A first-person account of the emotional stress many founders encounter when they sell their businesses.
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.
