I'm starting a new series that will look at steps entrepreneurs can take to prepare for an acquisition. Great products and/or growth will get you on the radar, but you have to have the right people, in the right places and with the right expectations to get the deal done. Evolving to a professional management team is where I'll start the series and specifically today's topic is founder's succession. There's been an enormous amount written on this topic - from many different perspectives. My viewpoint is from the acquirer's seat, so it may not agree with others, but here's what I like to see:
- If you founded a company you probably did so because you got tired of working for someone else. You had big ideas and guts to match. Working for a big, slow, risk-averse corporation is torturous to you. So just be honest with me about that. Don't try to be a hero and stick around after the deal closes. It's a lose-lose for both of us so plan ahead for succession.
- Transitioning leadership in an organization is extremely difficult. Doing it in conjunction with an acquisition is dangerous alchemy. Transition ahead of time - at least two years. You don't need to give up the reins all at once. Hire a President and keep your CEO title, then give up more responsibility and become the Chairman a year later.
- Hire the right successor, make sure they understand their role and compensate them accordingly. The key to this, as I've written in the past, is to know your potential acquirers - how they integrate and how your product fits with their offerings. If the companies most likely to acquire you would do so to add capabilities to their existing products and if they have a history of fully integrating acquisitions, then you should hire a President who probably wouldn't survive the transaction, whose role it would be to get the company to and through a transactions and whose compensation would be heavily equity based. On the other hand, if it's most likely that potential acquirers see you company as complementary and have a history of only partially integrating acquisitions as decentralized divisions, then you should look for a President that would survive the transaction as a divisional manager. It's helpful to find someone who has served and succeeded in this type of role previously within a large corporate. This person should understand that while their role is to get your company to and through the deal, they have to keep carrying the torch. Their compensation should not be heavily based upon equity and should be in line with the potential acquirers' other divisional managers.