Entrepreneurs must not forget their staff in rush for the exit

Ask a business owner what makes the difference between the success and failure of a venture, and more often than not they will point to one factor above all else: people. 

The path of an entrepreneur may be lonely but commercial results are never the product of one person’s efforts. They are built instead on the hard work, conviction and complementary skills of the staff who enact their vision. 

Yet as business owners prepare for an eventual sale or transfer to a successor, it is talent that is frequently overlooked.

Many entrepreneurs end up feeling torn during the rollercoaster ride of securing an exit from the firms they have founded. They want to find the capital and networks that will help their companies reach new heights. However, they are also employers, responsible for the careers of the staff working for them and concerned for how the culture they have carefully crafted may change under new ownership.

Using data from Arbuthnot Latham’s study of UK business exits and perspectives from roundtable discussions in London and Exeter, we explore why talent must remain a primary consideration when choosing a path to exit.

Undervalued 

Exits can take different forms but entrepreneurs will usually be charting a route to either a sale, management buyout or transfer of ownership to a family member. In the UK, our data suggests the latter option is preferred by 54 per cent of high net worth business owners – who have more than £2.5m ($3.2m) in liquid assets – primarily because relatives are most trusted to preserve the ethos of their company. 

Those with less than £1m net worth are most attracted by the idea of a sale (57 per cent), usually so they can release capital they have tied up in the business.

Before exit, talent is hardly a factor in their decision-making. Just 11 per cent of UK entrepreneurs still running their businesses believe safeguarding staff welfare would be important during their pathway to exit. However, once they actually start the process, that figure more than doubles, with 27 per cent of post-exit entrepreneurs agreeing their choices were impacted by talent considerations. 

Culture is fragile 

Human capital rises in importance once the decision to step away has been made. Business owners come to realise that talent is intrinsically linked to both the commercial value and culture of the venture they are passing on and that its future success will depend on finding a successor that shares this view.

While just 26 per cent of business owners yet to exit identify a secure future for their staff as a commercial priority, almost half (48 per cent) say it became one during the process.

Post-exit, entrepreneurs recognise that a sale could have a destabilising impact on their staff. Often this goes on to determine their choice of buyer and may even secure their own future involvement in the new entity to ensure a smooth transition. 

Lasting impact

It is clear that the critical role played by talent evolves, from the building-blocks of business owners’ commercial success, to part of the overall legacy they make through their entrepreneurial activities.

Providing transformational career opportunities for valued staff is a complex business but business owners should be asking potential buyers searching questions. The right successor will – just like them – place a high value on their firm’s human capital and want to create an environment for talented people to thrive. 

Paul Beach is director at private bank Arbuthnot Latham and Tasha Vashisht is senior manager at wealth management think-tank Scorpio Partnership