The Usual Betrayal

 

Certain patterns in business structural interactions become apparent if you work with businesses long enough.

And once one sees these patterns, one can begin to develop both advice and methodology to help prevent re-occurrence.

One typical pattern goes along the following lines: An owner of a business, usually the founder, has spent twenty or thirty years building it up. Now, it is operating well, making regular or increasing income and, in many cases “almost runs itself”.

 

Owner Is A Little Bored …

The owner is a little bored and is interested in bringing in younger family members or younger managers. The owner develops a close working relationship with the managers and had “trained” them into a deep understanding of much or all of the business.

They are now friends or close family and have been through a lot together. The owner takes longer vacations and is away from the business more and more. The business manages quite well through these absences; and the owner is delighted and tells friends and family that he is no longer vital to the business operation.

 

A Piece Of The Business …

Over time, there is discussion about giving the manager a piece of ownership in the business. Everyone expects that sooner or later, the younger manager will be taking over the business.

While the younger manager often complains to third parties about the antiquated methodology of the owner or shows increasing impatience with restrictions on his authority or income, the essential relationship between the business owner and manager appears close and supportive.

Meanwhile, discussions between owner and manager regarding the manager acquiring a piece of the company drag on; often for years. The owner wants to be paid for the equity and maintain majority control, while the manager wants to receive the equity for the “sacrifices” already made.

Bit by bit, the owner is there less often. More and more, the manager becomes the face seen by vendors employees and customers. Visits by the owner are tolerated or even disliked with hidden amusement.

 

Then The Betrayal …

And one day it happens!  The manager gives notice, to the shock of the owner, and leaves to begin a competing business, often taking with him or her the best employees, vendors and customers.  The owner, shocked and dismayed, finds themselves in a desperate situation in which the business had been “stolen” by the once trusted manager.
The owner often finds to their fury that the new business was often months or even years in the making, long before the manager gave notice. Preliminary steps had been taken while the manager was employed and the manager has been discussing the new venture with employees and others for months or even years before implementation the plan. The owner is not only economically damaged, but devastated by the betrayal.

 

Then The Lawsuit …

After venting to and then talking with his attorney, the owner soon discovers that many of those customers that went with the new venture are quite comfortable with the new company and its management and, in some cases, actually thought the owner had retired.

In many cases, the Owner sues the new company and often wins. To be sure of winning, generally the manager has made significant errors in how they handled the confidential information and trade secrets of their former company. But for each party, the emotional and financial cost is high.

 

It Can All Be Prevented …

And, it doesn’t need to happen. There are basic precautions and structures that will prevent all of this. People who would not leave their wallet out on their desk, leave their business “for the taking” in the hands of people who are working long hours while the owner is maximizing his or her return. Yet they are surprised when things go terribly wrong.

 

3 Basic Steps For Prevention …

There are three basic concepts that will go a long way toward preventing a business from being “stolen”.

1.  Business Requires Continuous Supervision

All businesses all the time. The reason that the business person made a good living developing and running the business is that most people do not have the skill set to create and maintain an active business.  Why are there so many more employees than business owners?  Because the mix of drive and talents to successfully become an owner are not found that often.  Anyone good enough to do what you do will probably start their own business rather than work for you. Anyone not good enough to do what you do will need supervision, regardless of how good they think they are.
 
2.  Face It!  You Are In A Conflict Of Interest With Your Employees

As Marx said: “One’s role in relationships is largely determined by one’s economic activity“. The economic facts of life mean that the typical employee, no matter how fond of the boss or devoted to their job, is in an economic conflict with that boss. The major purpose of a business, which is making a good profit, is primarily devoted to improving the lot of the owner more than the employee. And that requires daily, hands on supervision to insure the profit, and the value of the business is maintained.
 
3.  Out Of Sight, Out Of Mind
If you leave your business operations to others to run and the managers are any good, they will change the business to reflect their own proclivities. If the managers are not so inclined, then you have left the business in the hands of people with neither incentive nor drive who suffer from lack of flexibility; exactly the people who cannot run the business on their own.

 

There Are Solutions …

Should you, despite everything, decide that you really want to take the time away from your business, there are solutions. 

Independent management, with a proven track record, that is not your employee, but is focused on providing senior management to your business with a focus on the management of your employees and your profit.

They view your business as an assignment in which to be successful, not a business to be stolen.

 

Revitalization Partners is a Northwest business advisory and restructuring management firm with a demonstrated track record of achieving the best possible outcomes for our clients. 
We specialize in improving the operational and financial results of companies and providing hands-on expertise in virtually every circumstance, with a focus on small and mid-market organizations.
Whether your requirement is Interim Management, a Business Assessment, Revitalization and Reengineering or Receivership/Bankruptcy Support, we focus on giving you the best resolution in the fastest time with the highest possible return.