As the new owner of an acquired business, a couple of key success factors are customer and employee retention. Before jumping straight into your list of changes and planned improvements, you must consider how customers and staff will react to the transition and how you can shape their experience.
How Do I Retain Employees After Buying a Business
It is imperative for a new owner to develop a communication plan. It’s so important, that, even though we are talking about a small business and not a large corporation, the initial communication may warrant a well-thought out script. Change in ownership is a big deal to employees. People generally do not like change, and when there is change, people need assurances. This requires a commitment to frequent communications and clear direction.
To provide employees with some sense of security, you can let them know that the plan is not to make any major changes for six months. Then start by tackling the low hanging fruit. Even changes that seem obvious and necessary should be communicated in a way that employees understand and accept your reasoning.
Your communication plan is the foundation for how you and your vision are perceived. As you mold the company to your vision, empathy with employees will define your success.
How Can I Use Incentives to Retain Employees After Buying a Business?
Incentives are another way to retain employees after acquiring a business. Retention bonuses can be utilized to ensure a smooth transition. These bonuses can be implemented immediately upon ownership, or even prior to ownership with the help of the seller. You can offer key employees a bonus for staying with the company for a period of time after the change in ownership. If an employee can earn a bonus simply for staying with the company six months after a change in ownership, they are incentivized to stay for some time. Such an incentive is a good faith gesture that allows the owner time to work with and understand the staff and individual strengths and weaknesses.
Staff roles can be analyzed and employees can be interviewed to uncover opportunities to provide more job ownership. Conducted the right way, these interviews can ease concerns, develop bonds and provide useful intelligence on employee mindset, opinions of peers, managers and company, and concerns about change. High performers can be considered for promotions or wage increases.
These efforts are investments in your company and its people. They will take time and money away from the bottom line. However, human resources are critical to every company. Seasoned buyers often recognize that short term hits to profitability, when they occur as part of a well thought out strategy, will pay off in years two, three and beyond.
How Can I Introduce New Management After Buying a Business?
If new management is required to replace the role of the previous owner or owners, look to promote from within if possible. This helps retention and focuses driven employees to look for new opportunities with the company.
Bringing in outside management may be necessary but it adds complexity to the transition. Outside management should be presented as facilitators to the current workforce. These are not just words, but a requirement to gain acceptance from the staff. Employees want transparency, clear expectations, pathways for success, and an outlet to express their opinions on the transition and new management. Providing employees with a safe way to share feedback on new managers and other changes is a check and balance that is healthy for the company.
How Do I Buy a Business and Retain the Customers?
The easiest way to retain customers after taking over a business is to ensure that they have no idea anything has changed. The more you keep everything the same – prices, service, products, value and experience – the more the transition is a non-issue. Any changes should be introduced thoughtfully at the right time and in a way that can be tracked. Before considering changes, you have to understand the business well beyond what you learned during due diligence. The only way to do that is to log some time, perhaps six months or so, running the business.
Do I Notify Customers When I Buy a Business?
Whether or not to notify customers after buying a business depends on the type of business, types of customers, number of customers, customer relationships and the customer buying experience. In certain cases, the answer is clear. In other cases, the owner can decide. And in some cases, the owner may take a hybrid approach when they have different types of customers. Let’s look at three examples.
Automotive Repair Shop
When I moved to a new town in northern CA, I found an auto repair shop near me with great reviews. Over the years, ownership changed a few times. The first owner was a nice guy with a great staff. One time, he personally offered me a ride home when we determined he needed to keep the car. When he sold the business, there was no announcement. I noticed the staff had changed. The new staff was fine, but I felt I needed to pay attention to their repair recommendations to see if I could trust them the way I had the previous team. Everything turned out fine, but I thought it would have been nice if they had a communication plan to somehow assure me I was still in good hands. In their minds, perhaps they did not want to concern their customers. The new owners were less personable, but they got the job done and maintained the value. Their reviews didn’t change in any noticeable way and they didn’t lose me as a customer. There is no right or wrong answer. However, this is a high trust business that warrants some consideration about notifying customers about the change of ownership.
Sporting Goods Brand
I sold a sporting goods business in the hunting niche whose customers were dealers and end users. The new owner decided to engage the top dealers to let them know that the brand was being revitalized and new products would be on the horizon. He felt this was necessary given the previous owner had been winding down the business over the years and losing the attention of the dealers. End users were also important since they were active on forums. The new owner monitored and participated in those forums to spread the word, and developed a new more aesthetic and functional website. Because the business was on autopilot and arguably on a slow decline, these actions had plenty of upside with little risk.
Small Manufacturer of Steel Materials
This transaction was unique in that the business relied on one large customer, a tier one auto supplier. While the business generated a nice profit for the owners, the business was a drop in the bucket for their one and only customer. The customer had been ordering the same few parts consistently for decades with little variation in orders. The customer contacts were an entry level purchasing agent and shipping clerk. The buyer and seller of this small business agreed not to communicate the change in ownership to the customer given the high risk of stirring the pot, and the low likelihood the customer would care or notice. There was no contractual obligation to notify the customer and the transition occurred seamlessly.
When Should I Inform Customers After Buying a Business?
If possible, new owners should keep things running the same for six months before implementing changes. There will always be exceptions for turnaround situations, loss of key functions filled by the previous owner or other significant events or circumstances. If it is possible to fly under the radar as a new owner for approximately six months, the owner can take advantage of this time to learn the operation, understand strengths, weaknesses, opportunities and threats (SWOT analysis), and formulate a plan for improving the business after actually running it. Ideally, a new owner can maintain or enhance value and the customer experience for a short period of time before introducing themselves to key customers.
How Can I Change Prices After Buying a Business?
Rather than rush to implementation, run the business the way it has always been run and see if your pricing assumptions hold after speaking with customers, suppliers, consultants and competitors.. If your ideas on how to optimize price hold water, the next step is to plan the implementation details.
Pricing optimization may be acceptable in many situations. For example, if raw material costs have increased, supply chain logistics have changed, or the business has not kept up with competitive pricing adjustments or sweeping industry changes, then pricing changes may be accepted or even expected from customers.
In other situations, pricing may not be greeted well by customers but are still worth implementing. Businesses need to shed low margin products, services or customers that provide little to no strategic value to the business. Sometimes this can be done by raising prices to a level where the margin makes sense for the business and the business is not impacted negatively by selectively losing customers.
On the flip side, lowering prices is a completely different animal. It might make sense to liquidate slow moving inventory or take advantage of excess capacity. However, if the thought is to change the business model to become a lower-cost / higher volume provider, many strategic implications need to be addressed.
How Can I Improve Customer Service After Buying a Business
Whatever your ideas are about improving the business, keep an open mind. Do not underestimate or overestimate the abilities of the previous owner and do not get caught up in your own certainty. Look for opportunities to understand customer perceptions.
Again, the six month rule applies if possible. If during the acquisition and due diligence process you developed ideas about improving the business, park those ideas until you have a chance to stack them up against a few months of actual experience, through surveys or selective discussions. Before implementing changes, especially ones intended to improve customer service and satisfaction, make sure you intimately understand the customer experience and do not disturb the things they value about it.
How Can I Introduce New Products and Services After Buying a Business?
For many new owners, they see opportunities for growth through additional products or services. If your customers want it, find out how to provide it. Just plan carefully so you don’t cause confusion. Be careful with the upselling experience or cross-selling experience. Implementation is critical to maintaining or improving the customer experience.
How Do I Buy a Book of Business and Retain Clientele?
Certain businesses have a significant portion of the value in repeat clientele or a book of business. This includes business practices such as medical, legal, accounting, consulting, and IT. The client is loyal to the service provider or owner and this is a risk for the buyer. While there are many things the buyer and seller can do to facilitate the transfer of clientele, some attrition is to be expected. To address this issue, practice sales often have earnouts which are future payments contingent on certain triggers. Earnouts can be contingent upon client retention figures after a period of time. This shifts some of the risk back to the seller. While this seems fair to the buyer, the seller’s concern is that a loss of clientele might be caused by the buyer’s actions after the change in ownership. To increase their odds, the seller must do some due diligence on the buyer and select a buyer capable of retaining clients. Both parties will have to agree and take a leap of faith.
Summary: The Essential Factors for Retaining Customers After Buying a Business
Hopefully by now it is clear that the two most important things to maintain are value and customer experience. By maintaining your customers experience and your value proposition, there is no reason for customers to leave even if their switching costs are low. If their switching costs are high, that is a plus for you. However, this should be a benefit to you that you do not take advantage of.
See Essential Tips for Buying a Business.