Buying the Company You Work For
How to make the transition from working for a company to owning it
Q: The company I am currently working for is owned by a larger corporation that's underperforming and may either file for Chapter 11 or sell my division. I have been trying to put together a bid to buy the division, and, if successful, the transition I will face will be from working for the company to owning it. This will bring many challenges, not the least of which is the fact that my relationship with others in the company will change from one of co-worker to boss. What's the best way to handle this?
A: Before considering a buyout, it is assumed that you have pursued all levels of cost-cutting on a personal level--including such areas as salaries or other forms of options--before following this path. These kinds of cuts may not be required, but they are the right thing to do in order to set an example and support employee morale at large.
Congratulations for taking a bold, innovative approach to the looming specter of a pink slip. It's even possible that the corporation may see you as their only hope for getting out of a challenging situation. Even though the division may be currently experiencing problems, very often new management--willing to dedicate itself to a turnaround--is able to return the division to a profitable state fairly quickly.
Once you are reasonably certain that a deal can be struck, it's time to make a joint announcement to employees. Along with current management, you should call a mandatory meeting of all staff--everyone from the top executives down to the file clerks and floor sweepers. Everyone has a stake in your buyout. In all likelihood, everyone is worried about job security. Given that collective interest in stability, your announcement is likely to come as welcome news, and you will need the support of everyone if you are to make this project successful.
It's not unusual in a buyout to have to make some personnel cuts, and you may find yourself in the position of needing to do so. Two types of cuts may be on the table: executive staff and front-line personnel. While some executives may best be retained in order to make the transition as smooth as possible, others may have management styles or ideas that conflict with yours, and you may feel it necessary to let them go. In some cases, the managers you are letting go may be popular with the front-line workers, so you should make the announcement cleanly and gently. If appropriate, allow the executive to stay on--perhaps at least in a consulting capacity--for a certain period of time to allow for a smooth transition. Many of your executives are walking around with a significant amount of corporate knowledge in their heads, and that's knowledge you may need to draw on in the future. So don't burn your bridges completely unless there's been some sort of malfeasance on their part.
Cost-cutting and "business process re-engineering" may also require you to cut staff on the front lines in order to return the company to a profitable state. There are two schools of thought about these types of cuts: It is not uncommon in corporate America to announce layoffs and then require those that have been laid off to leave the premises immediately after the announcement. The reason for this is to avoid sabotage or theft on the part of employees that have been let go.
The other school of thought, which I personally favor, is more gentle and allows for a transition period of two weeks or more. If budget permits, grant the laid-off employees some severance pay, along with all the assistance you can render in finding them another job. Aside from the basic humanity of this approach, the rationale is that like your executives, your front-line employees have a lot of corporate knowledge and expertise inside their heads. Once you return the company to profitability, you may want them to come back. After all, it will be far more cost-efficient to bring back those who already know the ropes rather than having to train new people. If you've taken the latter, more thoughtful approach, employees are less likely to hold a grudge and more willing to help in the future if you need them.
The employees who stay on will have a different relationship with you than before. While some may resent a colleague for suddenly becoming the boss, most are likely to wish you well, especially since your intervention is quite likely the thing that saved their jobs. Hold regular staff meetings and keep everybody informed of changes that are occurring and the progress you are making. Make them feel like they're all a part of your endeavor, because they truly are vital to your success.
Janice Bryant Howroyd is founder, chairman and CEO of Torrance, California-based ACT-1 Group, the largest woman minority-owned employment agency in the United States, with more than 70 offices, 300 full-time employees, 65,000 temporary "stars" and annual revenues exceeding $500 million. Founded in 1978 around Howroyd's personal philosophy of "Keeping the Humanity in Human Resources," ACT-1 is today a multidivision conglomerate serving such clients as Ford Motor Co., Gap Inc. and Sempra Energy and meeting demands for well-educated and well-trained temporary, full-time and contract employees. She has twice been honored by the Star Group as one of 50 Leading Woman Entrepreneurs of the World.
The opinions expressed in this column are those of the author, not of Entrepreneur.com. All answers are intended to be general in nature, without regard to specific geographical areas or circumstances, and should only be relied upon after consulting an appropriate expert, such as an attorney or accountant.