The People Problem That Reprices Your Deal ft Vered Levant

[0:04] Okay, let’s just make sure we’re live here.

[0:24] Well, thanks everyone for joining today and welcome back to Out of the Weeds Live. My name is Nish Sampath and I’m the founder of Switch Advisory, and this is a show for founders who want to build a business that runs without them and one day maybe even sell it for what it’s actually worth.

[0:37] So here’s something most founders get wrong about selling. They think about the selling process as being a financial event or a legal event. So they clean up the books, they hire the lawyer, and the whole time, one of the biggest things that decides whether the deal closes at full value is sitting beside them at the desk. It’s the people. It’s the key person risk and whether your team stays after the deal is done. And the challenge is that none of that gets fixed in the 30 days before you get a term sheet. It has to start a lot earlier.

[1:07] So today we’re going to talk about the people side of a sale — the part founders manage last and a buyer looks at first. And I could not have a better guest. Welcome Var. Var is the founder and CEO of Vimemy HR, a fractional HR firm that supports the kind of founder businesses we talk about on the show. Welcome Var. Amazing to have you. Thank you so much for joining us. Tell us a bit about yourself.

[1:34] Yeah, thanks for having me. So my name is Var Levant and obviously thanks for the intro. I spent over a decade in corporate HR working really as a business partner, and after I left 10 years later I saw that there was kind of a gap in the market. A lot of HR consulting firms were really focusing on the strategy, handing over deliverables, but no one on the HR operations side was actually embedded in the business helping small businesses — and I saw that as a strategic lever. When I started 10 years ago, I think a lot of small businesses still saw HR as a cost center. We’re seeing a wave of change in that mindset. And yeah, we function as an operations team. So we do obviously support strategy and think proactively about helping organizations scale and setting them up for success for sale, but also supporting them on the execution side.

[2:38] I love it. And obviously you and I have partnered with clients and we love the Vimemy team. So very very happy to have you here. So let’s get into it. Obviously there are HR implications for a sale which extend from pre-sale, during the process, and then after the sale even happens. What are the major blind spots and challenges that a founder often never even considers on the HR side that impacts that deal?

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Chapter 1: The People Side of a Sale — What Founders Miss

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[3:05] Yeah. So there are many things to think about when you’re considering a sale — and I’m sure this has been brought up on your show many times — but you have to be proactive. It’s not going to happen overnight. And people are sticky. Change is hard. And so the sooner you can start preparing for that sale, the better, especially on the people side.

[3:32] And so there’s one thing about mitigating risk and having the policies and all that stuff in place — and building the infrastructure to document what people do, drive accountability — all of those sort of system pieces that we obviously develop within Vimemy HR for our clients. But you need time to practice those things. So it’s one thing to say, “Hey Joe, here’s your job description and all your responsibilities,” but you have to take the time to look at that shift and ask: is Joe actually doing what he needs to do? Where are the gaps? And let’s course correct or tweak the system.

[4:22] And the same thing happens on the founder side. So taking the time to make sure that the business can operate without you. And how do you do that? It’s starting to delegate some of those responsibilities that rely on you from an operational standpoint — but then step away, take a two-week vacation, see what happens, and then see what needs to be addressed when you get back.

[4:48] I love that. That two-week test is kind of our litmus test. So when we’re going in and we’re checking around founder dependency and how much of an implication it has negatively within the organization, we say: can you take two weeks off and not look at your phone and actually trust that the organization is going to continue to operate effectively, that people and clients are going to be happy, and that you’re not going to have to put out a whole bunch of fires when you get back home?

[5:12] Yeah. You can document everything, but it’s the decision-making. It’s the nuanced things around behaviors and really the cultural fabric that need to be monitored.

[5:33] Incredible, right? Like that’s exactly it. It’s a muscle that has to be exercised. You can’t just do it once and assume everything is going to be great and you’re going to be super strong. You have to continuously go and work that muscle. And I think that cultural muscle is pretty important. Can you tell me a little bit more — like when you’re going into these organizations, what are some of the things from a cultural perspective that you can do to sharpen the organization so that they have that resilience?

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Chapter 2: Culture Is Not Fluff — It’s the Foundation

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[6:09] Yeah. So I’ve seen so many times where we walk into an organization and they go, “Oh yeah, we don’t have a people problem. Everything’s fine.” And we start having conversations — in particular with the leadership team — and realize: oh, actually they’re not all on the same page. They’re not aligned. They don’t know what the founder’s thinking in their head, where they want to take the business, what that’s actually going to look and feel like for everyone.

[6:36] So those are some of the things that we start to create a common language for. I mean it sounds fluffy, but it’s foundational — it’s the anchor. Looking at the purpose and values and making sure they’re interwoven into the system that we develop, because that common language is going to create the right behaviors to create the culture. So it’s one thing to have values on a piece of paper, but what’s the living system that’s in place in the organization? You can create the standards, the operating procedures — but the how of how those things are done is the cultural piece. And that common language needs to be developed, be intentional, and be reinforced.

[7:22] I think that’s wonderful. If I’m honest, I used to think values were fluff too, until I really got into it and understood the implications to the organization and how critical it is to make sure you’re aligned not just with your employees from a cultural perspective, but even your clients, your partners, your entire ecosystem. Can you give me an example — just as a little bit of an aside — like how do you exercise values within the organization? How do you make sure it becomes part of the fabric?

[7:52] Reinforcement and also making decisions based on those values. So Susie could have all the competencies of her job in place, but she’s not living the values. She’s not a team player — if that’s one of your values. She’s not collaborative. She doesn’t work in a way that’s honest. So that’s disruptive to your team, to your organization. And we see it in organizations all the time — especially large ones — where you don’t have line of sight to those daily behaviors and the focus is on someone that’s really good at their job, so let’s promote them. And it creates chaos. And as you know, in a small business, that’s just a non-negotiable because everybody counts. So that becomes amplified and it needs to be addressed right away.

[8:54] And that’s how critical values are in terms of making sure that you have the right culture in place — and you need to be attuned to the behaviors of everyone on your team.

[9:06] Yeah. I was having a conversation with some clients just the other day and we were talking about somebody who wasn’t the right fit anymore for the organization. Frankly, the alignment had been pretty clear for quite a long time, but there was that fear: if we let him go, what happens to the rest of the organization? And I frame it almost like it’s a cancer — and that cancer unfortunately spreads if we allow it to stay within the body. So sometimes you have to make those hard decisions and cut that cancer out as quickly and effectively as we need to.

[9:35] Yeah, absolutely. And in small businesses what we try to do is minimize chaos. As much as the business can just flow, because there’s this sort of natural rhythm that’s created, the better — and profitability increases. So not addressing those behavioral issues creates chaos and ultimately will affect profitability.

[10:02] I think that’s the strongest tie — people don’t often consider the direct line from strong culture to strong profit. But we see it every time where organizations are thriving, the people are working hard, they’re happy, they’re excited, their positive energy is flowing throughout the organization — and it has implications to the top line, to the bottom line. It is truly seen within the organization. And vice versa, the opposite is totally true as well.

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Chapter 3: What Buyers Ask First

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[10:37] Let’s jump into — when a buyer is first approaching an organization, what are some of the HR questions they’re asking right up front?

[10:43] Yeah. I mean, again you’re looking at: can the business run without the founder sticking their fingers into operations on a daily basis? Does the business rely on one person? So we’ve walked into new engagements and maybe the founder isn’t the key person anymore — the business can run without them — but maybe their operations person has all of this institutional knowledge. They’ve been raised in the organization and they haven’t really delegated or let go of some of their functions. So you put your organization at risk and it really isn’t of value if the things that create the company are all in one person’s mind.

[11:38] Totally. Couldn’t agree more. And let’s continue with that — key person retention. Obviously at Switch, when we’re guiding clients towards that sale, our focus is significantly to decrease that founder dependency. That’s critical for the health of the organization and for that founder-CEO to actually be able to sell and leave at some point versus having to go along for the ride for five-plus years. From your perspective, key man risk goes beyond that single founder potentially. How do you take that risk into consideration? How do you keep critical people through a process that you can’t even fully talk about yet?

[12:16] There is a level of transparency that you can have and I would say get ahead of it — because people can feel it, especially in a smaller business. They’re going to see new people in the office, the founder in meetings all the time with strange people. And people talk. So I think there is a level of transparency that needs to happen, and you also need to nurture what you have. And by that I mean telling your team that this would not have happened without them and that there’s a future. You know, you’re doing this to support continued growth — and letting your team know who is critical.

[13:05] If it’s your leadership team, you’ve got to work on that first and build that transparency with them, and then also help them create communication to their team. So yeah, there is some level of proactivity and you have to be as transparent as you can be around what’s happening, but also minimize the risk of flight.

[13:37] And then the other piece I’ve seen a lot too with some of our clients is — again, like that key person who doesn’t want to let go — but I think there’s also an opportunity to say: hey, you’ve created a lot of growth for this company and we want to multiply that. So how are we going to do that together?

[14:11] Yeah. So take them for the ride essentially with you. So let’s dig into that a bit more because — before we dig into infrastructure, contracts, bonus plans, and how you can actually retain those employees — there’s that human side that we kind of scratched on, which is that most of the time the team itself has little to no idea that leadership is considering a sale. Especially if we’re looking like we’re starting that process and maybe we’re 18 to 24 months out before something actually happens. You know, the sale process often takes longer than we perceive it to be. How does communication and timing impact morale? And how do you protect a team from that FUD — that fear, uncertainty, and doubt — that can bleed in and kill some of the morale when they’re seeing silent meetings and just wondering what’s happening within the organization?

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Chapter 4: Communication, Timing, and Managing the FUD

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[15:03] Yeah. I think a lot of people don’t understand that process. And a lot of the times it’s maybe even just walking them through what typically happens in a sale so that they’re prepared — because it’s the fear of the unknown. So it’s the education piece. If you can let your team know: this is what we’re doing, this is what we’re looking at, and as much as we can maintain what we’ve been doing the better for everyone — so how are we going to do that together. So again, it’s like bringing them in to solve the problem with you. They’re a part of it.

[15:45] And how far down the organization does that go? Is that just with the leadership team? Or is there a sequencing that you would suggest depending on — hey, stage one is maybe we’re thinking about a sale and we’re going to explore the opportunity — is that the time to bring somebody in? Or is it towards: hey, we have an LOI on the table and there’s a real possibility this will move forward?

[16:08] Yeah. I think again you have to manage change well and you have to be intentional about it — and that’s all about utilizing the resources that you have and creating some level of awareness first and getting buy-in to the shift. So I would always say: bring your leadership team in first. They’re the ones — if an organization is working well — who have the closest relationship with their team members. And to get their buy-in, you have to bring them into the fold so that they can use their own words and strategize with you on how you’re going to communicate that and what that flow is going to look like and how you’re going to bring people along — because it’s step by step.

[17:05] And I think that’s critical too, because think about it — if I’m the founder, I shouldn’t be the sole person having the conversation with potential buyers. That shows again that founder dependency that is potentially way too high. What you would want to show is more of an equal footing across your leadership team where other people have knowledge, they have clarity on the strategy, they have clear accountabilities within the organization. So not everything relies on one person. Client relationships aren’t just owned by a single human being. Fires don’t go to one person to get put out. You have to demonstrate that through the sale process. So no better way than frankly bringing your leadership team along for the ride and having that conversation clearly.

[17:49] Absolutely. And as a founder, if you did things right, you’re going to have some blind spots too. You don’t know every corner of your company anymore. Hopefully. Right. Hopefully — that’s the ambition. Have you seen it blow up anywhere where poor communication led to some folks within the organization leaving through stress?

[18:06] Oh yeah, we’ve seen it so many times — where the focus is elsewhere and it’s not on what actually makes you money, which is your people. You have to look at it as a holistic system of change and it’s not only just the sale, but thinking of the implications on your team. And if you’re not doing that, if you’re not being sensitive to that piece of it, yeah, people are going to leave. And again, that creates chaos. So everything that we do is really trying to minimize that chaos. And it’s not just about the moment — it’s being proactive around it.

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Chapter 5: Keeping Culture Alive After the Deal Closes

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[18:55] So before we go back into that retention conversation — when a deal does close, are there tools and strategies you can use to make sure that the culture actually survives with the new owner?

[19:12] Oh, that’s a hard one. Because a lot of the values work that we do lives with the owner. It comes from them — they’re the reason that the organization was created. So as much as possible, if you have that structure developed and it’s woven into the fabric of it, yes, you can maintain it — because people are kind of living in this ecosystem that’s already well-developed.

[19:48] However, it has to be led by a leadership team. If you’re going to have a sale and you have a founder who doesn’t have that mindset of letting go and believing that the system works, and they want to blow everything up — that’s what disrupts the culture.

[20:07] So maybe it’s a little bit about finding the right buyer. Buyers that are kind of aligned with the organization and want to keep that future vision potentially intact — but add some horsepower behind it. That’s generally the ambition behind a sale: we’re not just letting this go, but hopefully the next owners can grow it further. But are they aligned with our culture? Are they aligned with the vision that this team has been pushing towards? Can they be additive to the organization as a whole?

[20:41] Absolutely. And that brings up a really good point. You know, if you have a founder that actually cares about their people and they’re proactive around developing that culture, they’re also going to be intentional about who they’re looking for as a buyer. And so when you’re talking about the communication piece of the sale to the rest of your team, that is one thing you can talk about: I’ve spent all this time as a founder to develop this culture and invested in the people infrastructure, and I’m going to be very intentional about finding a buyer that is also invested with that same mindset.

[21:40] Yeah. I think that’s critical. Have you — as you take an organization through this and you’re working with a founder — it’s an obviously emotional process for them. They’re trying to sell the thing they built from scratch, their baby. But they also have the everyday responsibility to lead their people. And they’ve got to hold both of these things. How do you coach these founders to make sure they’re thinking about the future but not letting it go about current, present — they’re humans — and making sure that all of their energy doesn’t get diverted?

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Chapter 6: Coaching Founders Through the Emotional Process

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[22:16] Yeah. I think it’s really tricky as a founder — there is so much emotion involved in growing a company and trying to let it go. And so I think in that process — and maybe this is the part that also takes time — is: when you are starting to let go, where else are you spending your time and what other things are you doing in your personal life to fill the other buckets? Because the reality is, even if you’re not thinking of building a company to sell it in 5 years’ time, there is going to be a time where you have to retire. And thinking about how you’re going to do that — is it going to be your son or daughter that takes it over? There’s still that emotional piece.

[23:14] And so building that plan — that life plan of what you’re going to do with that time — helps you release the emotion from it. And the other thing is, again, back to your point around finding the right buyer: I think it’s less emotional when you know that it’s going to be in good hands.

[23:37] Yeah. And what we’ve seen being very successful is frankly bringing in outside advisers — whether it’s HR advisers, coaches, fractional COOs from Switch, whatever that looks like. It’s having that third party be able to hold your hand through some of that because it is a very emotional process and you’re trying to figure out what’s right for you in the organization that you’ve built. You’re trying to let go but at the same time you’re not necessarily ready to give up control fully. And so it’s that gentle release that you have to work through.

[24:09] Yeah. Absolutely. We work with quite a few family-run businesses, and at the point that they’re ready to release it to the next generation is a lot of the times when we come in — because they want to leave it in a good state for them, they want their son or daughter or nephew to be supported. And they want them to be successful and they want the business to be successful. It’s their legacy.

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Chapter 7: Retention Tools — What Actually Works

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[24:41] Absolutely. Let’s go back to that key man risk, that retention risk — because especially for example if earnouts depend on the team staying. How do you retain those employees? How do you make sure the right provisions are in place or tools to incent employees to stay? What are some of the tools that you’ve seen being used before?

[25:06] Yeah. I’m not going to jump to incentives right away because the reality is we all know the stats — people don’t stay because of money. If you really hate your job but you’re paid so much money, it’s not going to help you perform your best or stay. And so really the first point is: how do you retain what already exists?

[25:41] Again, it’s thinking about that cultural fabric. How do you maintain that? How do you retain it? How do you continue to work as is or increase that level of efficiency and morale? That’s always the first point — how do you optimize the culture and the performance, which starts like years beforehand. Do we have the right people in the right seats? Do they have clear accountabilities so they actually know what a win is and they’re not fighting in a completely different direction than what you perceive the win to be for that role?

[26:13] Does that individual get it, want it, and have the capacity to do the role that you want? Do they have clarity on the overarching vision for the organization and are they aligned with that vision? Do they have processes that are clear, the right technology, and are things measured — and again back to: I actually know what a win is in my role? That’s probably the biggest challenge we ever see.

[26:46] So always clarity first, then communication, and then you can go to incentives. But if people don’t know what they’re supposed to be doing, you haven’t communicated what’s happening in the organization and that you’re looking for a sale and how they’re a part of it — how do you incentivize them properly?

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Chapter 8: Building the HR Infrastructure Buyers Want to See

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[27:05] So when we’re thinking pre-planning — several years back or earlier — what is some of the infrastructure that we do need to put in place to make sure that things are going to be solid and a buyer is going to have the confidence through that sale process that the HR element is strong and functional?

[27:28] Yeah. I’m going to do a little pitch about our strategic support model, but that’s what we develop. Oftentimes we’re walking into organizations that don’t have any infrastructure. So we’re mitigating risk right away — developing policies, documenting procedures, so recruitment, onboarding, common language developed, and looking at automating a lot of their HR daily activities. Performance management, how promotion decisions are made — all of that stuff needs to be built out. And then once that’s done — which usually takes 12 to 18 months in a lot of our engagements — then it’s about reinforcement. It’s about maintaining what exists and making sure that people are able to move forward and use that system.

[28:17] Absolutely. And all the time we go into organizations where those processes simply are not formalized. Usually the founder or one individual is kind of coming up with these, trying them out, but we haven’t really written anything down and we haven’t exercised the muscle. The paperwork and the rhythm hasn’t been built into the fabric of the organization.

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Chapter 9: The One Thing to Start Tomorrow

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[28:45] So we’re just about out of time, but if a founder’s watching and they’re let’s say 24 months out from a potential sale — what’s the one thing you would advise them to start looking at tomorrow?

[29:03] Yeah. Have they mitigated risk? Does everybody know what they’re supposed to be doing, what the rules of engagement are in the organization? Does everybody know what they’re supposed to be doing in their role and what their accountabilities are — and what they’re not accountable for? And is everyone else aware of what each other is responsible for? Because that’s really important. It’s one thing to have a job description, but you have to communicate across the board who’s doing what and how they connect together. So those are some of the key things I would take a look at — and making sure that you have coverage of those responsibilities too.

[29:44] Yeah. I think back to the founder dependency, key man risk element — do you have redundancy built in? Someone goes on vacation — does everything come to a grinding halt?

[29:50] Yeah, exactly.

[29:56] Var, this has been awesome. Thank you so much. It’s definitely the kind of information business owners need to have to make some of those informed decisions, especially on the HR side. So if anybody’s watching, you can connect with Var either on LinkedIn or reach out through the Vimemy HR website. Genuinely appreciate you being here today. Thank you so much.

[30:15] Thanks for having me, Nish. Take care. You too. Bye.