Chances are, if you’ve talked with other entrepreneurs and CEO-owners in your network who exited their businesses, the majority have either failed to sell or the experience didn’t meet their expectations. This would be congruent with the staggering statistics of reality:
- Studies indicate a significant hurdle for middle market owners: 70 to 80% of their businesses do not sell.
- Based on a study involving 300 businesses that sold, an astounding 75% of the owners reported dissatisfaction with their post-business life within a year of the sale.
- Research shows that less than 10% of business owners achieve membership in the prestigious category of exiting on top.
- Numerous studies indicate that 67% of business owners are inadequately prepared for the transition out of their businesses and nearly 2/3’s of all owners don’t have a succession plan.
What’s the primary culprit of these staggering facts? A prevailing theme explaining why deals fail to reach the finish line is the owner’s inadequate preparation and attention paid to the psychological journey. Basil Peters, a leader in mergers and acquisitions (M&A), states that for most businesses that don’t sell, the owner’s mindset causes the problem.
So what’s the solution? Partnering with those that have successfully transitioned their business and want to help business owners navigate unchartered waters.
Half of ArchStar’s founding team have personally experienced the emotions that accompany an exit firsthand, having been former entrepreneurs and CEO-owners who successfully transitioned their businesses to private equity.
Understanding the Psychological Journey of the Owner
Bo Burlingham’s insights from “Finish Big: How Great Entrepreneurs Exit Their Companies on Top” shed light on the emotional rollercoaster owners face during exit. Transitioning from business leader to post-exit life requires navigating a complex emotional landscape. This might be why a significant portion of business owners express dissatisfaction with life post-sale.
Owners’ identities often become one in the same with their job title, often blurring personal and professional roles prompting questions about their value and identity outside their company when the job title changes to perhaps board member, not CEO. This is why the most significant factor influencing the success of a transition is the psychology of the owner.
“The hardest question I had to ask myself was ‘am I hindering the growth of the business?’” says Tom Mingo, one of ArchStar’s founding members and co-founder of Vaddio. “I saw so much growth potential but it was my own money, my risk capital, that I was putting on the line; I knew I needed to take some chips off the table and find partners who shared my vision, and who could assist in evaluating and executing new growth initiatives.”
Exiting is a Journey, Not a Single Event
After interviewing a wide range of CEO-owners, Bo Burlingham, author of “Finish Big: How Great Entrepreneurs Exit Their Companies on Top” discovered that those who achieve substantial success in exiting—joining the elite 7%—understand that the exit process spans multiple years rather than being a single event.
Owner-operators will exit their businesses only one or two times in their lives and most believe it’s simply a mathematical process of valuation, capital management, and tax calculations. But our own personal journeys and collective experience helping dozens of owners transition echo it’s a psychological and emotional process, not a single event. This is what’s called the “soft side” of an exit transition.
While plenty of research exists regarding the “hard sciences” of exiting one’s business, the challenge and opportunity lies in finding a partner who understands, appreciates, and has lived the “soft side.” Investment bankers, accountants, lawyers, even PE firms (yes, we’ll admit it) are experts in their domains but usually not experienced in helping the owner navigate the soft side of their exit.
This is where ArchStar is uniquely positioned for both the hard sciences of transition and the soft side as our founders have personally experienced this psychological turmoil.
Navigating the Soft Side of Exit
While many stakeholders involved in exit view it as a transactional process, for us, it’s far more nuanced and relational. We understand that owners have dedicated most of their working careers to the business, assuming 100% of the risk putting up their own capital, and their families have sacrificed irreplaceable time. All of this should be taken into consideration – both tangible questions and intangible questions that require thoughtful answers.
Our founders have grappled with tough questions that no amount of accountants, lawyers, or even private equity firms can answer with sophisticated models and equations, only those who are handing over the keys truly understand what it means to ask yourself questions such as:
- How important is it to maintain consistency and alignment amongst the management team after I exit?
- Who will takeover as the “culture champion” if not me? What’s important for this person to know/do/maintain?
- With whom and what sort of tough conversations do I need to have with family members or the management team before, during, and after the transition process?
- If I were to completely walk away, and the new owners changed how things are done and ways of working, how much would I care?
- How do I envision putting my time, talent, and treasure to work post exit?
Answers to each of these questions (and more) uncover deep, core values that if not honored throughout the transition process, will begin to manifest as friction and might cause the deal to fall through with the owner citing nebulous reasons like “it just wasn’t a good fit.”
Bridging the Gap: ArchStar’s Unique Approach
ArchStar bridges the gap between the technical and emotional facets of exit. Our unique experience recognizes the pivotal role of an owner’s psychology in determining transition success. By understanding and addressing these psychological nuances, we maximize outcomes for both owners and advisors.
Exiting a business is more than a financial transaction—it’s a deeply personal journey. The greatest determinant of transition success lies in understanding and navigating the owner’s psychology. At ArchStar, we’re committed to guiding owners through this transformative process, ensuring their wealth and legacy are preserved for generations to come.
Sources:
Bo Burlingham: “Finish Big: How Great Entrepreneurs Exit Their Companies on Top
Orange Kiwi LLC: “The Psychology of Transitions – Moving Owners to Action”
