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When Happiness Is Not Enough

Keeping employees loyal isn't all about perks. Sometimes, you need to use both carrots and sticks.
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Perks and a great workplace are not always enough to keep employees loyal to your business. If you ever want to be able to sell your business, you need to add some ‘sticks’ to the ‘carrots’ you use to motivate employees.

According to workplace gurus like Daniel Pink, the author of Drive, and celebrated entrepreneurs such as Zappos’ Tony Hsieh,there are some simple steps to developing loyalty in your employees: Define a set of values, explain the purpose of your business, give people autonomy to do their job, and show them how their role fits into the big picture. 

But it’s not all about the soft stuff, or all about the carrots. You need some sticks that make it hard for employees to wiggle out of their commitments to your business if it changes hands. Lawyers call this glue “assignability.” It’s a clause in your employment agreement saying that if you sell your company, your employees have to honor the terms (e.g., confidentiality, non-compete, etc.) of their employment contract with the new owner.  The rules vary state-by-state, so make sure to call in a lawyer who can help you make assignability into your agreements.

e2b teknologies, a five-million-dollar-per-year technology reseller based in Chardon Ohio, has done just this. “Lynne Henslee [e2b’s president] has positioned her company well,” says Emmet Apolinario, a certified exit planning advisor and the president of Columbus-based Confidential Sale. “If she ever wants to sell, Henslee will have plenty of options.” Although Henslee isn’t looking to sell, she agreed to let us analyze her company for this story. 

Much of e2b’s $5 million in annual revenue comes from recurring sources or long-term contracts. Henslee has done a number of things to create a work environment that makes her team feel loved. “I believe our relaxed culture is what keeps everyone loyal,” says Henslee. “We make breakfast for everyone in the office every Friday morning.  We have company fun days at least annually. Everyone's birthday is celebrated.”

Henslee has also got the hard stuff right. Her employees all sign both non-compete and non-solicitation agreements that are “assignable” in the event of a change of ownership at e2b. If an acquirer were to buy e2b, they would, at least in part, be buying the company for the extensive and varied technical expertise of its staff. “The buyer is therefore going to want to ensure that this asset – the people – will stick around under the new owner,” says Apolinario.

Motivational carrots make for great cocktail conversation. Don’t let that distract you from making sure that your employee agreements have the teeth you need should you decide to hit the eject button.

Last updated: Sep 19, 2012

JOHN WARRILLOW | Columnist | Sellability

John Warrillow is the author of Built to Sell: Creating A Business That Can Thrive Without You and the founder of The Sellability Score, a cloud-based software company that helps business owners improve the value of their company.

The opinions expressed here by Inc.com columnists are their own, not those of Inc.com.



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