It’s hard to find a buyer who is as concerned with preserving a former owner’s legacy as they are with the financials of the business they’re buying. This kind of respect for the employees, vendors, clients, etc. is good business. A buyer who seeks to preserve and nurture these relationships understands that, and yet such a buyer is incredibly difficult to find.
Where Have the Legacy Buyers Gone?
We’ve all seen buyers who purchase a business only to change the name, push out the employees and alter the systems for doing business—all before they even know and understand the business. This makes no sense. When you buy a business you’re buying its name, history, reputation, clientele, vendors and employees. There's not much point to spending millions to acquire these if you’re just going to throw them to the wayside and yet this is overwhelmingly common.
Preserving a business, adding instead of subtracting, seems like common sense. The many owners who go straight to subtracting are likely driven by a number of convictions which seem perfectly logical when taken at face value.
Running a business is extremely specific to that particular business, but many successful business owners are convinced they’ve mastered the art of running a business—any kind of business. It follows that they can buy another company, turn it into a carbon copy of their last success and watch the proceeds come rushing in. These buyers don’t realize—or won’t admit—they don’t understand the company they just bought and need time and help to learn it. So instead of taking the time to do just that, they’ll simply run it like they ran their last business. This often means complete upheaval of what’s already in place because the new owner isn’t familiar with the structure of the organization or the people in it, let alone the industry.
Buyers are often finance people who look at the employee roster and decide they just don’t need the all these people on staff. Maybe they have their own people in mind. If the new business has, for example, a strong sales team but the buyer has his or her own sales people, axing the established team looks like a money-saving move. The same goes for staffing across the company. Anybody with the same job title as someone else the new owner already has in the wings—maybe at another company or their corporate headquarters—represents redundancy. “Why should I keep these payroll people on board when I already have an army of accountants at my other business?” Layoffs promise savings. This logic often proves to be a new owner’s Achilles heel. If the business they bought was a successful, well-run business, laying off the team responsible for this success inevitably pulls the company down. Profits tank, people are out looking for a new job and nobody wins.
Buying an established business is also easier to finance than a brand new baby business. It’s more expensive, but banks consider an existing organization with a performance history less of a risk than a new business. This leads banks and other investors to be more eager to finance the purchase of a business. So your new owner may have had a vision for a brand new business, but for financial reasons decided to buy an established one, intending from the start to tear it down and make it into the business they couldn’t build from scratch.
Whatever the motivation, the vast majority of buyers are keen on overhauling the business, no matter the cost. This creates, at best, large turnover, because as the new owner ramps up growth and earnings with their eye on selling in a couple years, the overhaul creates a terrible work environment where employees bear the brunt of the immense pressure to grow. Big firms can handle this, but big firms aren’t buying small businesses. They’re buying large companies that run well enough that they can buy, push hard and exit within the 2 to 5-year time frame.
It’s important that we clearly draw a boundary between overhaul and change. Change can be a very good thing. A new owner comes to the table with a fresh perspective, new energy and ideas to improve the business. There may be things in a successful business that just aren’t working and need to change. There could be new technologies or philosophies the old owner wasn’t interested in investigating. This is where change can be very good for the organization.
This all brings us back to the question of how to find a legacy buyer who will approach the business with a bit of humility, patience, a teachable mindset and a resolve to build relationships. Legacy does not play into the plan for the majority of equity firms seeking businesses to buy, flip and sell. An online search isn’t going to bring up a bunch of buyers concerned with legacy. In fact, the odds of business owners finding a legacy buyer on their own are slim to none. They need an insider who knows who the players are—this could be their broker, if they are deep enough in the market to know which potential buyers are going to preserve and build their business without tearing it down first.
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