Gongol.com Archives: August 2023
Part of the appeal of America's small-business ecosystem is that it is very easy for anyone to hang a shingle and start offering goods and services. This vibrancy is one of the country's most powerful economic tools: Americans like to discover a need, then make a buck by satisfying it. ■ But that vibrancy also leaves us perhaps unusually under-skilled at disposing of businesses at natural turning points. When the law makes it easy to start a new firm (as it should) and the culture celebrates the founding entrepreneur (as it does), that can have the effect of limiting the attention paid to how a firm might change hands. In Michael Bloomberg's words, "My operating principle has always been build, don't buy." ■ Lots of people find reasons to wind down their companies (or at least their ownership thereof), whether for retirement or to satisfy non-compete agreements or merely because something more interesting came along. Too few of them follow a simple piece of advice: If you're looking to wind down a business, make sure your exit strategy includes calling a couple of your customers to offer them a chance to buy you out. ■ Those customers would have to be trustworthy, of course -- the last thing an owner might want to do while looking to sell out is to start a panic among existing customers, depleting the valuable book of incoming orders at just the time when that book might be of greatest use in helping to justify a high sales price. ■ But a trusted customer might well be willing to acquire the means of producing something valuable to them at a good or even premium price, especially if it permits them to avoid the disruption that comes with watching an important supplier go through a painful process of being consolidated, merged, or otherwise placed under new management. ■ Monopolistic behaviors get a bad name generally, but even if the Federal Trade Commission is sometimes hostile to vertical integration, lots of real-world good can come from helping a customer to "bring certain capabilities in-house", as such a purchase might euphemistically be described. ■ And it could well be the case that the employees of the firm being sold would find themselves better off as the new co-workers of their established clients than to become the latest "portfolio company" of an unrelated and disinterested investor group (or, perhaps worse, to be acquired and eventually closed by a rival). In selling to a good customer, the exiting company may have at least some confidence that the new owners will value stability and continuity more than most buyers. ■ There's no one right way to get out of a business any more than there is one right way to get in. But the worst outcome may very well be for a company to simply cease operations without giving any clients the chance to salvage the operation, leaving customers without a supplier, employees without continued employment, and the exiting owners without anything to show for their efforts.