Peer-to-Peer: When your staff covet your company

Written by PROFIT-Xtra


In the Nov. 23 €“ Dec. 6 issue, an employee of a Montreal-based small business wrote to ask PROFIT-Xtra readers:

“I work at a small, specialized company owned by a 78-year-old man. He comes to see his operation once or twice a week for an hour or two when he is not traveling. My co-workers and I would like to buy the company from him, and have informally told him as much, with no response. We realize he’s emotionally attached, but the company is missing major opportunities by staying under his direction. Short of all of us resigning to make a point, can you make any suggestions on how to kick-start serious discussions with the owner?”

Reader responses

Tim Lobzun:

I suggest that the workers offer to buy 49% of the business now, with an option to purchase the balance to be reviewed annually. This way the current owner maintains a sense of ownership, and the workers have an opportunity to show their stuff without the huge debt burden of an outright purchase.

Eric Ustad:

I can’t help wondering why you and your prospective “partners” don’t simply develop and present a professional proposal to buy the company. But before you do, ask yourselves why you missed the “major opportunities.” Was it because of him or you? Be careful not to be insulting in your submission, and include an “easing-out” formula that allows him to keep his hand in as an advisor for an appropriate period. Also ensure that any insurance in force would continue following his planned departure.

Keep in mind that if he is also the founder, his attachment is likely more emotional than financial, and this needs to be reflected in any offer made.

Stephen J. Bronetto, ProMax Advisors Inc.:

First of all, ask yourself this: what are you really trying to do? Do you want to work on the new business opportunities for the company, or to own your own company?

It may be a good first step if you and your co-workers push a little harder for the other business model direction and prepare a solid business case for the owner’s review. If he is interested, then he will let you know; if not, then you will know this as well. At least you will have a reason for his reluctance to pursue your suggested direction. Your proposal will show your enthusiasm and your loyalty to his company and help him to attain his vision for his company. You would not want to make your good intentions seen as a challenge to his ownership.

Have you considered that the owner may not need the money, or that he is comfortable with where he is right now? If so, the question is, why should he sell the company? If it’s running well because you and your co-workers are doing a good job, then he may be content with that for now. You will need to answer this first before speaking with him again. But remember: he may simply be so attached to his company that you won’t get the answer you desire. Then you have to make a choice whether to approach him again or forge out on your own.

Buying a company can be extremely satisfying, but it can be disastrous. It depends on your upfront strategic plan. Caution, research and proper due diligence are your best allies. You will have to seriously look at the realities of ownership, creating your business strategies, costs and expenses, marketing, and sales directions needed to be an entrepreneur. Take the time to ask yourself if you and or your co-workers are ready to pursue this direction and do whatever it takes to succeed. Your answer might surprise you.

This situation happened to me and most other people I know who became entrepreneurs. When we couldn’t get the owner or the company to move in a business direction that we felt strongly about, and felt we could do it better, we moved on. We became entrepreneurs and set our own path to success. I hope you find yours.

John Shafi:

An informal or verbal hint to purchase is not worth the paper it’s written on. If you and your co-workers are truly serious, then action speaks louder than words. You’ll need to have a sense of what the company is worth. Do not spend much time or money on this part; just give it a best guess based on available information. Then if he says no, you won’t have put out any dollars needlessly. Can you all truly afford this venture? And more importantly, can you all coexist once ownership is part of the mix?

If you can do this without him financing you, then go for it. More likely, you’ll structure the sale so that some of his payment is in the form of shares, with a right of first refusal for you to purchase his shares upon his death or if he wants to withdraw completely. Letting him remain part of the company while sliding out of the driver’s seat would allow him to reap any rewards your company gains while still having a part in it. There are a lot of emotions that go with letting go of your child (company), so be gentle and remind him that his input as a shareholder and mentor will be greatly needed and appreciated.

I think the biggest challenge you will run into will be all of you working cohesively as a group. Everyone will need to understand that there still is a pecking order in the company that must be adhered to. You cannot have a machine operator or receptionist thinking and acting like they know what is best for the company. So make sure your shareholder agreement reflects what your firm will need in order to maintain stability. I highly recommend having an outsider or two on your board to give you unbiased advice and support at that level. It will help with the politics of emotions.

We did this 11 years ago in B.C. In our case, the owner was more than willing to move onto retirement. Twenty-five or so people came together, and he made it possible to do. Since then, we have more than tripled our sales and now employ upwards of 56 people.

You need to structure the deal so it’s a win-win. That means you might have to pay a little more for the company than what an investor who is driven only by numbers would. Do not beat around the bush. Roll up your sleeves and go for it!

Rollie MacInnis, Invictus Consulting:

Take the long view.

Meet with the owner to discuss what happens when he no longer has an interest in the company. Use an experienced business/succession facilitator who understands both points of view. Work through a plan of some kind. Then have regular meetings with the owner to discuss the current status of the plan and press for resolution of agreed goals and steps under the following categories (in order of importance to the success of the business):

  • Legal (ownership)
  • Financial (gain sharing, investment risk, valuation)
  • Operational/management (day-to-day operational control)
  • Personal/family (satisfaction of needs)

It can be great for both (all) parties if the successors can earn equity by relieving the owner of onerous daily management and operational tasks.

If the owner is not open to a succession process, including protection for successors in the event of sudden fateful intervention, then move on and find something more rewarding. Make it clear that the latter is the best alternative for successors if planned business transition is off the table.

Darren Pereira, Indusblue Inc.:

Objective: Buy out a sole owner of a business. Let’s call him Jack.
Strategy: Build a relationship with Jack in three months, create a sense of security for him and show clear goals moving forward under new management.
Challenge: Owner is 78 years old and seldom in the country.

Solution: The staff obviously do not have a great relationship with the owner. The first step is to build one. When you want someone to make a decision, you have to at least get to know them and their decision-making process. Everyone has one. The true challenge is finding it and then guiding that person through it.

It sounds like you have an owner who enjoys traveling, trusts only a few people and is a control freak. He is the decision-maker. But decision-makers often have influencers and gatekeepers, people in his immediate trust group when big decisions are involved. You need the buy-in of everyone to make this deal go through.

Start at the top and work your way down. First, if you really think great things can be achieved under new management, present the case from a high level directly to the decision-maker. On the days Jack is in town, you could take him out to lunch or dinner and broach the subject. Or you could pick a spot that you can travel to and offer to meet him for lunch or dinner there. You might not get a positive response the first time, but persistence will definitely land a meeting.

After meeting with Jack, set up similar appointments with the influencer and then the gatekeeper, letting them know how the previous meeting went and tell them what it was about.

Doing this will have prepared all the deciding parties and led them to make a decision in your favour. Or, at least, that’s what you should have done at each meeting with these people. In addition, you would have spoken about Jack’s compensation after retirement and his peripheral inclusion on the board. After all, you have to let Jack down slowly and not cut him off cold.

Kelly J. Ramsay:

First, you need to know whether the owner has a succession plan in place, and if so, what it is. He may be ignoring your overtures because he already knows what he is going to do with the company.

If that is not the case, you have two options. One is to organize a meeting with him and the other members of your group to formally discuss a possible purchase of the company. For that to succeed, you’ll need to clearly illustrate to the owner why you want to purchase the company and what your plans are to continue his legacy. If he likes what he hears, he may be willing to discuss it further and more seriously.

The second option is to contact a local business broker and have him or her approach the owner to see if he is interested in selling and have the broker act as an impartial third party.

Your best approach would be the first one, because it is more friendly and personal.

Regardless of which option you choose, you will definitely need to know how you will finance the purchase, and what terms and conditions you are willing to accept. You will also need to make sure that the owner is able to stay involved with the business for as long as he feels like it, since it is his baby and he will most probably not want to be completely removed.

Threatening to resign would not be a good move. He could call your bluff and decide to wind down the business and retire, leaving you and your group out in the cold.

For his answer, Kelly J. Ramsay will receive a copy of Breakout Strategy: Meeting the Challenge of Double-Digit Growth by Sydney Finkelstein, Charles Harvey and Thomas Lawton.

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Originally appeared on PROFITguide.com