Is Your Company’s Culture Spooking The Buyers?

At the Emerging Markets Forum put on by the Smith School of the University of Maryland (my alma mater) many eye-opening points were raised about confusion and uncertainty of both parties in doing business together.

I came away with two conclusions:

• much of the friction (failure) is due to a lack of understanding the business culture by each side
• this applies equally well between seller and buyer here in the USA when owners are selling their companies.

Most of us who started a business have a collection of practices, processes, and procedures for operating the company and making sales that works for our company. They are a hodgepodge of what we have learned over time, best practices adopted/adapted, regulations/industry requirements, and what satisfies the customers’ needs. This collection, combined with how you and your employees go about the day-to-day tasks, comprise the culture of your company.

Do you serve the customer, or do you suffer the customer; do you have SOP or do you rely on an “everyone knows what to do” philosophy; do you trust your employees and customers or do you require extensive documentation and supervision/approvals? These and other characteristics reflect your company’s culture.

The culture of an organization is a contributing factor to its success and may be looked on as the oil which keeps operations and sales running smoothly. However, when that is not the case, you were there to tweak the practices and your company culture absorbs the changes and moves forward.

Enter a serious buyer.

Once the review of the financials and other documents about value of your business has shown that your company is a solid prospect for acquisition, the buyer will want to see the “Your Company How-To Manual” - the what, how, and why of running this business, making sales, and generating profit.

Of course there is no physical manual containing this information, but the buyer is expecting to see sufficient documentation about your business to understand on an applied basis how it operates.

Whether the buyer is from the same industry or comes from outside it, they will want to assure themselves that operations and sales practices and processes can continue without you.

This is where the confusion similar to that in emerging markets comes in play. The culture, operations, and sales – which have served the company so well over the years – has had a central element – YOU – as the hub of the wagon wheel. This structure is strong and works smoothly with the hub in place, but when it is removed – which is the effect of the sale – the structure is unsustainable...unless a replacement hub is available.

The buyer must be convinced that the company can run and prosper without you as the hub, and the loss of some or all of the key players on your staff. Spending time talking about the how and why of running the business can help dispel confusion and concern, to some extent.

However, the more that practices, processes, and SOP are documented, why principal tasks are done a particular way are explained, and how the customer relationships are built and maintained, the clearer the picture the buyer has of sitting in the big chair operating their new company. Offering stories which demonstrate how the culture fits in this picture in a positive way—for the Ritz Carlton, a story would be about empowering every employee to spend up to $X on their own initiative to address a guest’s complaint/concern, which results in one of the highest guest satisfaction rates in the industry. Such stories show the how and why – which reduces the mystery and potential barrier to completing the sale.

A successful sale is the culmination of finding a serious buyer, sound documentation, proven practices, processes, and procedures, a supportive culture, and illustrative stories that convey the what, how, and why of operating the company. A sale begins with preparation.

Your career as a business owner end game – The Final Frontier

Does Business As Usual Attract A Buyer?

There are a multitude of first things that need to be done when you take over in an organization as the new person – especially if you are at the top of the org chart.

When I was elected president of the board of a country club, I immediately talked with the key staff and department heads, influential club members, primary vendors, and community supporters to get a good view operations and the business health of the club. I also looked at the books and administration files as well. While on the walk-about, I shared my views and thoughts about governance under the new administration.

When I took over operations as President and CEO of the National Captioning Institute, a promotion from within the organization, I spoke with the key staff and department heads, board members, major clients, primary vendors, and the auditors. This gave me a broad view of how effective the operations were and gave others the chance to see me in this different role.

In both cases, most operations and administration elements were in pretty good shape, but there were several items that had slipped, resulting from the casual and comfortable nature of long-term relationships between staff and external resources. Like contracts which had expired but were extended by handshake between parties – works fine while the same players are in their respective roles. However, when that changes, there is no documentation of the current contract provisions, and the person(s) with specific knowledge are elsewhere.

In a similar situation, the standard operating procedures (SOP) for the organization most likely have changed in practice but not been written down – everyone knows what changed when it happened – so no urgency to document the changes, so the task of writing them down gets further and further down in the pile of things to do. The problem comes when the players change and specific knowledge of SOP goes out the door.

What I have found in the sale or purchase of a company, a division, or a product line, more often than not, it is these casual agreements and undocumented changes that delay or kill the deal.

Unless, or until, the operations and administration can be substantially documented, prudent buyers will not go forward, because there is no assurance that the informal, handshake deals will convey with the sale. What holds the buyer back is fear of a situation where a reasonable deal becomes nightmare due to negotiation conditions and agreements before the ink is dry on the purchase agreement.

When working with owners, before taking the business to market, an initial step is housekeeping - dotting the “i’s” and crossing the “t’s” to assure current documentation and contracts are complete and readily available for the buyer’s due diligence. This project also helps the owner bring into sharp focus relationships and resources so much a part of the operations that they are all but invisible. What has been disrupted by the Internet – how can we capitalize on a new approach?

Once this is cleaned up, the owner can work on developing materials which present to the prospective buyer the benefits of owning this organization.

Business as usual can have too many ‘just because’ elements, which will spook a serious buyer. Better to convert them to ‘here’s how’ before setting up the sales tent.

What lies ahead for the owner – The Final Frontier