Selling up and moving on is never easy, especially for entrepreneurs who have devoted so much time, energy and passion in building their business. It can often be a balancing act between the head and the heart. It can also be tricky for a buyer looking to acquire a branded business which is so intrinsically linked to a charismatic founder, as this will need to be carefully managed if the brand is under new ownership.
The process of selling can be overwhelming for entrepreneurs. The cast of players can be extensive, including corporate finance houses, lawyers, co-investors and members of the senior management team who will likely be required to assist in answering the buyer’s enquiries. Inevitably the process takes longer than the parties expect – it might be sensible to allow up to two years, depending on the size and complexity of the business.
A critical part of the process is getting the house in order. Owners who set up a business with a view to achieving an exit within an envisaged timeframe will need to grow them in such a way as to maximise value and attractiveness to a buyer. However, many entrepreneurs by necessity take short-cuts in the early days when time and budgets are tight.
This means that, when the time for sale comes, paperwork will need to be located and tidied up. And, in many cases, informal arrangements with the founder, such as personal use of assets or staff, will need to be properly documented or terminated, or risk complicating matters when negotiating a sale.
Complexities may arise where owners have used their name as a brand, as in the case of Karen Millen who is restricted in using her name for certain other businesses since selling her company. Similarly, in 2016 Kate Spade announced she had changed her name to Kate Valentine for a new business venture, having sold Kate Spade New York to Liz Claiborne Inc a decade earlier. Owners need to ensure that the implications of selling an own name brand are identified when negotiating the sale.
The sale process can be destabilising, so making sure that the right people – and only the right people – are informed at the right time is crucial for continuity. A lot of new visitors walking round the office and a sudden flurry of private meetings may raise eyebrows among the staff and create uncertainty. This can be particularly acute where an inspirational founder may be exiting altogether. Similarly, employees holding share options will be extremely keen to know what the sale will mean for them.
A key consideration for a founder is whether the exit will be a clean break or whether he or she will stick around in the business for a period post-sale. Often this is dictated by the buyer, especially where the founder is required to ease the transition, settle the staff, or remain publicly linked to the brand. A buyer may put some of the purchase price just out of the seller’s reach, contingent on the business remaining stable, hitting agreed targets or the founder staying attached in some way.
With all of these pressures, getting head and heart aligned is a challenge. And even when the sale goes through, the process of stepping back and letting someone else take control of the brand can be difficult for a departing entrepreneur.
But perhaps one of the toughest questions for a founder post-exit is what to do next: entrepreneurs rarely sit still, so after the novelty of relaxation dissipates, twiddling thumbs can quickly become itchy feet.
A version of this article first appeared in CityAM on 13 September 2017.