have

Every owner wants to maximize resources. The whole concept of profitability is based on doing the most with the least, but we often are trapped in the prevailing thought pattern about how things “should” be done.

building cranesWhen taking a car service to the airport in Denver on Friday, I noticed a new hotel under construction out on the prairie. There were 6 building cranes huddled around it like mother storks over a communal nest. (Or perhaps that is why we call them cranes?)

The construction had progressed to the second or third floor. Certainly using heavy equipment capable of lifting material over one hundred feet into the air wasn’t an especially efficient method, but I understand the logic. Placing the cranes at the beginning of the job saves time. Having six of them makes sure that crews aren’t idle while waiting for material. The builders are trying to maximize resources.

But I have to contrast the scene with what I’ve observed in China, where building seems to be at a breakneck pace almost everywhere. The demand for apartment blocks around the cities is extreme, and their construction is ubiquitous.

In China they build five or six apartment blocks simultaneously. There is one crane in the middle, and the buildings are arranged in a  circle around it. One mother stork; six nests.

It looked odd until I realized their logic. Labor in China is cheap and plentiful. Heavy equipment is expensive and scarce. The best way to maximize resources is to staff six projects at one time so the crane is always busy. If crews are idle, it is no big deal. Their time isn’t a major factor in the cost of production.

How do you maximize resources in your business? Do your salespeople sell all of the time; or do they, like many, spend half their time documenting what they did during the other half? Are you paying an employee $500 a week to perform a manual process when $50 per month software would free up half her time?

And how careful are you about your most expensive resource – your time? Do you have managers who can run the business from different vantage points, speeding up decision making and keeping everyone productive?

Or are you the crane in the middle, with everyone waiting until you can get around to them?

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