The large PE buyouts that came from the ridiculous ZIRP period could deliver better financial stability than handing the business down.
I know two families with businesses that attracted huge PE offers in the past few years. One of them took the buyout and the family members slowly left their jobs at the company because they effectively been early retired by their buyout.
Now the kids are looking at new businesses to buy and start for themselves with this new financial freedom that has come to the family. One of their considerations is starting another business in or around their old line of work that was sold off. They have to wait until the contractual non-compete expires, but if the PE owners are really making both the employees and customers miserable then it becomes a golden opportunity for experienced operators to come in and run a good business in the vacuum. Even many of the old employees have expressed a desire to join.
The bad PE phenomenon buyout is annoying, but businesses that become miserable for the customers and employees are not stable long-term businesses. When they decline because competitors show up to do a better job and retain better talent, it becomes a transfer of money from the lenders to the old owners and an annoying churn in the local business scene. As we see more of these failures, the willingness of banks to lend for these buyouts will go down.
The trick is that the business owner has a good relationship with his customers. After the PE investors run it into the ground, they can credibly reach out to customers directly, assure them that the adults are back in charge, and basically be a hero to the old customers who hate what the business became.
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Instead of succession, I wonder if there is a way to make it easier for these people to sell their company when its time to retire to someone who is looking to start the next step of their career. A lot of software engineers joke about becoming farmers, but if they could instead make an easy transition into a small business by buying a small business, we could prevent PE from raiding things.
And that’s before you even make it to the question of “can the person that manages to buy it actually live off of it as a lifestyle business?”
I guess what I would like to see is a pathway to making it easy to buy or start up crucial businesses like a plumbing business, HVAC company, etc. As the current generation of owners want to sell and retire, we should make it easier for people to be able to get in there and buy these companies before PE can.
Family businesses handle this by slowly getting the next generation involved, such that the intangible value has been transferred by the time the owner wants to retire. That works less well with a stranger. You really need high levels of trust to make that work fairly for both parties.
So they can only really be inherited or given away (and they often are).
But if it's not to kids on death, it's moderately difficult to give away a business that has "paper value".
I'm sure there are tons of people in my local area who could happily and successfully run such a business, but nobody can swing it financially. The initial financial hurdle of going from "not a business owner" to "a business owner" is real.
Same thing happened with a restaurant - nobody wanted to buy the business so it shut down, even though you could have bought the whole business for the cost of the building, basically.
(There's a path for entrepreneurial "youngsters" - identify these businesses 10 years before, and become a valuable employee in such; I've seen them given away for a song to such. Of course, in some of them they also ended up with the daughter, so ...)
This leads to them pushing their kids to be employees even though that's...really contradictory to their actual lived experience.
Family businesses have traditionally gotten around this by having their children involved for 10+ years prior to taking over. That way, you slowly transfer your "social capital" to the new owner (in this case your kid). This is understandably harder to manage with a stranger, because you can't transfer the value before they buy it, but they won't buy it if they can't guarantee you'll help them transfer the value.
Why? Operating a successful business should be remunerative on its own, or else it's not successful. Owners who don't want to do it anymore can let it become worker owned. If they don't want it, it can dissolve. What else do you need? The very concept that the end of a successful business is a big payday for its creator is itself the poison here. There is no end just another workday, success is ongoing not final. This is natural and correct.
When they retired they didn't have any money in the bank besides the proceeds from their final harvest, but all their loans were paid off. That's where the profits went -- paying off the loans.
The farm was their retirement savings. They sold it off for high six figures, and that's what funded their frugal but comfortable retirement.
The neighbor's son bought the farm; I hope he's pretty much paid off the loan he took out to buy it.
It's the same with gentrified zones: yes there are some dark patterns going on as well, but mainly is previous, smaller owners that want to make big bucks by selling to someone with money from outside rather than someone local like themselves for less money.
I'm not trying to put all of the blame on individuals responding to the pressures being applied to them. But neither am I accepting their abdication of the responsibility to act with honor and courage in the face of those pressures.
My guess is owner-operator selflessness is a key ingredient in a lot of beloved small businesses. I don't know for certain that the winning personality for getting a business off the ground on all the bad days is the same one that raises rates proportionally with their success.
So it becomes all-or-nothing. It's my friends and neighbors when I'm working, when I sell-out it's purely business. No in-between.
The door refused to open. It said, “Five cents, please.”
He searched his pockets. No more coins; nothing. “I’ll pay you tomorrow,” he told the door. Again he tried the knob. Again it remained locked tight. “What I pay you,” he informed it, “is in the nature of a gratuity; I don’t have to pay you.”
“I think otherwise,” the door said. “Look in the purchase contract you signed when you bought this conapt.”
In his desk drawer he found the contract; since signing it he had found it necessary to refer to the document many times. Sure enough; payment to his door for opening and shutting constituted a mandatory fee. Not a tip.
“You discover I’m right,” the door said. It sounded smug.
From the drawer beside the sink Joe Chip got a stainless steel knife; with it he began systematically to unscrew the bolt assembly of his apt’s money-gulping door.
“I’ll sue you,” the door said as the first screw fell out.
Joe Chip said, “I’ve never been sued by a door. But I guess I can live through it.
- Philip K. Dick, Ubik
"In developing countries, everything is possible and nothing works. In developed countries, everything works and nothing is possible."