A colleague of mine talked about a recent deal where the company started to decline shortly after the buyer took over. This is something she and I have both seen far too often in owner-run businesses over the years.
Why is this happening? How can a new owner prevent this? I’m not talking about ailing businesses that are already in decline before a sale. Or cases where a new owner is simply over his head from experience.
I’m talking about good, profitable businesses being sold to seemingly capable buyers moving south quickly.
Big Mistake #1 – Thinking You Know What You’re Doing
Unless a corporate buyer has a wealth of experience in the industry of the business he is acquiring, the reality is that he knows absolutely nothing about how to operate it successfully. A buyer takes over a business and the role of someone (the seller) who is completely immersed in the business. They may not have been a great owner. They may not have built the business where a new owner thinks it can grow. They may not be smart in many ways. But one thing they’ve done is they have the guts of the company in their guts.
A new owner comes in and on day one they don’t even know how to turn off the alarm. Thinking that they can suddenly implement new ideas and strategies is madness. Get to know the company before implementing anything of any significance. Don’t look to make an immediate impact; that will come in time. Adopt a dummy mentality – an “I don’t know anything” approach is brilliant. Park your ego. Listen. To learn. once you understand how things work and what don’t, then and only then can you make your mark on the business.
Big Mistake #2 – Confusing issues with improvements
As a number one subset, it is impossible to identify potential improvements with great certainty until a new owner has a real “feel” for the business. Don’t confuse problems with improvements. Problems must be solved effectively and usually quickly; possible improvements should be evaluated. What a new owner thinks is a great idea may not be so great.
A home service business was sold and the business had been in existence for over 20 years. They had a good reputation with their customer base, who regularly commented on the personalized service the techs provided. They came out, assessed the problem, presented options and won many cases. Interestingly enough, the engineers used what many believe to be outdated methods. They wrote everything down and then called the customers with the quote. In fact, this was a meaningful attraction for the customers. They felt that the service was personally tailored to them. The new owner decided a week after the takeover to convert all work to tablets. Sounds good right? The problem was that the technicians in the field were completely confused. The transition was not smooth, employees were frustrated, customers were surprised and they both started to leave. While a conversion to tablets might have been a good idea, it certainly wasn’t wise so soon after a takeover. The new owner should have researched it more thoroughly, consulted the team, ensure there was adequate training in the palace and slowly roll it out in a test environment.
If there are problems in the company in the beginning, solve them. These are typically more urgent items, versus improvements that are important but need to be evaluated.
Big Mistake #3 – Forgetting the Two Most Valuable Possessions
The two most important assets in a company are its customers and employees. When a business is sold, the employees worry about their jobs and the customers worry about the product or service they are buying. The easiest way to put both at ease is to let them know you don’t expect any changes until you, the new owner, really understand the business and rely on their input to guide you.
The employees need to feel confident in their jobs and the customers need to see the entire transition as seamless. As with maintaining the status quo until you learn the business, make the transition smooth or unrecognizable.
Communicate with them often. Keep them up to date. Take them into your thinking. Get their feedback.
Big Mistake #4 – When Forgot Rules 1, 2 & 3?
Unfortunately, some collateral damage can occur after a business sale. This usually happens among the staff. I always warn buyers to form their own opinion of the employees, even if the seller wants to share their perspective with you. Give everyone a chance to prove themselves and be reasonable. At the same time, understand that some employees can’t handle a transition, or they create friction, or they just don’t fit right in with the owner. Either way, if one of the employees isn’t right for you or the company, do both of you a favor and let them go. Do it quickly and respectfully.
Big Mistake #5 – Rejecting the Seller
It always surprises me when a buyer tells me that he has told the seller that he no longer needs training after a few weeks. My answer is always the same: ‘You must be a genius to learn everything in 14 days?’
Whatever training and transition period you negotiate, make good use of it. Follow the seller like a puppy. Asking questions. The goal is to learn what they do every day. You may not do the same things, or you may not do them the same way, but learn what they do so you know what needs to be done. You may not agree with them, but keep in mind that they have filled the role that you will soon be taking over. Choose their brains. Make use of their knowledge and experience.
Hurry up and slow down
As a new owner it is normal and encouraged to be eager and enthusiastic. You want to put the staff on board and the customers at ease. The only goal you should work towards is to get to know the company as quickly as possible. As long as you don’t have a real “feel” for the company, you won’t be able to make important decisions, so don’t kid yourself. Get in. Be smart. Go grow.