A conversation with a seasoned consultant
The small business M&A world focuses mostly on the process of finding and evaluating a potential acquisition. However, analyses of ideal EBITDA multiples and search strategies leave out what happens when the acquisition goes through, which is an integral part of the process.
Searchers-turned-business owners immediately face the large non-technical challenge of managing the culture of an organization during a disruptive period of change.
In our most recent episode of Private Market Insights, Josh Levine, our Co-Founder and CEO sat down with Matt Glazer, Co-Founder and Chief Strategy Officer at Blue Sky Partners, to talk about ways that buyers can manage post-acquisition leadership transitions. Blue Sky Partners, which offers services through the Private Market Labs Service Provider Marketplace, is an Austin-based consulting firm managing executive-level projects for companies facing key periods of transition.
Check out the full episode, or keep reading below to see some of the key insights Matt shared over the course of the conversation:
Maximize Chances of Success as a New Owner
Remember what you’re investing in as an SMB buyer. You are buying a longstanding business with employees that have been with the company for 15, 20, 30 years. Those employees will often feel surprised or unsettled when there’s a change of ownership. They might view a new owner as an interloping capitalist, even if the new owner is a single buyer and has a background in the industry. At that moment, emphasize the mission of the company, the core customers and product, and lead from first principles. That’s a better way to build initial trust. Change management is a long-term process, not a near-term solution.
Learn what employees like and don’t like. Understand why things are the way they are and work collaboratively to find solutions to the things that bother people the most. You’re not there to throw out everything they love about their work, but to help the company grow and improve.
Don’t jump in and innovate right away. Often, employees in longstanding companies have not necessarily thought about growth, innovation, and scale for a while. Your job as a new owner is to communicate a vision of growth and success for everyone.
Where to Identify Problem Areas that you Need to Address First
The biggest issues often come when there are problems with the business fundamentals: things like unit economics, labor efficiency, and communication. Particularly during uncertain times, with some teams operating remotely for long periods, rifts in communication between teams, and between managers and employees have caused real issues for companies.
Transitioning to Growth and Implementing a Vision for Success
It’s important to remember that many SMBs weren’t designed with an acquisition in mind. They were designed to operate within their industry and community. When it comes to scaling a business, a new owner will benefit from tying the changes they’re looking to make to positive outcomes for the company and employees. While this may sound obvious, it really means saying: “We’re going to implement a new technology system and clean up the books. These changes should save us a few thousand dollars and we’re going to reinvest that money into X innovation that will make the company better.”
As they implement changes and reinvest capital to where it’s more effective, new business owners can shift a company back into a different, higher-growth part of its life cycle.
Managing Culture as a New Owner
In most companies, but particularly small businesses where the owner is also the CEO and is playing an outsized operating role, a change in ownership can result in a loss of institutional knowledge. At times, employees that would have gone to the CEO for help with questions now have a new owner that can’t answer these questions themselves. In those moments, a new owner shouldn’t pretend to have every answer. Be humble, organized, and collaborative – a new owner may not know the full business for a year. When approached by employees this way, be solution-oriented, document extensively, and work collaboratively to get things done.
In these situations, it also helps to build and maintain a good relationship with the seller. This creates a lifeline, so that when a pressing issue can’t be resolved without the prior owner’s institutional knowledge, you’re able to pick up the phone and get a useful answer.
Diversity and SMB Market Trends
The funding picture for startups and emerging market companies is a bit stagnant. While things have seemed hot, when you break down where capital is flowing, it still is largely going to people with a particular background: people who have started and sold companies in the past. This group is disproportionately white and male, with a lot of funding going towards SAAS companies. However, there are some exciting emerging trends:
- government stepping up to fund innovative ideas as a funder of first resort and a facilitator of public-private partnerships;
- social impact, particularly within startups, and not necessarily concentrated in SAAS;
- companies doing hard work to make big pieces of the economy, like supply chains more efficient – this can be technology like in the Web3 space, or innovations in physical spaces like warehousing cold storage;
- emerging technology to support the labor market through better hiring and leadership development.
Our goal is to ensure that entrepreneurs have access to the services and knowledge they need as they settle in as new owners of SMBs. Tune in to our next episode on our Twitter Spaces every month, ask questions and let us know what topic and/or guest you would like us to bring to the next conversations.