Should I Hire A General Manager Right After Acquisition To Start Replacing Owner/op?

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02/26/2020 Redacted Redacted

searcher University of Georgia

SHOULD I HIRE A GENERAL MANAGER RIGHT AFTER ACQUISITION TO START REPLACING OWNER/OP?

[Edited for clarity]
Either hire an industry experienced GM or promote a GM to start replacing the owner.
The goal is to have a new GM in place as soon as possible to start take over day to day operations from the current owner. So why wouldn't I hire a GM to start immediately?

Additional details
Company isn't complicated. Mostly service related with a diverse client base.
The owner will stay on for 2-3 months for training.

5 likes 265 views 17 comments

Indiana University, Bloomington/Indianapolis - Kelley School of Business University of Wisconsin - Madison - 02/26/2020

This is honestly too loaded of a question. I would suggest using much greater detail here. Tell us more about the current owner's interest in staying on during a transition, the current leadership. The pain points of the organization and where you see it moving (or not[redacted]IE where is the value add?

like reply | 1 like

searcher Harvard University - Harvard Business School University of Notre Dame - 02/26/2020

You’re new to the business and haven’t learned it yet, and you want to bring in a GM—who will also be new to the business—to take over day to day?

Do you know who and what to recruit for to be a good fit in this position (when you’re new to the business)? How long is that going to take? How do you plan to explain your company and your vision?

How'd your employees take having a new owner? How will they feel when you bring in a GM to run the day to day when both of you are new to the business?

I don’t know your thesis behind buying your company, but I’d recommend that you should spend time learning the company and running it before you make a material decision like bringing in a GM.

like reply | 3 likes

searcher University of Georgia - 02/26/2020

Good points. Would you still feel the same way if an industry seasoned GM is brought in? I am planning on poaching a competitor's GM and giving him 10-15% equity w/ a standard vesting period.

like reply | 0 likes

searcher Harvard University - Harvard Business School University of Notre Dame - 02/27/2020

No. I wouldn’t feel any different.

What is your intent with this business? Do you intend to be an active owner/operator? Or an absentee owner so you can do other things, too?

Now you’ve added that you brand new to this business and you’re willing to give up to 15% of you let equity to some who will work for you right out the gate.

Again, I don’t know all the details, but there’s many assumptions in poaching a competitor’s GM. Like: will this person fit your business; fit with you; are they actually good at what they do? Do they have a proprietary matters or nonsolicitation agreement because those have some teeth?

And just like that, you’re willing to give them equity?

That’s a lot of risk you’re taking on right away when you’re brand new. You’re already taking on enough risk buying the company, inheriting someone else’s problems and culture, and needing to learn while getting the buy-in from your employees and customers.

As I’ve noted and others too, spend your first year learning your business, getting to know your clients, and keep the train on the tracks. That’s my recommendation, which shows I haven’t changed my position.

like reply | 0 likes

searcher Creighton University - Heider College of Business - 02/26/2020

Absolutely not. Why would you consider parting ways with the most knowledgeable person in the company if you didn't need to do so - especially at a time when you're most vulnerable and inexperienced? Your first goal is year one is to learn the ropes and to not break anything. Find a way to keep the owner around for a reasonable amount of time. Learn the ropes yourself first so that you can serve your team.

like reply | 2 likes

investor Stanford University - Graduate School of Business University of California, Berkeley - 02/26/2020

I'm new to the search fund community, but have been involved in hundreds of transactions of all sizes. For me, in any transaction i rely on three principles: transparency, decisiveness, and continuity. And, these are not tradeoffs rather they work together. So i agree with comments above that if you can keep the owner around, while at the same time being transparent with the organization and being decisive about the direction and needs, you'll be well served. Also, deciding to wait to decide is being decisive!

Hope i'm on target here for a search fund.

like reply | 2 likes

searcher University of Georgia - 02/26/2020

Great feedback and questions! I left out key details in the post, but have fixed this now.

like reply | 1 like

intermediary University of Utah - 02/27/2020

The time you keep the owner around might depend on the relationships he has with key customers. Not knowing any details it’s a little difficult to help you with your timing. Hiring a GM right away will allow him to take the handoff smoothly

like reply | 2 likes

searcher University of Georgia - 02/27/2020

Thanks Brian for the input!

like reply | 0 likes

searcher - 02/27/2020

Are you trying to build a portfolio of companies like a PE shop?

like reply | 1 like

searcher University of Georgia - 02/27/2020

Bingo! I plan on setting up OKRs, and managing the GM weekly. I've found the downside of hiring the best people in their fields is they want room to breath. However, in this case, it can work out well.

like reply | 2 likes

Cornell University University of Pennsylvania - The Wharton School - 02/28/2020

How do you envision compensation structure for the GM? Equity/profit share/performance bonus + salary?

like reply | 1 like

searcher University of Georgia - 02/29/2020

Great question, and this is very important. I would offer him slightly more salary than he is currently getting, profit share of up to 20% of his salary, and 10-15% equity vested over 4 years with a cliff. The goal is for both of us to feel like partners.

like reply | 1 like

Cornell University University of Pennsylvania - The Wharton School - 03/02/2020

Would you plan to contribute an equal amount of operational support?

like reply | 0 likes

searcher The University of Chicago - Booth School of Business Kansas State University - 08/23/2020

I would recommend jumping in with both feet and learning all you can while the seller has momentum. My experience is that sellers say they want to stick around, but then over a few weeks find their interest wanes while the $$ in their bank creates a distraction that is hard to ignore. The sooner you get up to speed, the more the right strategy for the future will become clear. But you certainly don't want to leave a knowledge/power vacuum if the owner takes his/her foot off the gas.

like reply | 0 likes

searcher Saint Louis University - John Cook School of Business - 08/24/2020

Lee, it seems that you want to be an absentee owner - which is great that you know that. If you trust the GM from your competitor, hire him. Could you arrange the contract where you have a 1 year trial period with him before giving him equity? I order for him to "jump ship" from his current employer he probably wants equity - but see what you can do in order to protect your own equity.

like reply | 0 likes

lender Carnegie Mellon University - Tepper School of Business Pennsylvania State University - 08/24/2020

good comments from both Rob and Greg. I will add that you should really evaluate the current bench of management. do they need someone on top of the pyramid? or can you sort of assume the "absentee owner/sponsor role? maybe you wont need to be in the business 50 hours a week, but you can still run some weekly meetings and keep people honest. this is always a deal by deal discussion for us, but they plan does need to be laid out ahead of time. more skin in the game post close for sellers, the better. are you going to give management any equity? or the new GM? that extra incentive can align interests and is pretty standard. if seller really is going away pretty quickly, the knowledge transfer is key and id agree getting someone sooner than later should be a priority. i would still make sure you have that relationship with sellers where you can pick up the phone in times of need or just for a monthly friendly lunch (your treat!).

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