Does Your Company’s Culture Actually Add Value?

“You know, I’ve intentionally built a positive culture here, but it’ll fall apart if I sell to the wrong buyer. This company is my family’s legacy, I have to protect the culture when I sell it.”

Todd (not his real name) was ready to sell the company he inherited from his father twenty years ago. Todd and I had a lot in common. His faith was an important component of his life, and he openly shared it with his employees and customers. “I was in seminary training to be a pastor when my Dad got sick,” Todd explained during our first meeting. “Mom called and begged me to leave school and come home to be with the family through the transition. Little did I know that my desire to be in ministry would be fulfilled through being a business owner, not a pastor.”

As Todd reviewed my strategy to sell his company, he told me he would only consider buyers that would commit to preserve his faith-based culture. While I personally resonated with the culture Todd built, I explained that even under the best of circumstances, a seller cannot mandate how the buyer should manage the company after the sale. “A smart buyer will commit to preserve a culture if that culture is primary to driving the business results,” I explained to Todd. But preserving culture, just because it’s personally important to the seller, is a tough expectation.”

Even if a buyer resonates with the seller’s culture and makes a commitment to preserve it, a seller has to realize that circumstances might cause the buyer to make changes that affect the culture. And that’s exactly what happened with Todd’s company. About nine months after the business had been sold, the new owner installed a VP of marketing who didn’t buy into the faith-based culture Todd had built. Interestingly, it wasn’t that the new VP had a problem with the culture or tried to change it, it was more that the original employees were frustrated that this new VP replaced a 20-year veteran of the company. But here’s the irony, all the employees knew the former VP had gone into a glide mode the past few years, and everybody knew he not been as productive as he should have been. But the company’s culture essentially protected him through his period of decline in his productivity since he had been viewed as an important part of the company’s faith-based stability.

The fact is, that change needed to be made and the new owner obviously had every right to do so. But removing a guy who seemed so integral to the culture scared the other employees. But guess what? Over time, things settled down and the company is doing well today. While the company does not have quite the same overt faith-based culture, the new owner has tried to make all employees, new and old, feel like part of the family of ownership.

I tell all my clients, despite their best intentions, a seller cannot dictate how a buyer manages the company after the sale. And the flip side to that is, a buyer cannot honestly commit to not change the culture after the sale. At the risk of stating the obvious, I’ll say the obvious: things change. Even when the seller tries to select a buyer who will preserve the culture, that culture is only “preservable” to the extent it contributes to the business’ success.

 

JIM CUMBEE is President of Tennessee Valley Group, Inc. a retainer-based business brokerage and transition mediation firm in Franklin, TN. Cumbee is an attorney and has an MBA from Harvard Business School. He has a wide range of corporate and entrepreneurial experiences that make him one of the most sought-after business transition advisors in the state of Tennessee. The names and fact patterns above have been changed to preserve the parties’ identities.

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Tennessee Valley Group

Jim Cumbee established Tennessee Valley Group to help business owners fulfill their dreams for life after business ownership. It’s a mission that his 30+ year career history had prepared him well for—in addition to being an attorney, transition mediator and business broker, Jim has been a buyer, seller, and entrepreneur. His broad range of experience gives him unique insight into how business buyers and sellers can achieve their goals.

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