Following on an earlier discussion of owner-dependent firms, this week we examine a quickly...
An Unexpected Sale
Today I want to share a cautionary tale with you, so you can learn from the experiences of others and benefit from them. It’s about what can happen to a business when it’s sold in unexpected circumstances, and how you can avoid a similar outcome.
Don (not his real name) owned a thriving business here in the Upper Midwest. Don had built his business from nothing, and after twenty-five years built it to $50 million in revenue, 200 employees, and it was still growing, albeit slowly. Things were good for Don and his family, although Don’s wife wished he spent more time at his lakefront home.
Then tragedy struck: on the way to work one morning, Don didn’t notice the light was red. It was such a simple thing to miss on a drive he’d done thousands of times. And on that morning, a truck driver carrying a load of equipment struck the side of Don’s car at full speed; the driver later said that the car had come out of nowhere and he didn’t have time to brake or swerve.
Sarah, Don’s wife of thirty-seven years, was in complete shock when the police officers delivered the news. All at once she went from loving spouse to widow, and from wife and mother to President and CEO.
She was in no way prepared for this transition, as Don never discussed the inner workings of the company at home. Don’s team of executives was very supportive, and did their best to shield Sarah from the day to day workings of the business. But Don’s business was leaderless, and Sarah, knowing she wasn’t suited to or interested in running the company, recognized that selling the business was the best thing for her to do.
One of Don’s former colleagues recommended an M&A Advisory to engage. Although Don’s business was doing well, they estimated it was worth much less than Sarah thought it should be. One of the challenges was that Don, who built the company from nothing, was still intimately involved in sales, production, and operations. He worked incredible hours to be able to influence every substantial decision that took place, and while Don’s hard work had brought the company to this point, it in no way prepared Sarah or the executive team for Don’s sudden, traumatic departure.
With no one left who understood Don’s “secret sauce,” his company went from a top performer to a commodity.
The lesson here is straightforward and not new: the owner’s ability to grow the business is one thing, but it’s critical to grow it in such a way that if the unthinkable (and ultimately inevitable) happens, the owner’s heirs can make a quick sale for the full value of the business. This is harder than it sounds, as it requires the owner to move from decision-maker in chief (a necessary role early in the business) to a truly executive role, only getting involved in the highest-order decisions and leaving the rest to others.
Are you prepared for the unexpected? Take control of your business's future today. Contact me for a complimentary consultation to discuss how you can safeguard your business and maximize its value when the time comes to sell. Don't wait until it's too late. Act now to secure your legacy.