What does an entrepreneur do after he sells? First, selling a business is not necessarily what an entrepreneur thinks it is. Sellers are often associated with the company and materially benefit as part of a re-invigorated management team. Generally you can group the outcomes into three groups, but it is actually a spectrum where a little creativity can create a best case scenario for the entrepreneur. This is a very compelling reason to hire a good M&A advisor when selling your company. Let’s take the three general alternatives in order of complexity:
- Retire to a life of leisure – pick up a hobby or you will drive your husband/wife “crazy”. The reality is, retirement is not as good as it sounds. Many entrepreneurs’ personal identity is that of the company, leaving them feeling loss or dissatisfied a year or two after they have sold.
- Do it again – Generally, a buyer will ask you to stick around as a consultant for a couple of years. Most of the work is in the first six months. Use the consulting contract as an incubation period for your next venture. Invest some of the proceeds from the sale of your old company in the new venture (I would suggest 20%, which allows for three swings at a new venture while preserving 50% of your proceeds for your retirement and heirs. This is the first step to becoming a serial entrepreneur.
- Take it to the next-level – An often unknown opportunity for the entrepreneur is to stay on as part of an expanded management team and grow the business. We recommend an entrepreneur sells a significant stake before relinquishing control. The entrepreneur should be rewarded for the value he has created, but not put his net worth at risk for new partners and management. They need to have sufficient skin in the game for the arrangement to really work. Often in a sale to a financial investor, the entrepreneur can take 80% of the value he created off the table, bring in new partners to revitalize the business, and get a “second bite” that is often close to the size of the first transaction.
The math works. Generally the first two swings, if unsuccessful, are not complete losses and will return 10% of your proceeds.
If you are considering a significant transaction, we encourage you to talk to your trusted advisors… Allegiance Capital Corporation (self promotion!), your wealth manager and/or your attorney. Know your options and have a thoughtful, fulfilling plan in place. Serial entrepreneur has a nice ring to it.