Pies & Ties: How to Maintain Family Ties when Selling Your Business
Part of the magic of any family business is its relationship to the founding family. Founders know well that there’s often a very blurred line between work and home life, and many will refer to the company as another member of the family. Employees and customers can be drawn to the familial ties, especially when they translate into a familial culture. Over generations, this relationship creates an invaluable legacy.
That said, families and businesses change and grow over time. Many owners, especially those in the second, third, or fourth generations of a family business, may start to recognize good reasons for diversifying ownership – more resources, succession planning and personal financial liquidity, or the ability to conquer a growth plan, just to name a few.
But selling can be hard to champion when the emphasis is on “family” in a family business. And as investors, firms like Permanent Equity don’t want to lose the associated cultural and operational magic, either.
So, how can you maintain the family legacy when selling a family business?
Keep business as usual.
Changes in ownership don’t have to be a big, public deal, especially in small, private companies. We have had partners express concerns about how their team, customers, and the broader community may perceive a change in ownership. We’ve been introduced as everything from new owners to “people here to help.” At Permanent Equity, we’re investing because of what’s great about the company already, so the last thing we want to do is cause negative disruption.
Give yourself options.
Every individual deserves the right to retire, if and when they so choose -- even owners. When you’re the owner, especially as an individual, you can be put in an unhealthy position to have very little optionality to fully retire.
As an example, we invested in a business alongside four partners, ranging from their early 40s to late 60s. Many of their relatives worked for the company, and they individually wanted to continue to work as long as it made sense. For one, he had a clear date marked on the calendar to retire and spend time with his grandkids. Another said he expected to work until his last day on earth. But collectively, aging brought on the realization that they at least needed the option to retire, and it would likely be disruptive to both their partners and in operations… unless they made a plan. Bringing in an investment partner that would survive all of their individual involvement was a cornerstone of that plan, and doing so in advance gave everyone the peace of mind to make the right choices for themselves without any guilt about how it would impact partners, family members, and other team members at the company.
Don’t sell the whole pie.
Most of Permanent Equity’s transactions result in growth partnerships. The selling families are selling a portion of the business to us, but not all of it.
In 2022, we partnered with two owners in their thirties on a software company. They had worked hard to build a familial company culture that most software peers couldn’t mimic, and they were growing in team scale and customer success as a result. As the business grew, they were encountering obstacles they had never seen before, and wanted a bigger sounding board and more resources to grow. And so, our partnership is structured so that everyone can win together… and without reestablishing headquarters in a bigger city or altering the culture.
Maintain ties!
Finally, selling doesn’t automatically mean all ties must be broken. But it does depend on who you sell to. You may not want to stay if you don’t like the buyer.
Maintaining family ties can take many forms. Here are few examples that can be achieved, depending on who you partner with:
Maintain the family name
Maintain operating roles for family members
Maintain some percentage of ownership, sometimes for successive generations
Maintain community philanthropic involvement
Maintain familial-style cultural traditions with the team
Family ties can be deeply meaningful and valuable. When it comes to taking on investment, finding the right investor is kind of like finding someone you will want to bring home to meet your family for the holidays. Family is family, but sometimes a new addition can be great, too.
