Why Do Owners Leave after Selling Their Companies

Company owners/founders typically don’t last long after a sale.  The time period is normally influenced by incentives the buyer puts on the owner to stay.  Often the incentives are tied to revenue or profit targets.  But the acquirer may want to have control over their acquisition.  The owner goes from being responsible for results and making decisions, to being responsible for results and having minimal decision making authority.  The degree to which the acquirer allows the owner/founder to retain decision making as well as how achievable the targets are viewed, will affect the retention period.  Small business owners do not work for big companies because they like being able to make decisions and being fully responsible for results.

Another factor is many sale agreements have an escrow or holdback that can be clawed back if the selling owner does certain actions.  While reasonable, it places a higher standard for owners to follow company policies to the letter.  While a regular employee can bend the rules to achieve desirable results, the owner can face significant financial penalties through escrow or holdback claw back.

What can an acquirer do to help retain a founder/owner (assuming this is desired).  First, look to what the owner contributed and allow them to focus on that area.  Most owners have a specific skill set, which can be sales, operations, product development.  The benefit for the acquirer is they gain a resource that is likely very good at what they do, based on the results of the company that drove the acquisition.  After selling my first company, while my contribution was sales, the acquirer wanted me to report to the CFO and manage investor relations, including producing the annual report.  I left shortly after to start my second company.

Another way to retain an owner is to continue to provide a level of decision making.  Unlike other employees, the acquirer has a level of protection that that owner’s decision making will be appropriate during the period when the escrow is outstanding.

Too often selling owners believe they will stay with the acquirer after the sale is complete.  While it happens sometimes, most times the owner will move on to form a new company because of the reasons noted above.  At the same time, the acquiring company may assume the owner will stay for a period of time due to incentives and how they view employees.  If the goal is to retain the owner for a period of time to benefit from their experience and knowledge, an acquirer needs to look at what will achieve retention from the selling owners perspective, not their own.  The upside is it can be a win/win for the acquiring company and selling owner.