Can You Make Sure Your Employees Are Safe After Selling Your Startup?

October 23, 2016

On the short list of things company leaders worry about are the people who depend upon them for their livelihood. But when a sale is on the horizon, the fates of employees aren’t always guaranteed.


The reality is that people and processes are important parts of a business, and both need to be nurtured to preserve a company’s value — especially during a sale.


Take Amazon’s $ 1 billion purchase of Zappos. The e-commerce giant wasn’t after Zappos’ products. Rather, Amazon was shifting its model to a network of disbursed distribution centers and needed a more autonomous culture.


Without its people and culture, Zappos wouldn’t hold as much value to Amazon, so it was vital for Tony Hsieh to keep employees informed about the transition. In an open letter to employees, he explained the reasons for the sale and assured everyone they’d keep their jobs after the transition.


It’s a nice promise, but can you really do much to ensure your employees still have jobs after the sale of your startup? The answer is yes, but it depends on the groundwork laid before and during the sale and whether you negotiate for more than your own profit.


The Value of a Staff


Companies buy startups all the time, but you never know what will attract them: New technology, optimized processes, real estate and access to customers can all draw large enterprises to acquire a new company.


This means your staff may or may not be part of the allure. It’s an important question to ask potential buyers because you’re going to have to face your employees to let them know what’s happening sooner or later.


Employees who are worried about future career prospects may allow job performance to slip or even disclose the sale to customers, creating a ripple effect that devalues the company and possibly puts you in breach of contract with the buyer.


Even if a potential buyer is only seeking your client portfolio or technology (or to simply buy you out of the market), you can still negotiate a place for your employees. A one- to five-year employment guarantee is a reasonable sale contingency, forcing the buyer to compensate employees for a set period of time.


Maintaining Employee Value


Of course, for the staff’s (and business’s) value to remain high through a sale, you’ll need to get everyone on board. It’s a sensitive issue that should be approached with tact, professionalism and compassion. Gain your employees’ buy-in by treating them with respect.


1. Inform Them When the Time Is Right


If you call a companywide meeting every time you consider selling the company, it’s going to lose impact. It’s also just flat-out disrespectful to surprise everyone with a last-minute announcement. Strike a balance, and tell employees as soon as you know you have a commitment to buy.


2. Negotiate on Their Behalf


Often, a company’s sale is contingent upon a core staff committing to staying on through the transition, whether to run things or train new staff. Negotiate to keep as many people on as possible, and get a decent severance package for those you have to let go. When you make an announcement, you can cushion it by explaining what everyone will get out of the deal.


3. Reinforce Their Commitment


If possible, present the employees who are staying on with guaranteed contracts to ease the transition. This lets both the employee and the new owner know exactly where they stand and ensures quality and production don’t take a hit during the sales process. If possible, obtain financial incentives through the sale to get those contracts signed.


4. Stay by Their Side


Just because you sold the company doesn’t mean your days there are over. Whether it’s as an employee, executive or freelance consultant, find a job for yourself within the new company to continue leading by example.


Selling a startup doesn’t have to be a bad breakup. In fact, it doesn’t have to be a breakup at all. Companies are routinely bought out by the competition for one reason or another, and many of them remain intact after the transition.


Just because you’re selling your startup and ending your era as its leader doesn’t mean the new era can’t be even better. By keeping employees top of mind throughout the sales process, you’ll be doing what’s best for everyone and taking care of the people who helped make your business worth selling in the first place.

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Author: Steve Little


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