People Considerations

Owner(s) Sale Objectives, People Considerations, Strategy/Business Model

Entrepreneurship Through Acquisition (ETA) Thoughts From a Current Owner -It’s Worth It But…

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Fit is Narrower Than He Once Thought Part of preparing to transition your ownership is viewing your business through the eyes of potential buyers. Last week, I came across a post from Alexander Nadtochiy, President & Co-Owner of General Assembly and Manufacturing in Illinois, USA. With his permission, I wanted to share what he wrote because I believe you will find it both interesting and educational for both existing and aspiring business owners. Since I imagine most of you may not be familiar with Entrepreneurship Through Acquisition, I’ll begin by sharing a brief definition. Entrepreneurship Through Acquisition (ETA) is a path where someone becomes an entrepreneur by buying an existing business rather than starting one from scratch. A common version is the “search fund” model, where an entrepreneur (often called a searcher) spends time looking for a business to acquire, then operates and grows it after the purchase. Now here is the post as it was written: Three years ago, I bought a contract manufacturer in Northern Illinois with about 50 people and 40,000 square feet. After 20-plus years of operating experience, I became President and co-owner of my first entrepreneurial venture. It was a welcome change after 15 years in logistics and transportation and 5 in manufacturing, where I was running P&Ls and leading teams of 500-plus across multiple locations. Searchers ask me all the time whether buying a small business is worth it. Here’s the real answer: it depends almost entirely on whether you are the right fit, and on whether you buy the right business. That second half matters more than people think. The worst-case scenario in ETA isn’t failing to buy a business. It’s buying the wrong one, and the gap in damage between those two outcomes is not close. Three years into co-owning my firm, I still believe ETA can be one of the most rewarding paths available. But my view of who’s actually suited for it has narrowed a lot since I first learned about it during my MBA at Northwestern Kellogg. Back then, I thought anyone who was motivated, smart, and entrepreneurial could make this work. I don’t think that anymore. The Operator-Versus-Dealmaker Catch-22 This tension gets discussed, but it deserves more emphasis than it usually gets. To create value after closing a deal, you have to be a good operator. But to close in the first place, you need deal experience, credibility, financing, and the ability to navigate sellers, brokers, and lenders. Those are two entirely different muscles, and most people are not strong in both. A strong operator often needs help getting a deal across the line. Strong dealmakers can wire the money and then discover how hard it is to actually run the thing, which is arguably the more dangerous failure because now they own it. Long term, operating ability matters more, but that’s irrelevant if you can’t buy a business to begin with. Be Honest About Your Candidacy I see posts on SearchFunder from people frustrated that brokers won’t take them seriously. I get it, but often the broker is just making a practical call about whether you’ll close. If you haven’t run a P&L, operated in a similar environment, or built credible investor relationships, be realistic about how sellers, brokers, and lenders will read your candidacy. SBA financing exists, and there are creative ways to get deals done, but ambition alone doesn’t close anything. If the operating background, deal credibility, and capital aren’t there yet, the market tells you fast. That’s not cruelty; it’s information. The community here is supportive, which is one of its best qualities. But encouragement without realism can hurt people in the long term. Sometimes a broker isn’t dismissing you because the system is “broken”; he’s looking at your background and concluding you’re unlikely to close. That doesn’t mean never. It likely means that you need to build more experience, find the right business partner, lock down committed capital, or narrow your search to a space in which you truly have an edge. Make Sure You Want the Actual Job Some people are drawn to ETA because they want to be President or CEO: the title, the autonomy, the LinkedIn update, and the ability to say they bought a company. I understand it; ownership is a real milestone. But the novelty wears off fast. Pretty soon you’re not “the CEO” in the abstract. You’re the person handling a quality escape, a late shipment, a difficult employee, a supplier who let you down, a bank covenant, an angry customer, or a facility problem that nobody else can solve. If what you actually want is the title and prestige, this path will disappoint you quickly. You have to want the job that comes with running the business: the responsibility, the ambiguity, the unglamorous work, and the pressure of being the last stop. If you’re doing it for the announcement, the business will expose that in a hurry. The Reality Check I run a 40,000-square-foot assembly operation. It’s a solid, presentable plant, but it’s no gleaming corporate headquarters. It’s full of real people, real equipment, real problems, and real crises. When consultants, executives, or MBA grads visit, especially ones used to polished offices, I can sometimes watch the question form in their heads: Is this what I’d be doing every day for the next five to ten years? For a lot of them, the honest answer is no. That’s not a knock on them; it’s just a matter of fit. ETA in manufacturing, as well as a lot of service businesses, isn’t for people who need convincing that they will enjoy walking the floor, working with blue-collar teams, and living inside the business. If you have to be sold on that life, it’s probably not your path. I graduated in a Kellogg cohort of 77 students. When I first learned about ETA, I figured each cohort might have two to five people genuinely suited for it. I’m more sober now: I’d say one or two. Not

Business Continuity, Owner Conversations, People Considerations

Owner Conversations: Six Essential Documentation Areas Every Founder Should Focus on Before a Business Transition

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Why Such a Topic is so Vitally Important if You Disappear Years ago, I worked a corporate job that opened my eyes to the importance of documentation. I was transferred to a division that, over the next six years, grew by roughly 60% year over year. When I came on board, we had maybe 500 customer accounts. Six years later, we had more than 8,000. When I left, our internal operations staff consisted of only six employees. When you grow that fast, a lot of things tend to break. Much of my memory from that time feels like a fog of stress, long hours, and very little vacation. In fact, I know I must have taken vacations, but to this day I couldn’t tell you where I went or what I did. I can, however, tell you that we took the team to several professional baseball games just to relieve the tension. I also remember working through the flu because there simply wasn’t another option. I felt like a wildland firefighter, putting out one fire only to be called to the next one over the hill, with little sleep or food. The one skill I picked up, mostly out of necessity, was documenting constantly and monitoring everything. It was almost ridiculous how many useful and useless things I documented and tracked. But the reality was that I had never been in a situation like that before. I had no idea what needed to be documented or monitored. I only knew I was tired of working from a place of uncertainty every time something broke. Over time, I realized that many of those disasters could have been prevented if I had better documentation and stronger monitoring in place. That’s why I place so much importance on documentation. I’ve also seen this often-neglected and easily dismissed discipline prove its value during business acquisitions. I’ve personally watched documentation determine whether a buyer moved forward with purchasing an otherwise profitable company. I’ve also seen weak documentation result in millions of dollars being negotiated off the purchase price. Believe me, I understand that documenting and monitoring take an enormous amount of time and patience in the beginning. It often feels like you’re sacrificing today’s growth for tomorrow’s stability. And it always seemed to me that documentation became most important during the most stressful seasons, when there was the least amount of time to do it. It often meant digging deeper, pushing through exhaustion, and arriving at work before sunrise only to leave after dark. So, believe me when I say I understand what I’m asking you to do. But if I didn’t believe this was critical to your long-term success, and one of the best ways to delay burnout, I wouldn’t emphasize it so often. So, let’s segue into a hypothetical conversation that highlights a few ideas I’d like you to consider as you develop your documentation process. Business Owner: You’ve been telling me that documentation should be one of the first things I focus on if I want to sell my business. I understand it’s important, but why does it matter so much? Consultant: Because documentation is what transforms your business from being dependent on you into an organization that can operate without you. Right now, a lot of your knowledge probably exists only in your head. A buyer doesn’t want to purchase your memory, they want to purchase a business that can continue succeeding after the transition. Business Owner: So where do we begin? Consultant: We start by determining the current status of your documentation. Before we improve anything, we need to understand what already exists, what’s outdated, what’s missing, and what knowledge only you possess. That gives us a baseline and tells us where the greatest risks are. Business Owner: I suppose I’ve never really thought about how much I know that I’ve never written down. Consultant: That’s very common. Most founders don’t realize how much experience has become second nature. You know why one supplier is more dependable than another, which customers require extra attention, why pricing is different in certain markets, why a product was discontinued, and why certain policies exist. Those decisions represent decades of experience, but if they aren’t documented, that wisdom disappears when you leave. Business Owner: I’ve always thought documentation was just creating binders that nobody ever reads. Consultant: That’s one of the biggest misconceptions. Documentation isn’t bureaucracy. Good documentation exists to help people make better decisions in the future. Every document should answer one question: “Will this help someone make a better decision?” If the answer is yes, it’s valuable. Business Owner: What exactly should we be documenting? Consultant: There are six major areas every founder should focus on. First is operational documentation, how orders are processed, how work is performed, quality standards, shipping, billing, and inventory. Buyers want consistency, regardless of who performs the work. Second is decision documentation. It’s not enough to record the decision, you should also document the reasoning behind it. Five years from now, someone shouldn’t have to repeat months of analysis because no one remembers why a decision was made. Third is relationship documentation. Customer histories, supplier preferences, partnership agreements, key contacts, communication styles, and commitments shouldn’t exist only in your memory. Fourth is technical documentation, your equipment, software systems, maintenance procedures, recovery plans, and anything else that reduces dependence on one individual. Fifth is cultural documentation. Your mission, values, leadership philosophy, customer service standards, and the stories that define your company culture deserve to be written down. Finally, there’s governance documentation, who has decision authority, succession plans, emergency procedures, ownership information, and governance policies. Buyers gain confidence when leadership responsibilities are clearly defined. Business Owner: That sounds like a lot of work. Consultant: It is, but it doesn’t happen all at once. More importantly, we don’t just document procedures, we document principles. Instead of simply saying, “Approve refunds this way,” we explain the philosophy behind the decision. For example, “We protect long-term customer relationships, even when it

Business Continuity, Emotional Readiness, Negotiations, Owner Conversations, Owner(s) Sale Objectives, People Considerations

Owner Conversations: The Third Dimension Scenario That Will Consume Your Retirement if You Ignore

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Attorneys and investment bankers explain the terms, structure, and risks of a transaction, but few share what it’s actually like to live through the experience after the deal closes. Podcast Host : Welcome back to After the Keys podcast, where we talk with entrepreneurs about the decisions, risks, and lessons behind building and transitioning out of a company. Today’s conversation is about what happens after the celebration, after the closing documents are signed, and after an owner thinks they have finally reached the finish line. My guest today is Susan, a woman who built a successful food manufacturing company, grew it into a $22 million revenue business, and sold it four years ago. After 28 years of ownership she thought the sale would give her the freedom to spend more time traveling with her husband and enjoying the next chapter of life. But the reality turned out to be much more complicated. Susan, thank you for joining us. Susan (seller): Thank you. I appreciate the opportunity because I believe my experience is valuable to other business owners who are considering selling but don’t always understand what life looks like after the transaction. Podcast Host: Let’s start there. You sold your company to someone who wasn’t a stranger to the industry. In fact, the buyer was an industry president who had successfully run a $500 million revenue food manufacturing company. That sounds like the ideal buyer. Susan: It did. And that was one of the reasons I felt so confident. This wasn’t someone coming from outside the industry trying to learn the business from scratch. He understood food manufacturing. He understood customers. He understood operations. He had a proven track record leading a much larger organization. So, from my perspective, I thought, “This company is in great hands.” And honestly, I still believe he has the capability and intelligence to succeed. What I didn’t fully appreciate was that running a $500 million company and owning a $22 million company are two completely different experiences. Podcast Host: Explain what you mean by that. Susan: In a large company, even a very successful executive has layers of support. There are people handling human resources, finance, operations, purchasing, quality, sales strategy, recruiting, and all the daily fires that come up. When you become the owner of a smaller company, suddenly you’re wearing multiple hats. You’re not just the president making strategic decisions. You’re also dealing with an employee issue that morning, the customer concern that afternoon, the equipment problem, the cash flow question, the staffing challenge. Those responsibilities consume time. And I think that transition was harder than either of us expected. Podcast Host: You had an earn-out as part of the transaction, correct? Susan: Yes. The earn-out was 12% of the deal. And when we structured the deal, I understood the basic concept. If the company performed at certain levels, I would receive additional payments.  The attorneys and advisors explained the mechanics. They explained the targets. They explained the structure. But what I didn’t truly understand was the practical risk. The earn-out wasn’t just about whether the company was capable of succeeding. It was about whether the new owner could execute the plan, manage all those additional responsibilities, navigate unexpected challenges, and still hit the performance goals outlined in the agreement. Those are very different things. Podcast Host: That’s an important distinction. The business may have been strong, but the transition itself created new variables. Susan: Exactly. The company had a great foundation. We had talented people, strong customers, and a reputation built over many years. But ownership transition is its own business challenge. The buyer had been successful at a very high level, but this was a different environment. He was moving from leading a large organization with extensive resources to personally carrying many more responsibilities. And those extra hats took time away from some of the very things needed to achieve the earn-out goals. Podcast Host: Then there was the seller financing component. Susan: Yes. The seller note was 20% of the transaction. At the time, I viewed it as a positive. It demonstrated confidence in the buyer. It helped bridge the transaction. It gave me additional value beyond the initial payment. But again, I didn’t fully understand how it would feel to become the lender after you’ve sold your company. Emotionally, you have moved on. You’ve handed over the keys. You’re supposed to be entering retirement or your next chapter. But financially, you’re still connected. Podcast Host: And the original repayment timeline has changed significantly. Susan: Yes. The original expectation was a five-year repayment period. Going into year five now, it looks much more like a nine- to eleven-year repayment timeline because of multiple renegotiations and adjustments made along the way. The economy slowed down. The business faced challenges. The buyer needed exceptions to the original seller financing terms several times. And I understood why. I wasn’t interested in seeing the company fail. But every adjustment extended my financial uncertainty. Podcast Host: That’s a difficult position because you’re both a former owner and a creditor. Susan: That’s exactly right. You’re emotionally invested because you built the company. You want the buyer to succeed. You want employees protected. You want customers taken care of. But financially, you also have to think about your own future. That was the conflict I didn’t anticipate. Podcast Host: How did those challenges affect the company? Susan: The financial pressure created stress. The buyer lost some key employees along the way. And because I was concerned about protecting the value of the company and ultimately recovering the seller financing, I became involved in helping find replacements and supporting the transition. That was never part of my vision. I thought I would help for maybe six months after closing, help transfer knowledge, introduce relationships, answer questions, and then quietly step away. Instead, years later, I was still connected. Podcast Host: How did that affect your personal plans? Susan: That has probably been the hardest part. My

Business Continuity, Owner Conversations, People Considerations

Owner Conversations: How Hard Can It Be To Replace The President?!

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Business Owner (Mark): I’ve been thinking a lot about the future of the company. Right now, everything runs through me—customers, vendors, decisions. That’s not sustainable, especially if I want to position the business for a sale. Executive Recruiter (Dana): That’s a common inflection point. You’re looking to bring in a president who can step into those relationships and shift the company away from being owner-centric. Mark: Exactly. I need someone who can take over day-to-day leadership and become the face of the business. But they also have to fit our culture—we’ve built this company on trust and long-term relationships. Dana: Culture fit is usually the hardest part. Finding someone with the right experience is one thing, but aligning with your values and leadership style—that takes time. Realistically, you’re looking at 6 to 12 months just to find the right candidate. Mark: That long, huh? Dana: For the right person, yes. And even then, hiring is just the first step. Once they’re in the role, it typically takes another 12 to 24 months to truly know if they’re the right fit—whether they can build those relationships and lead effectively. Mark: So, this is more like a two- to three-year transition, not a quick fix. Dana: That’s the right way to think about it. It’s a process—search, onboarding, relationship transfer, and then proving performance. But if done well, it significantly increases the company’s value and makes a future sale much smoother. Mark: I’d rather take the time and get it right than rush it and regret it. Dana: That mindset will serve you well here. Fade out The Overlooked Thought to Leadership One of the largest reasons I attribute to why 75% of business owners regret selling their company is the prior lack of understanding of all the selling process complexities and the time needed to make adjustments to their business, personal, emotional, and financial aspects prior to selling.  One of these obstacles is that the value of the business increases as the owner-centric dynamic decreases.  For a new owner, one of their toughest challenges is quickly transitioning relationships that were likely built on years of trust between the original owner and key employees. This transition has to happen in a matter of months to ease concerns and prevent negative discussions that could drive customers or employees away.  Of course, if those relationships are already secured with a new president or key manager, the risk of losing customers and employees is greatly reduced.  These are key assets on which the company’s value is based.  I often hear from owners the phrase, “I’ll just leave that up to the new owner.”  However, comments like that often quickly scare off the majority of buyers, if not at all.  If a buyer has to go through the trouble of securing a key manager or president with a new contract, it’ll often cost more than if the seller had handled it themselves.  And where do you imagine the new buyer will place the extra cost?  They simply reduce the purchase price in the negotiations.  Another important point, unless the buyer wants to be the president, the risk of buying a company and finding a president to run the company that they do not fully understand can be a huge risk.  If, say, a private equity firm does go through with the purchase because the company is large and worth the risk, they will likely offer a significant discount to account for that uncertainty. Not many private equity firms have CEOs with the industry-specific experience needed to step in immediately. Think of it like selling a home.  If you have to replace the old water heater, it may cost you anywhere from $600 to $2,500, depending if you or someone else installs it.  But imagine the buyer learning the house needs a new water heater, well, they just reduce their offer by 5-7k.  Why?  Because the inconvenience of replacing it after the closing comes with a price tag.  Now consider the conversation above.  It’s not so easy to find a leader replacement who has experience but also fits the company culture.  Also, the owner may need to go through two or three candidates before finding the right fit. This process is similar to a Navy SEALs Hell Week; all new potentials have qualifications, but only real world experience in your company will reveal the right fit. This is not an issue to be left up to business brokers or investment bankers, unless you wish to ask the broker or banker to just negotiate a large discount in the price of your company.  Their role is not to fix your company, but rather assess its value, clean up what they can, and present the business in the best possible light to find a buyer who will stomach both the price and existing flaws.  The regret often shows up once you realize that you could have earned significantly more  (in some cases millions) had you taken the time to understand the complexities of the selling process, assess your business and personal (emotional, financial, taxes, etc.) situation prior.   Instead, you realize that maybe you rushed through the sale because of business burnout, pressure from attorneys, bankers, and buyers to close, or the desire to achieve a certain sale price to prove your success.  That’s not to say those are all the reasons, because they’re not, which is exactly why I write these newsletters.  Thank you for reading. If you have a moment, I’d appreciate it if you could, like, subscribe, and leave a comment. Austec Pre-Diligence Risk Exposure System

Owner Conversations, People Considerations

Owner Conversations: Awkward Conversation with Key Employee About Sale of Company

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Characters: Owner –late 60s, founder and owner of a successful company Key Employee – late 40s, long-time employee, 20 years working together, still in his prime working years Scene: Owner’s office. Afternoon sunlight filters in. The mood is quiet, a little tense, but not confrontational. ______________________________________________________________________ Key Employee (KE): I… got a call today from Practwer. They said you might be thinking about selling the company. I have to admit… it caught me off guard. Owner (O): …They called you? KE: Yeah. And, honestly, I feel a bit hurt that this is the first I’m hearing about it—from anyone but you. After all these years, I thought we’d talk about something this big. O: (sighs) I see. You’re right. I… I didn’t think it was my place yet, and I thought it was still too uncertain to bring up. But I can see now that not telling you made it feel like I didn’t trust you. That wasn’t my intention. KE: I know you didn’t mean it that way. It’s just… I’ve been here through a lot of ups and downs with you. This company isn’t just a job—it’s part of my life. And now, hearing this from a competitor, it makes me wonder… what’s my role if someone else takes over? O: (looks down, thoughtful) I get it. Honestly, I hadn’t thought about how it would feel from your side. I should have at least mentioned that this idea was floating around. I’m sorry for leaving you out. KE: Thanks. It’s not about blaming you. I just… need to understand what comes next. My place here has always felt secure because we’ve built this together. But with a sale, it’s… uncertain. O: (leans forward) You’ve been the heart of this company. Any potential buyer would need you, absolutely. I don’t want you to even consider leaving. Your staying is crucial—not just for the company, but for me personally. I messed up by not involving you sooner. KE: (quietly) I appreciate that. I just need time to process all of this. It’s hard not knowing what the future holds. O: I get that. And you’ll have full clarity soon. I promise we’ll figure this together. I want you here, with me, no matter what comes next. KE: (nods slowly) Ok, thank you. O: And just so you know… you’re not going anywhere. The company doesn’t move forward without you. KE: (half-smile) That’s reassuring. Let’s just take it one step at a time.

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