Last week I shared the first half of a case study wherein a business owner planned to leave the business to his employees. The owner completely arranged the transaction for the benefit of the company and the new owners – his former employees.
The Buyout Fails to Follow the Script
Two years after the closing of this transaction the new owners had decided to liquidate the company and sold it in pieces to various other organizations in the industry. What went wrong? The owner had failed to take into account the importance of the intangibles that he brought to the business, his innate leadership qualities, his creativity and most importantly his tolerance for risk. His managers had been excellent when working with him but they could not replicate those skills. Their inability to make risk decisions caused them to delay in a number of situations where expedient action was called for. Because they lacked the self-confidence of the founder, they could not will themselves through these hard times as the original owner had done many times in the past. Finally, no one was really the leader. The management team stopped being a team and became a dysfunctional set of factions. The owner had made a critical error in doing the transaction for the employees. He never allowed them to measure their own desire and appetite for risk. In fact, he had set them up to fail.
Succession is one of the most difficult outcomes for privately owned businesses to achieve. Owners must adopt a fiduciary role towards their employees. They should recognize the unique characteristics an owner must have to be successful. They must resist the temptation to simply hand a company to employees. They should create a scenario where the employees must show the drive, initiative and appetite for risk that any entrepreneurial owner must have to succeed. Doing this the owner will fulfill his fiduciary role and ensure the new owners have the greatest opportunity for success.
Do you have an employee succession success story? Please share it in the comments.