Business owners often struggle with how to talk with their employees about their future exit. Most owners want to be straight with their team but talking about exit feels taboo. As one owner said, his exit plans felt like “a dirty little secret” that he regretted keeping from his team. To some degree, that sentiment is common. Yet, having exit goals and plans is not dirty and should not be kept a secret.
To approach this issue effectively, there are seven mistakes business owners should avoid when it comes to discussing their exit with their employees.
1. Not telling anybody in advance
Perhaps the most common mistake is not telling any of your employees until the moment of your exit. Owners who exit by selling the company to an outside buyer are most likely to make this mistake. Owners don’t tell any employees out of understandable fears: if employees learn about the sale of the company in advance, some employees may leave, morale may suffer, customers may learn and flee, or competitors may learn and take advantage of the situation.
While these are legitimate concerns, not telling anybody in advance is like throwing the baby out with the bathwater. By going it alone, owners make the process of preparing for exit much harder on themselves, because they have to do everything without help from within the organization. Keeping this information from employees also produces moments where you have to mislead people and perhaps even be downright dishonest. Finally, not telling anybody in advance only delays the inevitable; waiting to tell employees the news until the moment of your exit, a time when you want to minimize uncertainty and turmoil, produces the greatest shock to your people and company exactly when you need it the least. Ironically, not telling any employees only increases risk when your motives are to reduce it.
2. Telling everybody in advance
If not telling anybody in advance is a mistake, the other extreme of telling everybody in advance is also ill-advised. There are topics within a company that should not be openly discussed with every employee—compensation is a familiar example. Likewise, not all employees need to know your exit plans. Telling every employee maximizes the risk that the information will end up in the wrong hands at the wrong time, potentially leading to harm. Thankfully, most owners recognize this, and few make this mistake.
3. Not identifying your trusted co-leaders
If telling nobody is a mistake, and if telling everybody is a mistake, then there must be a subset of your employees that you should speak with in advance of your future exit. We call the group with whom to be forthright your “trusted co-leaders.” Let’s look at the meaning of this label. First comes trust. Any employee whom you do not trust should not be part of a conversation about your exit (and perhaps should not be part of your organization.) The second part of the label, “co-leaders,” refers to employees with whom you work closely and whom you rely upon to lead the company. Senior executives such as the CFO and COO (or their equivalents) come to mind. You may also have an employee lower on the organizational chart who needs to be part of this conversation, such as your executive assistant. It is this group of trusted co-leaders that you must brief on your exit plans. Without their support, exiting successfully will be harder and riskier, or may not occur at all.
4. Not telling your trusted co-leaders early enough
Once you identify the employees with whom you need to share your exit plans, the next question is when should you tell them? Many owners wait too late, most commonly telling these employees only a few months to perhaps a year before exit. The later you wait to discuss exit with your trusted co-leaders, the less time they have to help you get the company ready. The company likely has strategic issues you will need to address to maximize value and exit and ensure a smooth transition. If the trusted co-workers do not yet know about your exit plans, they cannot help address these needs. For example, if your business needs to reduce customer concentration to improve the potential sale price, your key employees may not feel any sense of urgency around this issue because they do not know you intend to sell the business within a given timeframe.
The later the trusted co-leaders learn about the sale, the less time they also have to get themselves ready. Your exit may create opportunities for these employees to take on greater leadership roles, either within your company after you exit or within the buyer’s company. Trusted co-leaders who don’t know exit is coming until shortly before it happens may miss the opportunity to sufficiently develop themselves in preparation for this opportunity.
There’s another reason why you should discuss this with your trusted co-leaders well before your intended exit. The more advanced notice you give them, the less unnerving the issue. As an exaggerated example, if you told your trusted co-leaders that you intend to exit “about twenty years from now,” not only would they not be alarmed, they would also likely wonder why you even bothered to mention anything at all. In our experience, five years before you wish to exit is the ideal time to give your trusted co-leaders a first indication of your intentions.
5. Not singing from the same song-sheet (multiple owners)
Within companies with multiple owners, avoid telling trusted co-leaders about the exit before the business partners are on the same page regarding their collective exit goals and plans. As soon as trusted co-leaders are told about a potential future exit, they will have questions. These questions commonly include: When? Who’s staying or leaving? If selling, what will the co-owners look for in a buyer? How will the exit impact the company’s team and culture? These are natural questions. If the non-owner employees hear different answers from different owners, that may undermine the very trust and transparency you are trying to foster. Business partners need to be sure they are in alignment and singing from the same song sheet on these important questions before talking to trusted co-leaders.
6. Predicting outcomes you cannot know nor control
Once owners initiate this conversation with trusted co-leaders, it is important to clearly stay within the boundaries of what is knowable and unknowable when talking about the future exit. There is much that owners cannot predict about their future exit; therefore, they should carefully avoid declarations they cannot guarantee. Owners, in a well-intended effort to minimize employee concerns, may claim, “We are not going to sell to a buyer that eliminates jobs” or “I am not going anywhere for a long time.” (In one real example, an outgoing owner once told all of his company’s employees that “everybody who works here will have a job here as long as they like,” leaving the new incoming owner sitting there knowing it would be impossible to honor that promise.)
Owners usually are not intentionally misleading people with these predictions and assurances. However, no owner has complete control over his or her exit. Exiting involves turning things over to a buyer and/or new leaders who may feel or act differently than the current owners. No owner can predict when a company will sell, for how much, under what terms, and to whom. The best an owner can do is to be truthful, which in these moments includes saying “I don’t know” and “we will do our best” when necessary.
7. Not turning the dial to WIIFM
The last mistake to avoid is failing to remember that each of us, as the saying goes, is tuned in to our favorite radio station—WIIFM: What’s In It For Me. Your trusted co-leader employees are not being selfish or poor team players when they ask reasonable questions about how your future exit impacts them, especially if they have little to no equity.
It’s easier to answer this question than many owners initially believe. There usually are genuine potential benefits for employees when the owner exits. At the top of the list is new career opportunities, especially if your company is sold to a larger company. The acquiring company may offer expansive new career paths to ambitious employees. Bigger companies may also have attractive benefits and compensation programs, training and development resources, and a welcoming culture. In the absence of precise and clear information, many people assume the worst. Current owners have to work to make sure that trusted co-leaders don’t jump to negative conclusions about the future exit. Rather, emphasize that the exit may bring exciting new futures for the team.
An additional tactic to add to the WIIFM broadcast is to design incentive compensation programs that offer financial rewards for top employees at your exit, assuming they perform well and stay with the company. These programs provide the full economic win-win at exit that many owners seek to provide their employees without giving employees actual ownership. We refer to these programs as golden handcuffs plans. To learn more, watch our webinar Putting Golden Handcuffs on Key Employees.
Transparency, openness, and team-alignment are values essential to any company’s sustained success. Not talking with top employees about exit undermines these values. Avoiding these seven mistakes helps owners effectively have this conversation with the right people, at the right time, and in the right way.
This information was published originally by NAVIX Consultants and is for educational purposes only. Please consult your tax, legal, and other advisors to evaluate how this material may apply to you and your businesses. NAVIX does not provide tax or legal advice nor services.