A colleague of mine was recounting a recent deal where the business starting declining soon after the buyer took over. This is something she and I have both seen far too many times over the years in owner-operated businesses.
Why does this happen? How can a new owner prevent it? I am not referring to distressed businesses that are already in decline before a sale. Or cases where a new owner is simply in over their heads experience-wise.
I am talking about good, profitable businesses that are sold to seemingly capable buyers that soon turn south.
Big Mistake # 1 – Thinking You Know What You’re Doing
Unless a business buyer has a wealth of experience in the sector of the company they acquire, the reality is they know absolutely nothing yet about how to operate it successfully. A buyer is taking over a business and the role of someone (the seller) who has been fully immersed in the business. They may not have been a great owner. They may not have built the business to where a new owner thinks it can grow. They may not be savvy in many ways. But one thing they have done is they have the guts of the business in their belly.
A new owner comes in and on day one they do not even know how to turn off the alarm. Thinking they can suddenly implement new ideas and strategies is insanity. Before anything is implemented of any consequence, learn the business. Do not look to make an immediate impact; that will come in time. Adopt the mindset of being a dummy – an “I know nothing” approach is brilliant. Park your ego. Listen. Learn. once you understand how things work and what does not, then, and only then you can start to put your stamp on the business.
Big Mistake # 2 – Confusing Problems with Improvements
As a subset to number one, until a new owner has a real ‘feel’ for the business, it is impossible to identify potential improvements with strong certainty. Do not confuse problems with improvements. Problems need to be solved effectively, and usually quickly; potential improvements need to be evaluated. What a new owner thinks is a great idea, may not be so wonderful.
A home services company was sold, and the business had been around for 20 plus years. They had a great reputation with their client base who commented frequently about the personal service the techs provided. They came out, assessed the problem, presented options, and won a lot of business. Interestingly enough, the techs used what many believe to be antiquated methods. They wrote everything down and then called the customers with the quote. In fact, this was a meaningful attraction for the clients. They felt the service was personally tailored to them. The new owner decided one week after taking over to convert all the work to tablets. Sounds good right? The problem was the in-field techs got completely flustered. The transition was not smooth, employees were frustrated, customers were taken aback, and they both started to leave. While a conversion to tablets may have been a good idea it certainly was not prudent so soon after a takeover. The new owner should have investigated it more thoroughly, consulted with the team, ensure adequate training was in palace, and roll it out slowly in a test environment.
If there are problems in the business early on then solve them. These are typically more urgent items, versus improvements which are important, but need to be evaluated.
Big Mistake # 3 – Forgetting The Two Most Precious Assets
The two most important assets in a business are its customers and employees. When a business is sold the employees are worried about their jobs and the customers are worried about the product or service they buy. The easiest way to put both at ease is to let them know you do not anticipate any changes until you, the new owner, really understand the business and you are relying on their input to guide you.
The employees should feel confident in their jobs and the customers should see the whole transition as seamless. Similar to maintaining the status quo until you learn the business, make the transition smooth or unrecognizable.
Communicate with them often. Keep them up to date. Include them in your thinking. Get their feedback.
Big Mistake # 4 – When To Forget Rules 1, 2, and 3
Unfortunately, after a business sale there can be some collateral damage. This generally happens amongst the staff. I always caution buyers to form their own opinion about the employees, even if the seller wants to share their perspective with you. Give everyone a chance to prove themselves and be reasonable. At the same time understand that some employees cannot handle a transition, or they create friction, or they simply do not mesh well with the owner. Whatever the case may be, if one of the employees is not right for you or the business, then do both of you a favor and let them go. Do it quickly and respectfully.
Big Mistake # 5 – Dismissing The Seller
It is always amazing to me when a buyer tells me they told the seller they do not need any more training after a couple of weeks. My response is always the same: “You must be a genius that you learned everything in 14 days?’
Whatever training and transition period you negotiate, use it well. Follow the seller around like a puppy. Ask questions. The goal is to learn what they do every day. You may not do the same things, or you may not do them the same way, but learn what it is they do so you know what must be done. You may not agree with them, but keep in mind they have been doing the role you will soon takeover. Pick their brains. Leverage their knowledge and experience.
Hurry Up And Slow Down
As a new owner it is normal and encouraged to be eager and enthusiastic. You want to get the staff on board and the customers comfortable. The only target you should works towards is to learn the business as well as you can as quickly as you can. Until you have a true ‘feel’ for the business you are not capable of making any major decisions so do not fool yourself. Get in. Get smart. Get growing.