In the how to sell your company article I wrote at length on the process of how to go about selling your company once you’re ready for that. Which makes it seem as if there is no choice, either you sell your company, or you don’t. Simple as that.
But every now and then a founder comes up with the exceedingly clever idea that he or she can have their cake and eat it too: Why not hire someone reliable to run the company, either find a qualified person externally or promote one of the employees to general manager, take off to Ibiza and watch the money roll in while lying on the beach. Passive income if there ever was, it seems such a good idea!
Unfortunately that good idea is fraught with peril and in more than one case I’ve seen this scheme unravel in the most terrible fashion. There are a whole slew of possible reasons why this scheme does not work well in practice, here are some examples of what can go wrong:
- They don't actually need you
It just might be that you're right, and the company can run without you at the helm just fine. This means that before long there will be a general feeling of resentment, after all if you (and possibly your co-founders, also lying on the beach) are going to receive all or at least a very large chunk of the profits then why do all the hard work? In that case it is an easy decision to instead of doing a management buy-out do a total reboot in the office next door with the current batch of customers as the jump-off point. Of course, such a scheme takes a certain person to start it and to pull it off successfully and of nobody currently working with you or for you would *ever* think of such a thing.
- They do actually need you
You leave, profits are good and everything seems to go well for a number of months. And then the company takes a nosedive either because your prolonged absence has caused more and more issues to pushed back or because your key customers liked to know that you were running the company and they feel let down ever since you turned your back on them.
- They don't need you right now
The company is doing well and will continue to do well for the foreseeable future. Meanwhile, you start up your new venture 'x', which you were dreaming off all along while you were still hip-deep in running the original one. But after a while (months to years) a very serious problem surfaces in the original company and you have to decide what you're going to do: go back to the original company and run that until the problem is taken care of possibly killing venture 'x', or alternatively, tell the people running the original company to solve the problem themselves quite possibly killing the original company which would leave you without your steady source of income. (And quite possibly, after that ruining venture 'x' as well).
- You create a strange power dynamic for the new CEO
Whoever steps into the shoes of the CEO after you take your leave will have to contend with a number of your employees and customers insisting they 'take it up with you', because after all it is still your company. You can take care of this by categorically deflecting the issues back to the new CEO but the temptation to intervene and to do things 'your way' will always be there. This can lead to significant issues between the new CEO and the shareholders (you and your co-founders) possibly leading to the CEO eventually giving notice they want to 'spend more time with their family'.
The larger the company the easier it will be to work around these problems, but for small companies (say < 30 employees or so) I’m pretty sure this is good advice.
If you want to re-phrase this argument in monetary terms: would you invest all your savings in a small company that is run by someone else?
So, if you are planning to either to take an extended vacation, retire or start a new venture: Sell your company and keep it clean, make sure there is a distinct moment up to where you’re in charge and where the problems of the company are your problems and once you cross that point that all you have is money in the bank and your hands free. If you plan to hold on to some stock make it a very small portion that you can walk away from without hurting too much.
And if you can’t do that then simply keep running it.
Having your cake and eating it too is in my opinion not wise, the smaller the company the more important this gets because the relations are that much more personal. And if you do have success stories about how you managed to extricate yourself from the day-to-day running of a company while keeping a majority of the stock for an extended period without having to re-take the helm then please let me know because I’d love to figure out what your secret is.