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.
