Why It's Easier to Start than to Sell a Business
Understand why even the most psychologically prepared company builders are surprised and hurt when they sell, and maybe moving on won't be so tough. One founder's story
I started Medivision, a network of eye-surgery centers, in January 1984. By 1988 we had grown more than 5,000%, to $50 million in sales, enough to rank 35th on the Inc. 500 list. In 1989 I sold the company. It should have been easy. For most founders it isn't, I know. Still, I thought I would be different; I thought I was psychologically prepared.
There are several reasons I should have been. For one thing, the company wasn't my idea in the first place. In early 1983, when I was at Bain and Co., planning to launch a new venture fund (Bain Capital), a group of us were looking at a lot of plans for businesses to invest in. The business plan for MediVision grew out of a consulting study Bain had done for a client. When the client chose not to pursue the new-business idea, the lead consultant dropped the plan on my desk with a note saying, "My client just rejected this, and I guess we own it. Are you interested?"
The plan looked like a good bet for a start-up. The proposed company happened to be in medical services, but I would have been interested in any industry. It could just as well have been retailing or manufacturing.
I remember thinking, I can get this started in six or nine months, and then I'll be off on my next one, starting up something else. The possibility that I would be running the company for six years, which I ended up doing, was unthinkable back then.
From the beginning I had venture investors at MediVision, including my associates at Bain Capital. Venture partnerships have short lives -- usually 10 years or less -- so I adopted a limited time horizon as well. I thought that eventually selling the company would be no big deal.
I was wrong. Selling my company was one of the hardest things I've ever done.
by the summer of 1987 two things were happening: First, MediVision was growing rapidly and generating solid profits. Second, one of the greatest initial-public-offering and stock-market booms of the century was at its height.
Right around that time, we had a board meeting, and we asked one another, "My God, can we afford not to go public?" Not only was there an opportunity for us to raise more capital for faster growth, but it also seemed unlikely the market would ever be that good again.
Going public also made sense because market conditions were changing MediVision's competitive position. A lot of new government regulations hampered us more than they hampered hospitals. Our survival, we thought, depended on raising a lot of capital to make big acquisitions or on being acquired ourselves.
So in very short order -- I think it was a matter of weeks -- we geared up for a public offering. Our final drafting session happened to be on Monday, October 19, 1987. I got up early. The meeting was at our lawyer's office. Our financials had already gone to the printer. We were sitting in the conference room, furiously drafting the prospectus we were going to file with the Securities and Exchange Commission at 5 o'clock that evening. At 10 a.m. a secretary walked in and casually announced, "The Dow Jones is down about 200." We thought she had misunderstood, that it was down 2 points. She came back and said, "I was wrong -- it's down 300!" By noon the market was down 500 points. We had gone right up to the precipice but ended up not filing our prospectus with the SEC -- by a matter of hours. That was the end of MediVision's plans to go public.
With our IPO scuttled, I began looking at our options -- raising lots of private equity or taking on debt or both, or being acquired. We subsequently raised some debt, but it wasn't enough. So by the beginning of 1989, I had convinced the board that the future of the company rested on its being acquired. I set to work finding a buyer.
I felt comfortable with the decision to sell the company, even though I knew the law of business is that the acquiring chief executive officer is the one who usually survives. I also knew that staying on and working for a new CEO would be just about impossible for me -- even if the person were my best friend. I knew that being acquired was pretty much the end of my job. Still, I had never expected to remain at MediVision for the long term, and, as a stockholder, I stood to gain from the sale. This was, I thought, a good time to sell.
Through an investment banker I liked and trusted, we found a potential buyer that looked like the best strategic fit, Medical Care America (MCA). We began our courtship dance. We had meetings, discussions, and more meetings, all of which culminated in a pretty firm agreement in September 1989.
Then I did some rather unorthodox things. First, I told the CEO of MCA I had no interest in remaining in any capacity with the business. Second, I indicated I wanted my chief financial officer, Chris, to take over my role as president.
Third, to make sure the marriage would work, I invited MCA's CEO into MediVision before the sale was formally completed and gave him a tremendous amount of information. In fact, we almost merged our management teams before the acquisition technically took place. I felt that if MCA's CEO believed MediVision could not survive without me, the deal wouldn't close.
MediVision was a specialized service business, so I think there was some concern that I had the magic wand, and that if I walked away, MCA would be buying a lot of goodwill and nothing more. I had to convince MCA in three months that the team I was leaving behind was highly competent, and that the business was stable and had a life of its own. Then I would be free to move on.
But even though I knew that leaving MediVision was the right thing for me to do, I was completely unprepared for the emotional impact the decision had on me. Here I was, in September, turning over the reins to my CFO while I was still chairman of the company. And at the same time, I was inviting MCA's CEO to set my company's future strategic direction. He would become the guy who controlled the future of my employees. I knew that once the acquisition was completed he might fire them all. I had mixed emotions about letting Chris get the feel of being number one, given that he would soon have a new boss, over whom I would have no control.
The first thing I noted after Chris became president was that people stopped walking into my office. They walked into his office instead. I knew that was because he was now the person with the authority to make operating decisions. I had given him that power. But I was irritated. Why don't they come in here, anyway? I asked myself. I wasn't being rational.
After about a week I couldn't take it anymore, and I moved out of my office. I told Chris, in whom I had absolute confidence: "Look, I can't be here anymore. You've got my home phone number. I've still got some deal-related things to do that don't involve the operations of the company. I'm going to work at home. Maybe I'll come in once a week. Maybe you won't see me for a while; I don't know." And I left.
The deal closed at the end of December 1989. In the three months following my move out, I'd doubt I came into the office more than five times. I just didn't show up anymore. I talked to Chris and MCA's CEO constantly by phone, but I never was really back at the office again.
Being away from the office had some good points and some bad points. There was always the threat that the deal could fall through. I was dismayed when I realized changes that I hadn't signed off on were occurring in the company. It was not so much that I thought the changes were bad but that I was no longer in the loop. I wasn't controlling the decisions. It was as if I were an artist and someone else had begun to paint over my canvas. It didn't feel very good.
I had known going in that if I was going to have a dynamic, growing company -- one that wasn't dependent on a single human being -- I had to be able to take tasks, bundle them, and hand them off. I had to let go of the notion that I was an all-knowing expert. To return to the analogy of the artist, delegating a management task to a subordinate is like handing your apprentice a paintbrush. While I was CEO, I imagined I was a little like the Italian masters who painted portraits while their students filled in the background landscapes. But when I stepped down, I was worried that the entire portrait I'd painted might be obliterated.
Still, when I wasn't worried the deal might fall through, I mostly felt tremendous relief. I didn't have to show up at the office. I could take long walks. I could begin thinking about what I wanted to do with the rest of my life.
Added to that emotional brew was the fact that on Wednesday, September 9, 1989, the day after we reached the final verbal agreement, my father suddenly died of a heart attack. He was in his first week of retirement from his work as a physician and teacher at Stanford's medical school. So in the middle of selling my company, I experienced a terrible loss. I flew from Boston to California to be with my mother and brother. The death of my father was certainly much more significant than selling my company. But in my mind they are linked as part of one emotional event.
The worst part of any business deal -- and I've been through a lot of deals -- is the day of closing, because out of a million details, there are always about a thousand that haven't been attended to. But when the time for the final signing arrived, we were ready. On December 19, 1989, I flew down to Dallas, where MCA was based.
There was a huge table in the lawyer's office. I walked around it and signed what seemed like hundreds of pieces of paper, and we all shook hands. I had nothing further scheduled until the closing dinner that was to be held that evening at a country club.
I remember walking out of the lawyer's office and saying to myself, My God, it's done. I felt fantastic. I went and bought myself a bag of caramel corn, which I never eat, and I walked along the streets of Dallas just popping caramel corn into my mouth. I must have walked for an hour and a half. I went back to my hotel room to change, showed up for the closing dinner, and flew home to Boston. And that was that.
For the first time since junior high school, I did nothing. When I say I did nothing, I mean I did nothing. I slept late. I had no calendar, no schedule. I had no idea what I was going to do each day. After a couple of weeks, I grew uncomfortable with doing nothing. I needed to perform. Just as I thought of MediVision as a painting I had created, so I believe that an entrepreneur is like an artist. And artists must perform, because it's in their nature. Three months after I sold MediVision, I went back to work, first on a temporary turnaround assignment. In 1991 I decided to try the public sector, and I became Massachusetts governor William Weld's chief financial officer for two years. Now I'm back in the private sector again as the CEO of another Inc. 500 company.* * *
I'm not sure selling your company is ever something you can prepare for enough that all the negatives disappear and only the positives remain. The negatives come with the territory. The only way you might avoid them is to have never been the creative force in the first place. If you think of what it must be like for a farmer to sell his land rather than harvest the crops that grow from it each season, that's close to what it's like to sell your business.
And if you think of entrepreneurs as artists, some powerful implications emerge. Since the workplace is the artistic medium of expression, transitions of any kind are painful. Most artists simply can't hand over a half-finished canvas for others to complete. Mozart would undoubtedly criticize the "official" version of his unfinished Requiem, and some actors can't bear to see their own movies after the editor has chopped up the scenes. So an entrepreneur, even with the best of intentions, has a difficult time delivering his or her masterpiece into the hands of a successor.
My father was an artist. He made his living as a doctor, but throughout his life he was a serious painter and sculptor. I have many memories of him in his studio, painting. I'd watch him paint until he reached a point when he said, "That's it, the painting's finished." Somehow, intuitively, he knew it was done.
I believe my approach to business is intuitive, and that I gather information and do analysis to justify my own intuition or to convince others my instincts are right. My business intuitions are a lot like my father's looking at the canvas and saying, "It's finished now."
Selling my business was far more painful than starting it. But I knew viscerally it was the right thing to do. I knew that my portion of the MediVision painting was finished.* * *
Eric Kriss is CEO of MediQual Systems Inc., a medical-software company based in Westboro, Mass.