Insights

Founder Independence: A Life, Some Liberty and the Pursuit of Liquidity

By Steven Keeler

If you’re a company founder, you’re one-part entrepreneur (risk taker and hard worker), one-part evangelist (visionary, persistent and credible salesman and leader) and one-part complaint factory (manager and solver of customer and employee problems). As your business grows and you “mature”, you will likely want to be more evangelist than manager, and you deserve to start considering your time, personal risk and asset diversification. Your founder evolution is ultimately good for the company - the less dependent on the founder a business is over time, the more valuable the business will be in the eyes of management, customers, investors and buyers.

Private company ownership is really a “private equity” investment – a relatively illiquid asset that may be the biggest one on your personal balance sheet and in your estate. Sure, you may be pulling good compensation, benefits and dividends from your business. You more than earned that by devoting most of your life and time to the business, forgoing time with family and hobbies. From a personal retirement and financial planning perspective, as you reach a certain age, your business may no longer be the best place to house most of your net worth. At some point, it may be time to start diversifying your assets and balancing your risk and returns.

As you know better than anyone, the personal skills that made you successful in starting and growing your company may no longer be as critical as they once were. In fact, with age and experience, your skills and highest and best use may have changed. As a company founder, your personal and strategic options include staying the course and keeping your day job, bringing on a strategic or financial partner to share the upside and business risk while allowing you to take some chips off the table and reduce your management time, or selling control or all of your business.

Popular “succession planning” options include cashing out of your company with a bank-financed ESOP, leaving the business to family or negotiating an internal buyout with your management, but these routes often don’t work out due to their unique challenges and risks. Outside capital or a sale of the company will at some point occur, whether during your watch or later. The route you choose will have a significant impact on your personal and financial independence and family, as well as your company, employees, customers and community.

Your founder independence is not just business, it’s also personal. And what’s best for you may be best for your company and all of its stakeholders as well – including your family, employees, customers and community.

• The Right to a Life. Regardless of what management and leadership succession steps you have already taken, you may be ready to cut back on your day job, or at least the parts of it that you no longer enjoy or are good at. After years of building a business, you would probably like to spend more time with family and on your personal interests. The best CEOs know when to make themselves chairman instead of CEO, to play some other role, or to leave. If you sell a significant stake in or control of your company, the sky is the limit in terms of what role you and the investor or buyer can agree for you to play going forward. I’ve seen countless founders really enjoy a new beginning by either taking on more of a “company face” role or leaving the business.
• The Right to Some Liberty. Most founders and CEOS get to a point that they just don’t want the headaches of day-to-day management anymore. You may still have real passion for the company, its people and its future, but might prefer focusing your time and attention on strategic growth opportunities, business development and customer relationships. These are the vision and people sides of the business. As a founder, you’re already taking most of the financial risk through your controlling ownership, but you may have also become way too important to management and operations for your and the company’s own good. You may have put a great team in place, but until the buck stops stopping in your office, you may still feel more like you’re self-employed with helpers than the owner of valuable private equity. Similar to focusing more on your life away from your business, I’ve seen many founders achieve real satisfaction by handing over the operational reins to a new CEO or COO, or even to new ownership. You can tailor your personal involvement in the business any way you choose. You don’t have to stay the current course or move to the beach – there are many options in between.
• The Pursuit (and Importance) of Liquidity. Many founders and CEOS make plenty of money owning and running their companies. And they may not even be that concerned about selling for a large sum of money from a personal financial perspective. But most founders and CEOS would like to see their businesses survive themselves, and without some type of exit transaction or at least an exit plan, the company’s survival beyond the founder will be much less certain. Assuming that leaving the business to family, cashing out with an ESOP or selling to management are not feasible, a founder should consider outside money to liquidate all or portion of the founder’s company ownership. That change of ownership, and your taking chips off the table, can occur in one or multiple steps. But it is a change that will allow you and the company’s other stakeholders to convert an illiquid, relatively risky investment or asset into money that can be reinvested and enjoyed in the future.

The founder has the power and experience to make the right call at the right time. At some point, company ownership will change, with or without you. You built a good business, and now you can do the right thing by the company, your employees, customers and community by doing what’s right for you. Devising a plan or transaction that frees you from the business, and the business from you, may provide you and all of the company’s stakeholders with more liquidity and security, as well as new opportunities and upsides.

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