Surviving an Exit

Before you buy that place in Jackson Hole, make sure you’ve taken care of the people who’ve gotten you to the finish line.

Congratulations. That app you’ve built for pastry delivery has been acquired by Uber and you’re looking at a pretty nice payday. But before you pop the cork and start shouting from the hilltops, you’ve got a lot of work to do, and a company that still needs a leader. Once again, we turn to our expert, Jay Rosenzweig, for the answers.

Once you’ve signed the papers to sell your company to another, what should be your first, second, and third moves?

Bust open the bottle of champagne!

Ha! Just kidding, that’s about the worst thing you could do, although many people do start celebrating way too early. I’m going to assume that your legal team is in place and hard at work-a reasonable assumption, given that an acquisition is taking place.

Following that, you should establish both internal and external communication strategies, beginning with internal communication. Let’s go over that later.

Your next step is to get to know the company as its latest insider. Companies are “political beasts.” Get introduced to as many people as possible, and don’t limit yourself to the C-suite. In practice, lower level workers can have just as big of an impact on your operations. You should work hard to disarm people and create allies. Be empathetic as you work to get the new company to see your point of view.

Is it difficult to maintain a sense of business and work culture, once the news has, been digested company-wide that the business has been sold?

This question goes back to the previous answer. Are you communicating effectively with both the new company and your old company? Are you driving home the key points? Passing along the vital information? If so, you stand a good chance of keeping your team focused on business and should be able to maintain a good work culture.

And if you’ve developed enough allies and empathy over at the new company, they’re more likely to integrate well, and to appreciate the work culture you have built up. When one company acquires another, they’re often as interested in the new work culture and team members that they’re acquiring, as they are about apps, tech, and intellectual property rights. This is especially true if you have an effective communication strategy in place.

Is this when everybody, including your third grade teacher, comes out of the woodwork looking for a payday?

If you’re shouting from the hills about your fat check, maybe. And if you’ve built a reputation for throwing around money? Almost certainly. You have to be careful with the purse strings when you lock up a big payday. This is true for entrepreneurs, lottery winners, wealthy scions – and everyone else.

If you do decide to help out friends and family, set boundaries and make those boundaries known. For example, maybe you’ll help your nieces and nephews with college tuition; but only if they show great work ethic, get good grades, or achieve other impressive milestones.

On the one hand, you’re not a charity or a bank, but having money does offer you legacy opportunities. You earned this money and if you decide to give it away, you can find worthy opportunities to show compassion to those in need, and put the money to good use. As they say, they don’t bury you with money, so allocating a certain amount of wealth to be spread around while you’re still alive, is surely a good feeling and offers a lasting legacy.

What should you never do?

Abandon your old employees or tell them that this was all about the money. Listen, you didn’t get to the point where you could sell your company for mega-millions all on your own. Nobody ever does. It’s always a team effort. You need to let your team know that you appreciate them. That might include things like bonuses; but it’s also important to emphasize the deeper vision of your company.

Your employees need to buy into the broader purpose and strategy of your company, and they need to understand that the new chapter–the buyout–is an opportunity. Your team’s vision might have changed since the early start-up days, but it’s still there. Remind them of that vision.

What’s the best way to communicate that the company has been acquired?

Hold off on the mass email. That’s disrespectful to all the people who have helped you get this far. Instead, get ready to have lots of one-on-one meetings, often back-to-back. If your company is quite large, you probably can’t meet with everybody, but you should try to meet with as many team leaders as possible; they can then inform their teams in their own meetings. For remote workers, arrange to travel to see them to the extent you can, and failing that, schedule a conference call.

After you’ve gotten through the necessary one·on·ones, it’s time to send out that mass email, which everyone knows is coming. This goes back to the first answer, communication. This first email is vital so make sure you get the messaging right. Position the acquisition as an opportunity, for example, to fuel innovation and growth. Oftentimes an acquisition–from an acquiree‘s perspective means a cash injection, which lets a company grow even faster. Remind your employees about your company’s vision and work culture, and that your new partner is there to offer up an extra tailwind.

What is a founder’s duty to the rest of the company?

To be fair and just. Remember what I said earlier: You didn’t get here all on your own. You were backed by a team that helped you make your dreams come true. When possible, be generous to those who helped you along the way. Bonuses and other forms of compensation might be in order. When in doubt, err on the side of “living in abundance.”

And you should remain committed to your vision. Yes, you may need to make adjustments now that you’re joining with another organization, but if you’re building relations effectively with the new company, you may be able to preserve a lot of your old one. That way, your team will be able to grow into the new company in a more organic fashion.

What is the ideal “earnout” situation?

The ideal earnout situation is no earnout situation. If you’re building the right relationships with your acquisition partners, they’ll trust you to continue to perform well. And if you’re a stand-up citizen and entrepreneur, you’ll do just that. The price paid should ideally be based on your company’s value, not dangled like a carrot in the form of a of a payout based on your future performance.

If you must, make the earnout more oriented toward “extra” payout for strong performance. The base amount should ideally be one that you are totally satisfied with, so the added upside is extra. Ideally, you need to convince your acquirers that you plan to stick around over the long haul. And as you continue to supply good performance, there will be no reason for them to want you out on their end. This way, you can effectively remain in control, or at least have a substantial voice.

Jay Rosenzweig on Surviving an Exit

Surviving an Exit

"Never abandon your old employees. You didn’t get to the point where you could sell your company for millions all on your own. Nobody does.”