11
Telling Management
It was well after 5:00 p.m. by the time Alex returned from his meeting with Peggy, and the Stapleton Agency was still a hive of activity. Alex felt like an unfaithful spouse returning from an encounter with a lover as he mingled with his staff.
“Hey, Angie, how was your day?”
“The team’s doing well. We’ve closed two deals and have scheduled nine new appointments this afternoon. The guys are staying late because I promised them drinks were on me if they could schedule twenty appointments in a single afternoon.”
Smiling at how much Angie enjoyed motivating her flock, Alex sauntered over to Rhina’s office, expecting her to be gone for the day. Rhina was still in the office and meeting with one of her account directors on the Natural Foods chocolate milk assignment.
Rhina saw Alex approaching and waved him over. “We found out today that if Natural Foods were a famous Hollywood star, they would be Sarah Jessica Parker,” she said with a smile.
“How is my friend Ziggy doing?” Alex asked.
“She’s great and says hi.”
Alex continued his tour and saw Chris at his desk proofing one of the logos that was about to go to stage five of the process. This surprised Alex less, because Chris had been working late for the past four days.
“Don’t sleep here tonight,” Alex said jokingly.
“I won’t. We’re just about finished for the day,” Chris said optimistically.
Alex felt a pang of guilt as he walked back to his office. His staff was working well after 5:00 p.m. while he had spent the day contemplating the sale of his business. Alex knew he would be the only one to gain financially from the sale of the Stapleton Agency, and somehow that didn’t seem right.
It was unusually cold for the first week in April and Alex stuffed his hands into the pockets of his raincoat as he jogged from his car to the offices of EMG Capital Partners. He was meeting with Peggy at her office to discuss the teaser distribution.
She began with a summary of their progress to date. All twenty-three companies short-listed had been contacted. Seven companies had declined, saying they were working on other deals, while four companies had requested the Book and agreed to sign the NDA. Peggy was waiting to hear back from the remaining twelve companies.
“Great progress,” Alex said.
“Yes, we’re happy with the reaction to the teaser so far. It’s still in the early days, but so far so good.”
“What’s the next step in the process once the Book has been distributed?”
“We need to schedule management presentations with the interested parties.”
“I’ll need to meet with these people in person?”
“Yes.”
Peggy sat quietly, considering whether it was the right time to raise a delicate issue. Her rapport with Alex had been good so far, so she decided to proceed.
“Alex, as part of the management presentations, we’ll need to involve your management team. It’s important for a potential buyer to see the next layer of management who will be responsible for the business if and when you leave.”
“If I tell them I’m thinking of selling, I have no idea how they’ll react. I mean, they helped me to build our business. They put their heart and soul into our success. There’s no telling how they’ll react when I tell them I’m selling out.”
“You’ll need to tell them sooner or later. And I’d recommend sooner. Even if I can convince a prospective buyer to meet with you on your own for the management presentation, eventually they will want to meet your team. Plus, as more people get the Book, despite the NDA, the higher the odds are that one of your team will find out. I’m sure you’d rather tell them directly than have them find out some other way.”
Alex left Peggy’s office wondering how to tell Angie, Rhina, and Chris that the guy they had placed their faith in and worked so hard for was about to sell out to the highest possible bidder.
Ted was immersed in something at his desk as Alex arrived. Alex shared the week’s sales numbers and gave an update on his progress with Peggy.
Sensing there was something else on Alex’s mind, Ted asked, “Alex, you seem a little introspective today. What are you thinking about?”
“Peggy thinks we’re going to have three or four companies interested in making an offer, and the next stage in the process involves management presentations.”
“That’s great news.”
“I guess so, but Peggy thinks each of the bidders will need to meet with Angie, Rhina, and Chris, so I’ll have to tell them I’m thinking of selling the business.”
“That’s a delicate conversation. What are your biggest concerns?”
“I feel guilty. I think they’re going to look at me and resent the fact that I’m cashing in.”
“Alex, I understand the way you’re feeling. I felt the same way when I sold my first business.”
“And how did your employees take it?”
“At first they were a little surprised, but after they had time to process the news, they started to warm to the idea.”
“They actually liked the idea?”
“Yes. Working for a small business can have advantages, but the possibilities for career advancement are limited. They look at the highest rung of the ladder every time you walk into the office and know that as long as you own the business, they can only ascend so high.”
“I get that they might see career opportunities, but it’s hard to integrate two companies, and there are always redundancies . . .”
“Merging two companies can be a challenge. However, there are also a lot of opportunities that emerge when a big company swallows a small one. Ambitious people want to paint on a bigger canvas. Big companies have big budgets and important projects, and operate on a level of professionalism that your best people will enjoy. If they play it right, Angie, Rhina, and Chris could benefit from some career mobility if you are acquired.”
“They may see opportunities, but aren’t they going to be jealous that I walk away with a check and all they get is a new boss?”
“Alex, you’ve worked hard to build the Stapleton Agency. You took all of the risk, and, for better or worse, capitalism rewards risk taking. It was you who trudged up to MNY Bank every other day groveling for work. You were the one who lost sleep every time Mary Pradham called. It was your home the bank would have taken had you defaulted on your operating line.”
“But I’d still like to find a way to let them benefit financially if we are acquired.”
“Fair enough. Keep in mind they will each benefit personally if a strategic buyer acquires you, because the acquirer will come with strategic assets—like offices in other cities and investment dollars—that will make it easier for Angie, Rhina, and Chris to reach their personal objectives and corresponding bonuses. They also have a long-term incentive plan that will pay out at higher levels corresponding with their higher bonuses.”
“Maybe I should throw in some stock options as well to sweeten the deal for my team. They’ve been with me for a while.”
“Your intentions are admirable but misguided. Stock options will further complicate the process of selling your business. You’ll have to draft a shareholders’ agreement. Minority shareholders have rights. You will be morally, and to some extent legally, required to keep Angie, Rhina, and Chris in the loop as you review offers. Selling your business is hard enough. You don’t need three other opinions at the table. My advice would be to keep it clean and give your management team a simple, one-time cash bonus if you successfully sell your business as a thank-you for helping you with the management meetings and their dedication to the business. That way you’re giving them a cash incentive to participate in the
TED’S TIP # 17
Don’t issue stock options to retain key employees after an acquisition. Instead, use a simple stay bonus that offers the members of your management team a cash reward if you sell your company. Pay the reward in two or more installments only to those who stay so that you ensure your key staff stays on through the transition.
management meetings and sharing in your rewards. But I wouldn’t get carried away. They’re already benefiting from the chance of career advancement and a higher probability of achieving their personal bonus targets and corresponding long-term incentive plan.”
Alex left Ted’s office feeling better about the prospects of telling his management team.
A meeting with Angie, Rhina, and Chris was arranged for the last Friday in April. Alex was not one for early morning meetings, so his leadership team was already buzzing about the possible reasons for the meeting.
He greeted his team and was surprised at how nervous he felt. Alex had made important presentations to larger audiences full of people he didn’t know. He was about to present to just three people he’d known and worked with for more than a year, yet he was noticeably nervous.
“Thanks for coming in early for this session. I wanted to start early to ensure we don’t get interrupted by the rest of the team. I’ve been spending a lot of time out of the office over the last few months to plan the next stage of our growth as a company. I think you guys have proven that we have a scalable model for creating logos. We’ve done well here in town and I think we can do even more if we start to expand geographically.”
The team sat up in their seats, proud to be working for a successful, growing company and excited about the prospect of new locations and growing the business.
“It’s become clear to me that for us to get to the next level, we’re going to need a partner. A company with deep pockets and a broad geographic footprint.”
Alex let his last comment settle in before proceeding.
Angie spoke first. “So you’re selling the business?”
“I’m exploring the idea, yes.”
Alex went on to position the sale in the context of what it would mean for Angie, Rhina, and Chris. He explained that, with the right acquirer, there would be the possibility of career advancements for each of them and that their personal objectives should become easier to meet. He also promised them each a $10,000 bonus as a thank-you if the company was sold.
The team was silent for a moment.
“Alex, I think this is a great step for you. I think we’ve all known for a while that you were planning to sell,” said Chris.
“You did?”
“For sure,” said Rhina. “You’re an entrepreneur. You like the start-up and the variety. But we’re beyond that stage now, and frankly, we don’t need you as much anymore. Like Chris, I’m really happy for you and will do what I can to help.”
“I don’t think it will come as a surprise to anyone in this room that I’m ambitious,” said Angie. “I would enjoy building an even bigger team and operating on a bigger playing field. I agree with Chris and Rhina—I’m happy for you and I think you’re making a good decision.”
Alex was stunned.
He couldn’t believe how much he’d been dreading telling his management team. He felt indebted to each of them for how positively they had reacted to the news. That night, he drove home feeling ten pounds lighter.
