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Some of the best practical business counsel I received was when starting my first business.
Our attorney explained in clear terms that everyone will exit at some point—typically by choice or death. It was a sobering message as we were bright-eyed about the joys of setting up the business, which felt a bit like playing house, only now with a dark cloud over it.
I have always kept that message nearby and ready to share with business owners who need a little reality check themselves. In this era of buyouts, consolidation, and private equity, I find myself thinking about this message more and more.
The amount and speed of consolidation in healthcare and health insurance are staggering. With each new acquisition of a hospital, pharmacy, or insurance carrier, the public is promised there will be more options, better service, and lower prices.
Unfortunately, the reality is typically more process rigidity and higher prices.
Okay, but what does this have to do with culture?
Everything.
Your culture is the set of norms your team lives by. Think of it as:
Values + Behaviors = Culture
You can ignore your culture and allow it to develop randomly, or you can intentionally work with your team to develop your values and expected behavioral norms. The health and ethics of the organization come from the top. Through planning, communication, and behaviors, leaders set the standard for how the team should behave as well.
It takes courage to lead and make the right decisions. If you have a good culture, you must guard it vigorously to keep out the negativity.
A few words on where culture goes wrong:
- A weak and undefined culture runs the risk of transactional employees and clients, low morale, and an easy slope into bad decision-making.
- Process rigidity leads to hiding behind bad behaviors. “I was told to do it. That’s our policy; sorry, I can’t help you.” This is the opposite of healthy and sets up an organization that lacks care for the company, clients, and teammates.
- When numbers are your sole focus, you risk creating a cutthroat culture with low-loyalty employees.
Any of these scenarios can lead to poor decisions and increasingly questionable ethics. At this point, you can watch a new culture take hold, and “look the other way, it’s not my problem” becomes the new standard.
Back to the idea of exiting your business
Owners will exit their business for any number of reasons. A key factor to understand is the mindset going into the exit process.
Are you doing it because you are under some form of duress? Perhaps you can’t compete or attract talent, or maybe your bottom line has eroded, and your profit margin is nonexistent.
Or are you moving into an exit because you’re ready for it, and this is the prize at the end of a good run?
How you approach the exit will impact your choices. Think about your options:
- If you are planning ahead, internal perpetuation is a viable option. However, you must have a well-run organization and enough profit and cash flow for the team to buy you out.
- Maybe you find a buyer with the cash and the desire for a ready-made business.
- Merging with a local competitor is a common exit strategy.
- Selling to a large operation, such as a national broker or a private equity roll-up, is a popular choice.
One of those choices will likely be right for you at some point. “At some point” is the most important part of that sentence.
If you are nearing retirement or can see it on the horizon, considering and exploring those options is a good idea. However, if you’re in mid-career, it may not be the right move.
Either way, let’s discuss culture's role in this decision.
Who will fill your shoes?
I don’t know what your culture is like, but for the sake of argument, let’s say you have a strong, ethical, tight-knit culture. Your team gets along well and celebrates and supports one another through work and life’s ups and downs.
You’ve obviously worked hard to create this type of trust and camaraderie.
Now, let’s say you’re stepping away from the day-to-day and bringing someone in to run the organization. If that person is a crackerjack numbers guy but a total pocket square, you’re going to have serious trouble maintaining your culture with him at the helm.
People start to get frustrated, become disgruntled, complain, and lose enthusiasm for their work and teammates. If everyone sticks around in their roles, you have the same people, only they’ve become bitter, transactional, low-morale employees. If they leave, you’re on the hook for filling positions of once-loyal team members. Whether you’re bringing someone in to help you run your operation or handing over the reins to a new entity, the leadership role will make or break the team's spirit.
If you’re hand-selecting someone as your replacement, be clear about your organization’s purpose and culture during the selection process. Will the new person continue carrying the torch of your purpose and help your company grow in that direction? Or will they create a new purpose and take the company in a new direction? Hire first for culture fit if you want the former.
This is the same if you’re looking for an acquisition partner. What is their corporate culture? What direction are they taking the parent company? What level of local culture do they allow or encourage?
We have many famous examples to consider of what happens when you don’t hire a replacement with the same values who wants to take the organization in the same direction.
- Howard Schultz stepped down as CEO of Starbucks and had to step back in to refocus the organization when things got tough. Flush times can hide a multitude of issues, but during the 2007/08 recession, operations, satisfaction, and customer loyalty took a hit because Starbucks had lost its way with its Why.
- Bill Gates had a vision for where Microsoft was going from the day he started with Paul Allen in 1976. When Bill stepped down as CEO, Steve Ballmer took it in a different direction, obsessed with winning, numbers, and profits.
- Steve Jobs also had a big, long-term vision for Apple. When he was squeezed out in 1985, CEO John Sculley had a very different vision for the company. After further leadership changes, Jobs returned in 1997 and grew it into a beloved $154 billion company before his death in 2011.
When it’s time to sell
When you sell your agency, your company will be under new leadership and new direction—period. Even if you remain the local team leader, corporate sets the direction that you are now responsible for executing. Be very careful with your due diligence to understand the culture you’re entering and the motivations of the parent firm.
If you choose a company looking for its next private equity roll-up and your acquisition is simply a boost for the balance sheet, expect that all decisions will be made based on making the organization as financially attractive as possible. Your Why and culture will not matter—only your numbers.
Is that the environment you want to transition your team into? And is it the legacy you want to leave?
If you’re selling under duress and have no choice, take what you can get.
If you have time to plan ahead, think about your people and the culture you want to leave them with and decide accordingly. People will always be looking to purchase a well-run business with recurring revenue. Make the best decision for yourself and your team, and create the legacy you want to have.
Content originally published on Q4intelligence
Photo by deagreez
