Advice for dealing with key employee
June 18, 2024
by a searcher from Harvard University - Harvard Business School in Westchester County, NY, USA
How do you handle a (possibly ill-advised) deal sellers made with a key employee that they want you to honor in the pro forma company?
Background: Sellers hired a sales rep several years ago whose relationships that transferred grew the business into an adjacent revenue stream that's grown to 20-30% of revenue.
Sellers laid out a milestone road map to give equity if he hit certain milestones. Then COVID hit. The employee never hit the milestones and isn't ready for ownership. Sellers still want me to lay out some kind of a road map to equity for the guy post transaction.
How would you handle it?
from University of Michigan in Bay City, MI, USA
This seems worse than normal key-man risk, IMO, and I don't know that there's a way to mitigate the risk outside of having him as an equity holder.
This should affect the price of the business if one dude controls 20+% of the revenue. You also need to deal with him directly at some point; I would need to understand his wants and needs directly rather than whatever the seller's best guess at those wants and needs would be.