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Afterlife for the Entrepreneur: The ReSET

When selling their company, entrepreneurs put all their energy on getting the deal done on the most favorable terms possible. As mentioned in last ReSET, the odds are that the buyer will impose an earn-out or similar deferred payment, in part to ensure the entrepreneur’s engagement after closing. But what attention has been given to the terms of that relationship?

Grudging Partners. In most deals, little thought is given to the working relationship between buyer and seller after the closing, or if there is attention given, it’s at the midnight hour as the deal closes. Sure, an employment or consulting agreement is negotiated and perhaps some mechanics around role and time required. Rarely is there a conversation, yet alone an agreement, before closing around how buyer and seller will actually work together after the sale.

Leveling Expectations. Buyers and sellers have to ask of themselves and, equally importantly, of each other, these basic questions: 

  • Is the seller’s continuing role strategic, operational or transitional? Obviously the buyer drives this decision but it’s critical for buyer and seller to get on the same page regarding this role – sellers run the emotional gamut, from trying to run their former business as if the sale never happened, to checking out entirely - nothing leads to dysfunction faster than not having this conversation before closing.

  • What role will the seller have in managing his/her former team? The buyer expects loyalties with former employees to run deep, but it needs to ensure that whatever leadership structure it desires after closing isn’t compromised by an open channel with the seller; also buyers often overlook that there may be issues between the seller and his employees that surface after a sale, from disappointment in not sharing in the sale proceeds, to relief in getting out from under the seller’s thumb.

  • What involvement will the seller have in decisions? Like it or not, sellers will have an opinion, often at odds with the buyers’, on how to handle any given issue; most likely, buyers will be doing things differently, so allowing seller input while setting boundaries around decision making is critical.

  • Who will the seller report to / interact with? The seller isn’t the CEO of the company anymore; for the first time in years, the seller now has someone to report to (or at least someone different than before), as well as a change in who they oversee / direct; old habits are hard to break particularly if not identified and addressed.

Culture Wars. Negotiating the deal can be the easy part of the exit game compared to how seller and buyer sort through working together after the closing.  The paradigms couldn’t be more different. The buyer has a vision for where the company can head, how to refine its culture, how to execute, and often how to reset the team. For the seller, every change made is a change he disagrees with, never thought of, or couldn’t execute himself. Complicating matters, someone else now makes decisions which directly impact the seller’s payout. Having thoughtful discussions on these relationship issues and reaching a shared consensus on the seller’s role after closing can help mitigate these culture wars.

This article originally appeared CityBizList. Reprinted with permission.

Read other articles in this series:

Entrepreneurs: The Exit - Game On

Afterlife for the Entrepreneur: The ReSET

Bots Gone Awry: What Businesses Can Learn

The Curse of the Elevator Speech

 

Copyright © 2017 Womble Carlyle Sandridge & Rice, PLLC. All Rights Reserved.

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About this Author

Newton B. Fowler, Transactional Corporate and Securities Attorney, Womble Carlyle, Law Firm

With over 25 years experience representing companies and investors in a wide range of transactional, corporate and securities matters, Newt’s background and experience, both as a lawyer and entrepreneur, gives him a deep understanding of business needs and enables him to help clients focus on what matters and make informed decisions.

Newt’s practice includes all aspects of business planning and advisory services, private equity and venture financings (for both funds and issuers), mergers and acquisitions, joint ventures and complex commercial...

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