Before you decide to give up half your business to someone and become a hostage because they are willing to do what you aren’t (selling for instance), understand the ramifications for the long-term results don’t usually work out well.
Most common reason for a joint ownership I see, outside of inheriting the business that way, is that the first owner doesn’t want to sell. So they give up a substantial part of their business to someone who promises to do so. Then they don’t. And then it ends up in a stalemate because now your reluctant salesperson is an owner and there’s not a lot you can do.
+ In New York and South Carolina (two different instances), a reluctant selling owner gave 50% ownership of their business to an outsider because they were salesmen for a big corporation and obviously could sell. After the fact in both instances, the “salesperson” announced the reason they agreed to the deal is that they were “tired of selling and wanted to own a business. They presumably felt ownership precluded the need to sell.
+ Talking to two Texas printers and I was saying that an owner who hires someone to do what they refuse to do (sell for instance, again) usually ends up losing the business to the person who will do it (sell). One of the two smiled broadly at me and said, “That’s how I got my fifty percent.”
Even amongst families hostage situation don’t always work ….
+ Junior, who sold for a Fortune 500 company, came to work for the family business in California as a salesman earning $60k per year and was granted 20% ownership. Why $60k? He needs it for that is what he was making at his last job. Hum. Well, pay is a whole different issue, so I’ll ignore it now. Important here is that he announced after four weeks that he was really “burnt out” being a sales guy and wanted to do graphics. So, Mom and Pop agreed and now they have had a $60k per year graphic designer for the last five years who learned to be a graphic designer on their dime. And not a real good one at that.
You don’t even have to give up ownership to end up in a “hostage” situation ….
That’s where the owner may own the stock but doesn’t really own the business (customers). Usually this happens when we have a “really good employee.” Most often, that person is willing to sell or at least deal with the pesky customers and then sometimes take over other functions like production.
Often times are good when the really good employee offers to take on more and more responsibility to let us “rest” and focus on the “big picture.” And we give it up because we really don’t want to do it. Besides, sales are good.
+ One owner told me years ago that he didn’t want to be told to deal with customers. He just wanted to know how he could continue living at the lake house and earnings his $300,000 per year. Real fact is he wasn’t earning his $300,000; rather he was sitting out at the lake house selling the business to himself.
And business doesn’t remain good forever. At some point there is a downturn in sales and we wonder what we should do? Well, we should always be “seeking and keeping good customers.” There’s no returning to the producer stage for we have maximized sales by being a good producer.
+ Even good sales people fall into the trap of “serving” their customers without attracing new ones.
What should we have been doing to avoid the hostage situation?
LIke any business, if you need help in something like selling; hire them. Pay them a wage and, often a commission. But if they don’t do their job, they don’t get to keep it like any other worker. There is no need to give away half of the business to get a salesperson.
But just “hiring a salesperson” often doesn’t work either because you can never get “off the hook” until you sell the business.
As leader, you have to lead. You lead in production, you lead in finance and you lead in selling.
Boy, I could make a lot more money telling folks what they want to hear instead of what they need to hear.
In the beginning you go out and get customers. Often you become a good producer first. A good producer will begat customers especially if the competition isn’t a very good producer. But that will only take you so far. At you go, you add to production capacity. Sometimes that begats more sales.
When you get more customers than you can handle, hire someone to assist you with them.
Call that person “sales person.” Now the accounts are still “yours,” and you need to maintain contact with them reguarly. That’s easily enough done because sales person is your person who takes care of the details on the account. You maintain monthly or quarterly contact to make sure customers are happy (How are you doing? How is our team doing for you? Anything more we can do to make your job easier?). It can be done by telephone but face-to-face is preferred. When your sales person quits (and they will), the accounts are still yours and you introduce the next salesperson you have hired to assist you.
And, yes, there are easier ways to sell rather than harder. Even reluctant selling owners can learn to be a seller.
Stalemates caused by hostage situations…
Two Pennsylvania siblings were given the pie 50/50 by their parents who no longer are living. Concept was one would produce and the other one would sell. Today, some ten years after the transition, the seller is still not selling. Never sold when Mom and Pop were alive and, surprise, has never sold since. What does he do? Obfuscates. Takes on all sorts of “selling functions” such as watching the phones during lunch hours, delivering jobs and proofs, attending networking meetings where sales are not generated, estimates certain jobs and answers the phone. What’s worse, the producer sees that the seller is not doing their job, however, they can’t do anything about it. Why? Both own half of the business.
+ Numerous times we’ve seen this occur within the family. Junior is given the task of sales and locks into a couple big accounts. Now Junior is riding the wave with “sales to his accounts” representing up to half the total volume.
Either way this negatively impacts the eventual sale of the business …
Do you have someone inside your business who would object to an outside buyer? Object to the point where an outside buyer wouldn’t buy for they’d be afraid that the worker, family member or not, would take a walk as soon as they buy? Depending on your retirement plans you have two courses of action.
- Sell it to the insider at a price the insider will agree and most likely have to finance the business yourself
- Fix it now while there is still time
How do you fix hostage situations?
Depends largely on the situation. Institute good sales management procedures would be one possibility. Work to train others for specific tasks would be another. It is much like diversifying your retirement portfolio. Do you have an account representing 20% or more of your total sales? Focus on obtaining others so the big accounts aren’t so big or, in other words, grow the business. There are many possibilities.
But the bottom line is you have to be willing to do it. With that and some time, usually five years, you can change most anything to make your business desirable and marketable.
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At CPrint, we assist owners with internal transitions as well as help get the business ready for sale through improving performance. Should you wish to have a no cost or obligation transition conference with me about your situation, email me at tom@cprint.com. I’ll be glad to chat.
Happy Trails,
Tom Crouser
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