My ancient website hasn’t received much attention in a while, so I finally got back in the saddle to share another family business tale from a few years back!
I have always enjoyed working with small to medium sized businesses. Of course, most smaller businesses are family owned, and sometimes families act like….families. Yes, shocking.
What happens in many family businesses is that expectations creep into the building that will need to be managed in a sale. Sometimes, the craziest stuff surfaces at the worst possible time – when you are trying to close a sale and put cash in the bank. What should be a happy event can easily be soured by unexpected employee entitlements and expectations. Read on….
There are lots of great books on selling family businesses. These books focus on how to get your house in order – create a solid management team, implement scalable systems, protect intellectual property, and have good financial records. What many of these books don’t cover are the employee expectations that can bubble to the surface.
How Do They Get There?
Many small businesses start out by hiring “friends of the family” (ugh!). These folks tend to work and play with the founders – another ugh! When it comes time to sell the business, these friends/coworkers (I like to call them “legacy warhorses”) sometimes think they have been promised ownership or that they’ll be taken care of. Make no mistake – this translates into….
“Big check at closing!”
However, with ownership focused on getting top dollar and managing family expectations, this is often completely off the road map. Do road maps even exist any more? Sure, these expectations can be headed off by a written equity plan (options, restricted stock, even phantom equity). But in my experience, most family businesses don’t give employees much, if any, ownership. Absent a formal plan, be prepared for the hurt feelings from the grumbling warhorses.
No Good Deed Goes Unpunished
A while back, I was involved in a situation where ownership wanted to be generous and share their good fortune with employees. This was a successful second generation family business. The family created a multiple six-figure bonus pool – not too shabby. However, by the time the pool was allocated out to “X” number of employees, no one received a bonus in line with their (outsized) expectations. And certainly not multiple six figures or seven figures! This resulted in grumbling, disgust, and hurt feelings, and few were happy. Ownership would have probably been better off had they focused awards on two or three employees (or had they done nothing at all).
This is a simple example of some of the bizarre dynamics that few family business owners want to address pro-actively. However, they crop up all too often, and they cast a dark cloud over what should be a happy time for small business founders – exiting the business to pursue new dreams.
What family business weirdness have you experienced in connection with the sale of a business?
We made a similar error during end-of-the-year bonuses. We paid all employees substantial bonuses, in some cases nearly 100% of base pay for top execs, AND took them and their spouses on a nice all-expenses-paid overseas trip. The trip was the error. The rest of the employees ran the company while the management team was absent, and they started complaining that they were doing the work while everyone else was out playing, on the company dime. That year, 2008, was the beginning of the end of that generation of employees. I ultimately had to fire them all, once they started stealing from the company.
Ouch….I can see how that could backfire. I recall you cleaning out the warhorses. They are organizational poison — things will never be the same for them, the old days are over, only gloom and doom moving forward. Glad you got that tidied up!