Escaping the downside of staying on

Dubai: There is has been a definitive answer to whether it makes sense for an entrepreneur to stay on once he has sold the business.

“This depends on how much of the success of the company being bought has depended on a unique culture or concepts in the fields of product development, customer service, marketing, and employee management,” is how Michael Roach — founder of Diamond Cutters Institute — sees it.

“Certainly, the investment required to retain a few of the key movers and shakers of the previous management, even in just an advisory role, is normally very small compared to the cost of the buyout, and the potential benefit to the continued success of the firm.”

Well before Warren Buffet’s offer came around to acquire Andin International Diamond Corp, his previous venture, Roach had already decided in principle the time was right to sell off. “We had been looking at different merger and buyout plans for years, but the actual deal with Buffett’s Berkshire Hathaway took surprisingly little time,” said Roach.

How much of a culture shock is there when a new buyer comes in through the door? “I do think there is a significant risk of “culture shock” in the case of any acquisition, particularly if — as was the case with Andin International — a significant part of the success was due to a unique company culture based on truly new business ideas or methods.

“Of course, if the new management isn’t well trained in the revolutionary ideas that have made the start-up successful — as in the case with Apple Corporation under John Sculley — there may eventually be problems that hurt the company in some ways in its new phase.”

In Roach’s view, a checklist in any acquisition should have some or all of these elements:

* The seller has a responsibility to make sure that the buyer’s new investment will be a successful one. If I take all the steps I can to make sure that the company I am selling continues to grow and prosper under the new owners, then I am planting powerful seeds to be successful in my next entrepreneurial project. If I simply sell, thinking how much I can make and giving no thought to how successful the new owners will be, then I am planting negative seeds to fail in my own future.

* The buyer has to have the same concern for planting success seeds; and from their side this is done by having a serious desire to see that the former owners, and all of the original employees, continue to prosper from the buyout deal and the new management. This means that the idea of “stripping out” a company’s assets and watching it die, as often happens in an unfriendly takeover, is planting seeds for the buyer to fail in the future.