It's always a good time to start thinking about life after the sale of a business, says North Coast Ventures Managing Director Todd Federman. That, he says, can help business owners avoid being one of the often-cited 75 percent who regretted selling their businesses one year after close. A good portion of that regret could be attributed to how the owner transitions into their new life. Softening that landing is in large part about the owner identifying their priorities.
"Because if you plan and you identify those priorities, you have a reasonable chance of going out and executing against that," Federman said during the Cleveland Smart Business Dealmakers Conference. "I think it's probably more natural for some people than others. Some people are very introspective; they're going to think about what they're good at, what they enjoy, what they fill up from, and what they want to avoid at all costs, and maybe even what some of the family dynamics are of what they owe back for the ride that they've been on. And I think if you do that, then it actually saves you time and energy because you can compartmentalize and focus on your business. It's hard if you don't know the answers to those, and you can run scared a little bit from that. But if you know what you generally want and feel like you generally have the pieces in place, then I think you can start to plant those seeds over time so that you can execute against your priorities when the time comes."
With some 400 individuals who've invested in North Coast Ventures over the past decade, many of whom have started, run and sold their own companies, Federman says he's seen that lifecycle. Post-sale issues often happen at the intersection of a lack of thoughtful planning and a lack of anticipating what would come next.
For business owners, part of their identity is as a leader of an organization, and that's impacted when they step away from their business. The moment they do, they no longer have their team, infrastructure or title. That's a big adjustment.
Some start their post-business life with a great deal of energy that they want to put to work. So, many will join nonprofit boards, or make individual investments that have them advising people who are in industries that have nothing to do with what they've done in the past. While the results are likely not all bad, their choices are unlikely to be impactful to the people they're trying to impact, and unlikely to be rewarding for themselves if it's not done in a thoughtful, strategic way.
Other times, former owners can spend too much time searching for their next thing, talking with many people but struggling to dedicated themselves to anything.
Federman says to avoid these traps, former owners should identify their superpower.
"Everybody who builds and runs a successful business has at least one superpower," he says. "It may relate to industry expertise, functional expertise, the way they go about doing things, how they can open doors, mentorship; but it usually isn't all those things. And sometimes some of those things are actually your Achilles heel. Oftentimes, especially if you're someone who's used to being in control, you've got a command-and control-approach to your company, so being on someone else's medium-sized company board could just drive you nuts because you don't have a real say. You're just one voice and you may not find that rewarding and impactful, and the entrepreneur may not find it very helpful."
There's value, he says, in working with someone who's been on a similar path.
"It kind of makes me think of a Sherpa, that if they haven't climbed the mountain you're on, that Sherpa may not be as valuable as if they've climbed that mountain several times."
He says candor is also valuable in an adviser because much of the process is having somebody helping the former owner ask the right questions, not just telling them what to do or giving them a playbook.
"So, making sure that you have people in your network who will challenge you, ask you questions, listen to you, and tell you when they think you're full of BS, so that you can ultimately find the right answer for yourself," he says.
And while most people think of their post-ownership life (as well as that of their family) in terms of dollars, Federman says it's also about the extra time. Not leading a business means having a different time and ability to engage with family, and that can be an adjustment.
"That's part of the planning and thought process just so that it's not an unknown shock to everybody there," Federman says. "And hopefully it's constructive because I've seen that shake people up a little bit as well, where things feel really different when your time and place is shifted. And people's places and the time in the home are now different. We've got more time to mess with other people's stuff and to get involved positively and unconstructively. So, it's something worth considering."