Dr. Earl R. Smith II

Dr. Earl R. Smith II
Managing Partner, The Federal Circle
DrSmith@Dr-Smith.com
Dr-Smith.com

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The closing table is no place to finally come to terms with the fact that you are about to sell your interest in a business that you may have spend years building up. It is no place to come to terms with the fact that tomorrow morning you will wake up and either have no place you have to be or nowhere near the authority over the people you built into a team. Coming to terms with the facts of life may mean that:

• Your management team will look at you differently and to others for leadership
• Customers that you have spent years building relationships with may not jump to take your calls like they used to – nor will they call you when there is a problem
• Years of carefully reviewing budgets, leading meetings and planning the next move will be over
• You won’t be the big dog in the yard anymore
• Friends and business associates will look at you differently – you are over the hill, put out to pasture or wandering in the woods looking for a new path
• You will now have a boss to report to
• You spouse may be less than happy that you will be spending more time at home

These are just a few of the challenges you could face post-sale. Any of them can bring on potent emotions. And if they are concentrated in the brief morning that you have agreed to as for the closing of the sale, they can come upon you like a tsunami. The experience can be gut wrenching.

Working Through the Emotions: Whatever the reasons are, they are almost always connected to some very strong emotions. Humans are, after all, fundamentally emotional animals. Some of the founders I work with initially resist this suggestion. They want to get on with the process of selling out. Some get very defensive about the suggestion that their decisions will be primarily driven by emotions.

“So why are we focusing on emotions? Why aren’t we analyzing the company? What have my emotions got to do with it?” I get these questions and many similar ones all the time – particularly at the beginning of an engagement. My response is generally “because it is not the details of the company that are likely to sink any deal – it is your inability to pull the trigger when the time comes. Valuations will be generated based on similar transactions, term-sheets will be received that will reflect the value of the company to potential buyers, agreements negotiated that will protect your interest as well as possible; the legal process is well defined. Sure there are uncertainties in all of these areas but historically the biggest unknown comes from a seller who only at the closing table comes to terms with the fact that he is selling his interest in his company.”

Getting a company ready to be sold is an expensive and time consuming process that can have major negative effects – particularly if the founder gets to the settlement table and just can’t pull the trigger. Talk to any investment banker – particularly those who routinely represent the sell side of the process. (BTW, the best representation is widely seen as the ‘buy side’ – for reasons that will become clear if they already are not by now.) Their biggest nightmare is putting together a deal – doing the diligence – developing the book – arranging for presentation to prospective buyers – reviewing a term sheet – negotiating the terms – arranging the financing – working through the papers with the lawyers and accountants – getting to the settlement table only to have their client change his mind at the last minute. Sure they get their monthly retainer and that helps cover their costs – but investment bankers are not in business to collect retainers. They make their profits from the success fees derived from actually transacting a company.

So, the settlement table is no place to finally confront the daemons that are likely to upset the process. Decisions made under such duress are very likely to be wrong, messy and counter-productive. But how do you work through the emotions associated with selling a company? Here are a few suggestions:

• Take a Test Drive: It’s a simple idea. Take a sabbatical and simulate the life-after-sale that you think will be so satisfying. I have used this approach in a couple of engagements with very interesting – if diverse – results. The idea is simple – take some time off – ideally at least six months. Put your team in charge with orders to ‘work out whatever comes up and don’t bother to bother me’. And then sail off into the sunset and see how it feels. One client who tried this lasted less than two months before he realized that he really didn’t want to sell out – he had just had a couple of trying quarters. That realization saved the company hundreds of thousands of dollars and kept his team together. Another just kept on going. He extended his sabbatical and returned to negotiate a management buy-out with his team. It can go either way – but you need to know more than you probably do before you jump out of the boat into that trackless ocean.
• Find the Truth: Many CEOs end up with nobody to talk to about their decision to sell out – nobody, that is, who has no personal or financial interest in the process. Most ‘advisers’ that they talk to have a vested interest in the process going forward. So, here is a suggestion. Find somebody who will not buy your BS and self-serving crap. Spend lots of time with them talking about your plans to sell – why you want to sell – how you think things will be after the sale. One of the liabilities of leadership is that you tend to get surrounded by people who reinforce your visions. Find your most contrary friend and ask them to test your thinking. If you don’t have such a friend handy, find an adviser or mentor who will fill that role. Make sure that, in both cases, the individual has no interest in the issue being resolved either way. You want a sounding board to press you on what and why you intend.
• Develop a Post-Closing Vision and Test It: Try envisioning the world after the closing. Push you mind ahead to that time after the checks have cleared and the dust settled. Sometimes it helps to think about how you would spend your days. Would they come to look like your weekends? The first couple of months, a seven day weekend might seem a good idea but, after a few months, it might wear pretty thin. One of the expectations that commonly drive this process is that hobbies will become vocations. Founders who spent spare time with photography or playing golf might envision a post-transaction world in which there are many more hours for those pastimes – only to discover that, as a vocation, they are a lot more demanding than they were as a hobby. One client – an amateur photographer – took time off to spend time as an assistant of a professional photographer. In the end, she decided it was a better hobby than profession.
• Experience and Express Your Feelings: This is one of those times where the prescription ‘be open to and express your feeling’ is very good advice. None of the people around you will find themselves in your place. None of them will have the highly emotional experience of selling one of their ‘children’ – and that is going to feel like. They will all express frustration with your tendency to personalize the process. But the process is inherently personal for you. What they will probably not accept is the fact that, if you have not worked through your feelings about selling, there is a high likelihood that the company will not transact – that you will not be able to trigger the sale when the time comes. The toughest part is going to be recognizing your feelings as legitimate. They deserve careful consideration – as much as the income statements, balance sheets and customer base of the company.
• Experiencing the Abyss: Anybody who visited the Grand Canyon or been on the open ocean will know what this means. I remember my first time to the Canyon. It was so beautiful from the air and the vista was breathtaking from the hotel terrace – but the real power of the experience came when I stepped close to the edge. It is almost impossible to simulate this experience – it is almost impossible to experience the abyss that you will face post-closing. But working towards that experience prior to going to the closing table can help you maintain your equilibrium.

Coaching Can Help – If You Get the Right Coach

One of the benefits of coaching is these situations is that the coach has no vested interested in whether you transact your company or not. If you find the right coach – one who has gone through the process and has lots of experience coaching founders and entrepreneurs – they will be a big help in coming to terms with the process. Remember, it is not a matter of selling or not selling your company – it is a matter of doing what it is that you really want – what will make you the happiest – will result in a post-closing situation that will be a win-win for all parties – especially you. The right coach can serve as your ‘spirit guide’ – making sure that you work through your feelings well before the closing table. Good coaching can put you in a far more ‘proactive and focused’ frame of mind – perhaps even improving the deal terms. It can keep you from making serious mistakes and help you find the best way forward – to and through the closing process.

© Dr. Earl R. Smith II

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Related Articles:

• Helping Companies Adapt to Changing Times – Part One

• Mergers & Acquisitions: Thinking About Selling – Part I: Confronting the Reasons

• Moving the Ball

• Sea Change Brings Change

• Exit Strategies Under Current Conditions

• Exit Strategies Under Current Conditions – Part 2

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Dr. Smith is Managing Partner of The Federal Circle. The Federal Circle partners with teams and existing companies. We help them up their game and win big in the Federal space. We also arrange funding for acquisitions and expansion by acquisition. Our model is based on the belief that, if you select the very best and work with them in a highly professional and focused manner, the results will be truly amazing. He is the author of Amazing Pace: Turbo-charged Business Development – a book that shows how Advisory Boards can dramatically increase revenue. Dr. Smith is also the author of Dream Walk: Parables for the Living – a book of Raven Tales and exploration.

This entry was posted on Monday, November 23rd, 2009 at 12:51 PM and is filed under Advisory, Executive Coaching, Venture Capital. You can follow any responses to this entry through the RSS 2.0 feed. You can skip to the end and leave a response. Pinging is currently not allowed.