Business Owners: What Are You Running Towards?

By Tom Zucker, EdgePoint Capital

A seasoned business investor once told me that business owners are either running away or towards something. He clearly stated that he avoids owners running from something and endears himself towards those with a strong purpose towards their next chapter.

Business owners have a defined purpose, relationships that are clear, and a place to go to be significant. The simplicity of their working relationships is peaceful and comforting. As an owner ages and contemplates business ownership transition this delicate balance becomes disrupted. The ability to identify the business owner’s next chapter is often elusive.

As advisors to closely held businesses, we have seen a variety of “Next Chapters.” While there is no absolute right answer, we have found certain choices to be better than others. These answers can be grouped into three distinct categories:

Still Enjoy The Game

A business owner often approaches us to sell their business to monetize their life’s work. They desire to reduce their commitment to working and the daily pressures. After several months of playing golf, traveling, and reading books, the owner emerges with the realization that they still enjoy the game of business. They have developed significant skills and have a great sense for the game. This group of business owners are often found considering the following activities:

Invest in Diverse Ventures: Explore various industries or startups for investment opportunities. This could range from tech startups, business buyouts, or even real estate investments, depending on personal interests and financial goals. We often find investing small amounts of money behind an entrepreneur enables the owner to share expertise in a leveraged manner.

Mentorship and Consulting: Share expertise and experience by offering mentorship or consulting services to budding entrepreneurs or existing businesses seeking guidance. Board of directors or board of advisors are wonderful ways to provide insights. Many owners may not realize how much business experience they have amassed over the years.

Angel Investing: Become an angel investor, providing capital and mentorship to early-stage startups, potentially fostering innovation and economic growth. The ability to research and learn about new technologies or business ideas is exhilarating. Reliving the excitement of your journey without the pressure and capital constraints is extremely rewarding.

Life Beyond Business

The entrepreneurial journey is all consuming and absorbs some of the best years of a business owner’s life. The trade-offs a business owner makes are often unreasonable. I once had a CEO of a successful business state his biggest regret was that he missed his children growing up. This is a steep price to pay for business success.

The sale of their business represents a chance to focus on family, friends, and other pursuits. This is a great time for the seller to reflect on what truly matters outside of the business world. This could be pursuing a new career, traveling the world, or dedicating time to hobbies and interests. Identify the passions and set goals accordingly. Crafting a fulfilling post-sale life involves more than just financial considerations—it’s about finding purpose and fulfillment beyond business success. The following are a few activities that business owners who value life beyond business consider:

Travel and Exploration: Take time off to travel and explore different cultures, gaining new perspectives and inspiration for future endeavors.

Family Time and Relationships: Dedicate time to strengthen familial bonds and relationships with loved ones, nurturing connections that may have been impacted by the demands of entrepreneurship. Sometimes just being an outstanding grandparent and part-time babysitter is the right answer.

Focus on Health and Wellness: Prioritize health and wellness by engaging in activities such as fitness routines, meditation, or holistic retreats to maintain balance and vitality.

Desire to Be Significant

We all value to be significant. However, some people need to feel important and contribute to their communities. The power that comes from being in-charge of an organization, club, or community association is what some owners choose to focus on post-sale. Their leadership and organizational skills are highly valued by civic organizations. The following are a few activities that owners with a continued need for significance consider:

Start a Foundation or Charity: Utilize newfound wealth to give back to the community by establishing a foundation or charity focused on causes close to the heart. One of our past clients generously donated his sale proceeds to help build 20+ churches across the world.

Personal Development: Invest in personal development, whether through further education, learning new skills, or pursuing hobbies and passions that were previously put on hold. A doctorate degree in a new and interesting area could be the motivation needed for the next chapter.

Philanthropic Initiatives: Support philanthropic initiatives by funding projects aimed at important social causes, civic missions, and cultural preservation. The list of people asking for money will reach an apex post-sale, but the challenge is to balance time with capital.

Selling a business is a monumental milestone, often the culmination of years of hard work, dedication, and strategic decision-making. The challenge is to approach the next chapter with as much vigor as you did to create your masterpiece business. The options are endless, but the most important element is to ensure that you feel engaged and are running towards something of importance to you.

 

 

© Copyrighted by Tom Zucker, President of EdgePoint Capital Advisors, merger & acquisition advisors. Tom can be reached at 216-342-5858 or on the web at www.edgepoint.com. Tom Zucker is the President and Founder of EdgePoint Capital Advisors. Tom grew up in a multi-generation family business which drives his passion for serving family held business market. He has advised thousands of businesses during his career.

WHY Greed IS Good.

By John Herubin, Managing Director

When the fictional character Gordon Gekko uttered the memorable line “Greed is Good” in the 1987 movie “Wall Street”, he proceeded to illuminate several examples where his premise is apparent in the business world (worth a first or second watch). But those who have seen the movie know his comments were disingenuous and his intentions reflected “greed” as more closely aligned with one of the purported traditional Seven Deadly Sins.

After having been involved in the M&A world for over twenty-five years, I can confirm that greed certainly exists in many circumstances. Taking a closer look though, I’ve come to realize that greed, in some situations, might have a positive outcome if there are good intentions behind it. Let me share with you several examples:

  • We represented a 100-year-old family business that was down to the last two active cousins. They received an unsolicited offer to sell the business for $13MM. They confided to their financial advisor that if they could bump it to $15MM, they would accept the offer. The financial advisor contacted EdgePoint for an informed market valuation for comparison. We believed the business would be attractive to multiple buyers at $25MM. We were hired to run a competitive sale process that ultimately yielded a value of more than $35MM.

At the closing dinner celebrating the consummated transaction, I asked one of the cousins if he was pleased with the outcome. He said that the business had been successful for many years and had provided him with a comfortable lifestyle that would not be meaningfully affected had the company sold for $13 or $35MM. What was meaningful though, was the ability for him to take the additional sale proceeds and endow a chair at a medical college that would study the rare neurological disease that afflicted one of his close family members.

  • Another scenario involved our representation of a second-generation company that turned out to be even more attractive to the buyer market than we anticipated. A bidding war (we like those) ensued that resulted in 2X where we originally valued the company. When we realized that we were getting to the top of the market in value, we asked the owner for permission to make one last request of additional proceeds from the lead buyer. He agreed and we were able to procure additional value from the ultimate buyer.

After closing the deal, the owner asked that we refrain from publicizing the transaction. He wanted to personally announce the deal to his employees at a large gathering he was planning (many of his key employees and managers already knew). At this meeting the owner, dressed as Santa Claus, handed checks to his employees amounting to $5,000 for every year each employee had worked at the company. Truck drivers, mechanics, administrative staff, and salespeople, among others, who in many instances had been working for the company for over twenty years, were said to be weeping. This generous show of gratitude was going to enhance retirement savings, help put children and grandchildren through college, pay off mortgages, and satisfy medical bills.

  • Lastly, we are aware of an owner who grew a very profitable business out of the trunk of his car over several decades. Due to a variety of circumstances, he and his family decided to sell the family business. Despite the business’s abundant success, the founder lived an admittedly frugal lifestyle. Several of his children were active in the business and attested to their dad’s notorious frugality (a characteristic of many who grew up during the Great Depression). Upon selling the business for more money than he ever imagined, he “retired” to a new career as a philanthropist. He never forgot his meager roots and instilled that same sense of gratitude and giving back to the community in his children. The founder died suddenly and instead of taking their inherited wealth and living an extravagant lifestyle, which the wealth would have easily afforded, the children decided to honor their parents by establishing a family foundation. This foundation not only will support the charitable causes important to the founder and his children but is also being used as a tool to educate and involve the third-generation beneficiaries as stewards of the legacy of caring and community investment established by their parents’ grandfather.

The prerogative of the capitalist and perception of many regarding successful business owners is that they will seek the maximum amount of proceeds possible from a sale to indulge in their own materialistic desires. I’m sure Gordon Gekko would have been proud had this happened.

Instead, these individuals demonstrated selfless caring for others. These situations illustrate how ordinary people can achieve extraordinarily impactful outcomes with a giving heart. These selfless acts of generosity and kindness are often done with little fanfare or recognition.

Using a skilled and experienced investment banker can be greatly beneficial for maximizing value to achieve whatever financial and post-sale goals you have, greedy or not.  It’s been incredibly gratifying for us to know that these acts do occur, and our privilege to have played a meaningful role in facilitating our clients’ intentions.

 

© Copyrighted by John Herubin, Managing Director, EdgePoint Capital, merger & acquisition advisors. John can be reached at 216-342-5865 or on the web at www.edgepoint.com.

Pro Serv Podcast by Collective 54

On this episode “The Art of Valuation: Unveiling the Secrets Behind Firm Attractiveness and Price Determination“, Tom Zucker, President and Founder of EdgePoint Capital joins host Greg Alexander to discuss key points from EdgePoint’s white paper “Why Owners Get Premium Value” 

        • Maximize Attractiveness Attributes
        • Minimize Value Detractors

 

Listen Here

Download The Seller Experience: Why Owners Get Premium Value