August 2018 | Przegląd Piekarski i Cukierniczy (Baking and Confectionery Review)
SELLING THE COMPANY
Everyone who is seriously thinking about selling their company should begin to think about employing external managers. Of course, theoretically one can also prepare the company for sale oneself. However, it is external managers who are the best carriers of change. Bakeries and confectioners’ shops usually come into being in the hermetic atmosphere of a family and of employees acquired on the local market. This considerably limits objective self-assessment and work on improving value.
Experts on the subject of selling family companies consider that employing experienced managers is the most important factor deciding the effective preparation of a company for sale. This is the opinion of John Brown, founder of the Business Enterprise Institute – an agency specialising in creating plans for preparing companies for sale. Similar views are presented in his publications by Mike Handelsman, editor-in-chief of the portal BizBuySell.com, the largest portal in the United States dealing with transactions for the purchase and sale of family companies.
My experience and the experience of others indicate that employing external managers in family companies and giving them a firm footing is a very difficult process. It should be remembered, however, that the worse the company is, the harder it is to encourage specialists to bind themselves to it. But the worse the company is, the more such specialists are needed by it.
I have spent much time in conversations with professional recruiters and one thing I can say for certain: self-respecting specialists look for work in corporations, and they regard employment in a small family company as a degradation of which they are later ashamed.
W-MOSZCZYNSKI ppic 8-18Working for a private equity fund is something else. After buying family companies, investors need dynamic, excellently educated and courageous managers whose only task is to raise the company’s value quickly and effectively. Working for an investment bank or a speculative fund brings honour and is an excellent opportunity to raise one’s management skills.
How can this phenomenon be reversed? How can it be brought about that experts should want to work for family companies?
Today I will indicate three barriers which make it impossible to attract the best experts to family companies.
Barrier one: a broken career
Professionals making a career choose very carefully the companies for which they will work. Enterprises with the abbreviations characteristic of family companies – PPH, PUP or PUH – make a disastrous impression in a laboriously worked-out Curriculum Vitae. Such an entry in a CV is identified by HR managers as a failure or as temporary difficulties. Such information may effectively block the road to a further career in large corporations.
How is this problem to be solved? The recruitment process for the bakery will probably be conducted by a consulting or recruitment company. If it is possible, this company can employ the experts and then hire them out to the family company. In the documents only the consulting company remains. Another way is for the recruited experts to set up their own company and provide services to the family company.
It is not, however, the controversial episode in the CV that most deters good professionals, but the so-called „wild orchard”.
Barrier two: „the wild orchard”
People from large corporations are most afraid of the unpredictable behaviour of the owners and employees of family companies, which is inconsistent with etiquette. Unfortunately, among other reasons because of this, self-respecting recruitment companies are reluctant to cooperate with family companies. If they do recruit someone for such companies, they rather choose professionals in a difficult professional situation, which often does not translate into their quality.
Moving from a large, organised corporation to a family company in which the owner plays the role of hegemon is a difficult decision to accept. Someone once compared it to a walk in a beautifully tidy park with lawns and avenues, when suddenly we are forced to step into nettles and bushes. Hence the term „wild orchard”. Family companies are rarely organised at the corporate level. They rarely possess working procedures and rules. It is not a matter of the interior decor or of cleanliness, but of habits and behaviour. People accustomed to corporate culture are jarred by everything: the key to the toilet, eating at one’s desk, the radio playing in the accounting department, not to mention the owner’s rowdy scenes and calling people thieves. All of this terrifies people accustomed to the excessively orderly culture of large companies.
Barrier three: the resistance movement
In the process of preparing a company for sale, external managers are needed above all in order to limit the owner’s role in the company. Without this the company cannot be sold. External managers are therefore carriers of progress. They often have a different opinion from the entrenched views of the company’s owner and of those around him.
This may lead to clashes. The owner of the company, like the captain on a ship, is accustomed to always being right and to nobody daring to question this. Around the owner there appear the family and trusted employees, who vie with one another in supplying proofs of the stupidity of outsiders.
The owner must be aware that cooperation with new people will not be easy. In the owner’s surroundings a resistance movement may arise; the cooperation may take various courses. We are dealing with emotions, hurt feelings and a struggle to preserve one’s sense of self-worth and to defend one’s comfort zone. The situation is additionally complicated by the necessity of keeping secret the plans for the imminent sale of the company. The owner has to balance carefully between the group of his own people and the new, outside managers.
Now let us imagine that our company is sold overnight to a private equity speculative fund. The next day managers in black, glossy suits come in and put things in order. There is no longer an owner. The key to the toilet and the radio in the accounting department disappear. The president’s cups and medals and the vases in the corridor disappear; boards and diagrams appear. The custom of solving problems by means of scenes becomes a thing of the past. Budgets, procedures and rules are introduced. Warehouses are liquidated and systematic stocktaking is introduced. Part of the activity is liquidated; financial indicators and a new way of communicating appear. Within five weeks the company is transformed into a small corporation, but it is still making losses. However, new investments in machines and IT systems optimise production and sales. After six months the company doubles its market value. Practically without financial outlays, making use only of operating leasing, the company changes beyond recognition.
Is a family company capable of such restructuring? Only the owner knows the answer.
Wojciech Moszczyński
Wojciech Moszczyński — graduate of the Department of Econometrics and Statistics of Nicolaus Copernicus University in Toruń; specialist in econometrics, finance, data science, and management accounting. He specializes in the optimization of production and logistics processes. He conducts research in the area of the development and application of artificial intelligence. For years he has been engaged in the popularization of machine learning and data science in business environments.
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