A successful exit is certainly a highlight in the career of any entrepreneur. Many companies are initially focused on achieving this goal. For the founders, it often means financial freedom.
In most cases, the story doesn’t end with the sale. The operational stakeholders usually stay on board for another 1 to 4 years to facilitate the transition of the company or to execute the shared plans with the new owner. The so-called earnout in many deals can be larger than the initial purchase price. So, it’s not worth flying to the island and sipping cocktails immediately.
This inevitably raises the question: What changes for the founder/CEO in their day-to-day work if they now work for a large corporation?
As an entrepreneur, I’ve had the privilege of experiencing this twice: we sold both Absolventa and Passion 4 Gästezimmer (monteurzimmer.de & pension.de) to German corporations. I’ve also helped other entrepreneurs sell their companies to corporations, such as the Deutsche Auftragsagentur (DAA) to Bosch, among others. Countless conversations with fellow entrepreneurs on this topic have further enriched my understanding. I’d like to share some recurring themes on this subject.
#1 Financial planning and proper ratios
Depending on how established the company is at the time of the exit, financial planning and reporting can be more or less mature. In almost all cases I’m familiar with, precise planning and monthly reporting have become much more important after the exit than before.
In startups, the primary focus is often on growth and not going bankrupt. The specifics of how this works are figured out along the way. No one expects founders to meticulously plan every detail and foresee all developments in the early stages. If the company is growing, that’s great. If it’s not, that’s a big problem.
In contrast, everything in a corporation revolves around precise planning. Even unfavorable developments are only half as bad as long as they have been anticipated in the budget in a timely manner.
The importance of certain metrics takes some getting used to. For example, EBITDA is often a focal point, which does not necessarily mean there will be enough money in the bank at the end of the month. High expenses are not an issue as long as they can be capitalized, and these “investments” are neatly planned out.
#2 You are now an employee
During the sales process, buyers often emphasize that they are also acquiring your company to integrate real entrepreneurs with all their quirks into the corporation. The management responsible for the purchase usually means it sincerely.
Of course, it’s also clear that in every corporation, a whole army of controllers and administrators has no interest in entrepreneurs disrupting their organization. So, from my experience, it’s almost impossible to obtain company shares, for example, in a subsidiary newly established with the corporation. Salaries must fit within the corresponding salary bands within the corporation. New projects are no longer just assessed based on their potential for growth or profit. Politics plays a significant role.
In the end, two worlds collide: the entrepreneur takes maximum freedom for granted, while the corporation expects a loyal employee who adheres to the rules. The phrase “You should have discussed that beforehand!” is a constant companion.
#3 Group integration sucks
In a startup, things need to work, while in a corporation, they primarily need to conform to corporate standards. Classics in this regard include accounting, procurement processes, or payroll accounting.
Before the sale, we handled accounting and payroll with a mid-sized Berlin-based tax office. We took care to ensure that all documents were complete, and the tax office entered everything into Datev – simple and effective. After a certain “grace period,” we had to switch to SAP within the corporation. Take the example of procurement processes: previously, we pragmatically ordered toilet paper from Amazon, but within the corporation, it had to go through central procurement. The expected cost savings from bundling orders from many corporate entities sound good in theory. In our case, we procured many things more cost-effectively through Amazon before than later through the cumbersome central procurement process.
In a nutshell, these issues are primarily frustrating and time-consuming, and I recommend creating a role dedicated to coordinating these integration matters right after the sale, with the costs typically covered by the corporation without impacting the Earnout, in my experience.
#4 Who’s buying your business?
It’s not the corporation that drives an acquisition; it’s always managers who aim to solve a specific problem with it. Understanding this problem precisely is crucial: Is the goal to acquire EBITDA? Is it about gaining market share? Is the acquisition the result of a buy-or-build decision? Is the purchase part of a larger stock market story?
Often, it’s also about the individual goals of the corporate managers. My recommendation is to sit down with the management early on to understand their motivation: “What is important to you? What are you being measured against?” While there may not be a high level of trust at the beginning, the answer might be something like, “Well, for me, it’s important that our corporation is successful.” That’s certainly true. However, the management also associates personal motivation with the acquisition of your company, and it’s essential not to overlook this aspect.
#5 There is a lot to learn
Working as a corporate employee isn’t always fulfilling. At the same time, I can’t understand entrepreneurs who constantly criticize and make fun of the inefficiencies within a corporation. Upon closer inspection, many processes do make sense. In a business with billions of euros in revenue and thousands of jobs, an overly pragmatic approach is often hard to justify from a risk perspective. Transformation processes, especially, take time, and many stakeholders need to be engaged.
I viewed my nearly 4 years in the corporation as a kind of MBA program. After all, such a large part of our economy operates this way, and I had no prior knowledge of this world. Especially as an entrepreneur who may also sell companies to corporations in the future, it is extremely valuable to know your customers we
I look back on my time in the corporation after the exits with an overall positive perspective. Perhaps this may come as a bit surprising to some. Yes, many things were frustrating, and it often made the entrepreneur in me bristle. However, I’ve also learned a lot, and I now have a much better understanding of the inner workings of a corporation, as well as more empathy for the people involved. Economically, the collaboration with our buyers was very fruitful for all parties involved: Both times, we exceeded the set earnout goals.
A temporary partnership with a corporation can be very valuable, but for true entrepreneurs, it is rarely a permanent solution.