Taking over a business — the questions you need to ask yourself before taking the plunge
By Marie-Josée Bernard, Professor in Leadership and Personal Development at emlyon business school
The decision to buy a company is a strategic choice, both personal and professional, and not only for you, but also for your family and friends. It will have a considerable impact on the dynamics of each of these actors’ lives.
Becoming an entrepreneur generates significant change in the life of the future business owner and consequently in the lives of his or her close circle of family and friends. It is not a simple change of activity, context, or environment, but involves a change of direction and risk-taking on a professional, social, and economic level. Taking over a company first and foremost means being able to make the commitment to embark on a potentially lengthy adventure, lasting between six and 24 months, or even more, and involving various stages, obstacles, and arbitrations over time.
It is therefore important to ask yourself two questions, “Is this the right project for me?” and “What are my ambitions, my goals, my desires for the next three, five to seven, or ten years?”
Buying a company may have repercussions on the buyer’s close family and friends.
Individuals will undoubtedly experience a takeover very differently depending on their age, prior experience, and the reasons that led them to consider this option. In any case, we emphasize that taking time to question the implications of this strategy is essential.
What drives me?
Several key questions need to be addressed to refine the project:
- Why… a takeover?
- What is the goal? What is the purpose?
- What do I want to contribute to?
- What is really important to me?
- What am I trying to achieve?
- What is the purpose of the takeover?
- A takeover for whom?
- What is my goal?
- What kind of life do I want?
- What drives me?
- What efforts am I willing to make?
- What is non-negotiable for me and for my family?
- What will make me happiest if I achieve this goal?
- What would I be most proud of?
- What do I think I can bring to this future business?
- What do I think my real added value is?
These questions are designed to make future buyers more aware of themselves and of their projects. The nature of the answers can help to better position the content of the project. Ambitions can be very different from one person to another, and failing to appreciate the characteristics of our aspirations can have serious consequences. False expectations can lead the future buyer to embark on an incoherent, difficult, or even insurmountable path, which is doomed to failure.
The reasons for taking over a business can vary widely from one person to another.
Different types of ambitions and aspirations drive people to take over a business, here are some of them:
- To create social value and create employment/develop employees’ skills;
- To ensure the sustainability of the business by maintaining a strong reputation;
- To undertake a purely financial transaction, aimed at making a “short-term capital gain”;
- To embark on an innovative technological adventure that is not yet sufficiently well-known; or
- To develop the external growth of the existing business.
The clarity of the target’s future positioning, the nature of its legitimacy, and — from a more operational perspective — its scope and characteristics, will depend on the entrepreneur’s ambition and on his or her genuine and fundamental hopes. These different forms of ambition will strongly influence the type of company targets sought.
For example, if the entrepreneur’s project has a social dimension, he or she will focus on specific businesses whose core values lie first and foremost in human capital, the very heart of the business, and in the processes and methods employed. This will be significantly different if the entrepreneur’s project is purely capital-intensive, with the aim of searching for a rapid return.
A step-by-step journey
The most commonly held misconception among potential entrepreneurs tends to be thinking that their previous experience as managers in large organizations — where they had extensive responsibilities, real decision-making latitude, strong financial delegation, significant resources and leverage effects — will make the takeover of a company straightforward and trouble-free. This is what we call the “copy and paste” trap, where the entrepreneur’s former status reigns supreme. However, it is important to position the takeover as a new challenge and as a personal learning experience. Another trap is to adopt only one approach, with a single perspective.
Moving from even high-level management to running your own company requires a sense of awareness and a willingness to transform your achievements and positioning. Taking over a company is a journey with different steps. These steps are useful because they help the future business owner to make this necessary transformation.
As the buyer must fundamentally evolve, taking over a company is similar to a step-by-step journey. These steps are necessary because they effectively enable the future entrepreneur to evolve. We summarize these steps in the following diagram:
Understand the profile of the seller
Finally, it is essential to take an interest in the seller’s history and in his or her objectives. Although the financial value of the company is very important, some sellers also need to feel that they have a constructive relationship with the buyer. Owners selling a business also seek to transmit their company’s assets, image, and way of working. They are generally very committed to safeguarding the future of their employees. In other words, they are effectively more interested in recruiting a successor than in finding a buyer.
Sellers will make an effort to understand the intentions of the person who is interested in taking over their business. They will look for similarities between themselves and their successor on certain points (values, culture, profession), and will be attuned to the complementarity offered by the successor, particularly in terms of the skills, openness, and network that will be used to develop the business going forward.
It is therefore essential to help sellers express their plans for the future, their aspirations, and the way in which they intend to turn the corner, in order to assess the real reasons for their decision to sell. It is important not to underestimate the grieving phase that sellers will have to go through in relation to their past and their experiences for and with their company, especially in cases where the seller plans to remain involved in the business after the sale.
Buying a business is effectively a “people” deal (human relations above all), involving meetings, relationships between individuals, and above all trust. Although you’re clearly not buying the actual seller, he or she is an important part of the company, possessing a wealth of experience and strategic knowledge for the successor. A relationship built on transparency and respect will help to create an effective overall approach. Poor relations between buyer and seller are harmful to the company’s survival and to the transition necessary for the buyer to take control of the business.
By Marie-Josée Bernard is professor in Leadership and Personal Development at emlyon business school. Her main mission is to promote the development of collective and relational intelligence within organisations.
More information on Marie-Josée Bernard:
• Her CV online
• Her ResearchGate page
