Transition Management
Overcoming unexpected challenges during the transition process
Happy Thursday,
Selling a company is a time for celebration but those few months after closing a sale may also involve unexpected conflict between buyers and sellers. Imagine selling your house but agreeing to live there part-time to help the new owners move in and get acquainted with the neighborhood. Lots of potential for conflict in this house example given the personalized nature of our homes!
Founders tend to have a similar personal attachment to their business, making it important to realize buying a company from the founding team may have unexpected twists compared with a general corporate acquisition.
Transition agreements are often included as part of a company acquisition as these provide a period of time when the prior management remains involved to transition operations and offer support to the new owners. When acquiring private companies it can be helpful to spend more time discussing the transition process and expectations as transition agreements tend to be more of a legal document.
Change = Conflict
Private company acquisitions often involve the original founders and their team selling the company after spending years defining procedures and developing policies for everything ranging from marketing to how expense reports are processed. During a transition period there are often adjustments made to company procedures based on how the new team operates. We often hear from founders how these little changes have the potential to become magnified during a transition due to unexpected emotional attachments. Similar to the housing example as suddenly the new owners start repainting or remodeling before the original owners move out.
When working with companies at the point of a sale, we ensure both teams acknowledge there will be differences in how the process is perceived. Spending time at the start of a transition period recognizing the selling team may have a degree of emotional attachment to the business reduces the possibility for unexpected conflicts to emerge. We often hear founders are surprised by the emotions felt during a sales process so it helps to have these recognized at the start of the transition process.
First One To The Fire
Launching a company and guiding it through years of challenges often involves quickly finding solutions to problems or not allowing issues to remain outstanding. Since founders have more historical knowledge and experience solving company specific problems, it becomes second nature to jump in and solve problems during the transition process. A founder may view this as being helpful to the buyers but instead it has the opposite effect.
A transition period should be a time when the buyers are allowed to take the lead in solving problems knowing there is a safety net of the original team still in place.
When In Doubt, Document It
Most management transition agreements between buyers and sellers tend to be broad and often do not include detail regarding how changes will be handled or which team will take charge in solving problems. It is impossible to describe every potential challenge but we advise both management teams to have an open discussion at the beginning of the process. Setting early expectations helps minimize stress on all parties and permits a smoother transition without unexpected interpersonal challenges.
Founder Investing, Conversations, Other Stuff
Our discussion above about helping founders during the sale process should resonate with most venture investors as early investments in a company should also include advisory support to management teams as the business scales. TechCrunch posted an article this week echoing why this approach becomes more important for investors during times of slower deal flow.
Earlier this week we also came across this article regarding how good conversations work. It’s a bit philosophical but the basic premises is to remain aware of how your conversation style may impact the listener. Similar to a company transition where one person’s approach may cause an unexpected reaction from someone else who has a much different perspective.
Thank you to all our new readers as our newsletter family continues to grow. If you know someone who might be interested in our discussions, let them know about us as we always enjoy having more smart readers join us every few weeks.
Wishing everyone a great weekend 👋.
- The Caymont Team