From owner to employee
Generally any business owner has three possibilities for their business, 1 – failure, the most likely outcome by a big margin unfortunately but these days it should come as no surprise 2 – IPO, the dream of most founders is to take their business public on the stock exchange, strictly speaking this isn’t an out but that’s a subject for a different essay and finally, 3 – acquisition, of the successful outcomes for a start-up this is far more likely to occur than an IPO, let’s be honest.
Once an acquisition occurs, it can be a difficult time for an entrepreneur, essentially they made it, they took their idea and built a business successful enough to attract the attentions of a buyer. Now we all know that not all acquisitions are financially lucrative, but even if the business is making a loss and the buyer is merely agreeing to pay out debts and keep the business afloat, the founder has still made a business that is successful enough for someone to want to do this with, let’s face it NO ONE acquires a business just because they feel sorry for the owners, they buy it because they like what they see and can see the potential, even if it hasn’t quite made it yet. So as a founder, it’s a win!
Transactions are rarely without hiccups, but hopefully when it’s complete you’re happy with the outcome. Make sure you negotiate yourself an employment contract you’re happy with, a suitable salary, bonus and holidays, it will certainly not help the transition if you’re already unhappy with arrangements from day one and hopefully the new owners will understand this too.
Once this is set then comes the tricky part – still working in ‘your’ business but as an employee rather than an owner.
It’s a strange feeling and probably not one anyone is expecting when they give birth to their world changing idea. Depending on the terms of the transaction you may be morally and/or financially locked into continuing to work as an employee for your new boss(es) for a period of several months or a year or more.
Every founder should realise before the terms of the deal are agreed that regardless of what the new owners say or your intentions to keep working on your baby forever, it’s probably not going to work out as you want or expect. Generally new owners will want to run the business their own way and eventually with their own management team and more than likely, the original founders will be some of the first to go when it’s time.
This is understandable from the new owner’s perspective, the founders are the people that have driven the business to where it is and existing and remaining employees will always look to them for guidance and direction and so if a founder doesn’t like the direction new owners are taking with their business they can become quite disruptive either accidentally or more maliciously and so new owners want to prevent this. So letting the founders go first makes sense to prevent instability in the business if the direction changes or the founders become unhappy for another reason.
During the early period after the transaction, founders will need to continue what they’re doing but also be mindful that it’s no longer their business, and while the new owners may welcome their input on strategic or operational matters, ultimately it is with them that the buck stops and so they must do what’s best for their new business.
It’s a strange position to find yourself in and I don’t think I’m alone when I say it takes a bit of getting used to, you need to continue to do your best work but ultimately you don’t get the final say anymore and in some cases it might not even matter what you think.
To overcome this strangeness I think it’s important to keep reminding yourself that you still want to leave your successful business as a legacy, if and when you finally leave and so to this end it’s still important that you care about the business and that it remains successful under new ownership.
You should also be prepared for your ultimate exit and as difficult as it may initially sound start preparing yourself for succession. This process may be forced upon you or you may decide to expedite it, but you need to be ready for the day when you’re no longer indispensable!
I believe it’s important to be realistic about the amount of work you do in the business after acquisition, you should stop working 80+ hour weeks and start spending time with your family and friends again and probably thinking about your next adventure. It actually makes more sense for the new owners not to get used to you working unsustainable hours simply because they’re unlikely to get anyone else to replace you who will put in the same effort, and so it’s a reality check for them too.
Hopefully at the end of it all, you can chalk up the win on your inspiration board and move on to the next big idea, with more knowledge and experience to make the next business as successful or more so than that one.
I’d love to hear from other founders who have been through this and their experience on how things played out.
Serial tech co-founder.