UNDERSTAND THE DYNAMICS OF YOUR SELLER (Searchfunder Interview)

We spoke with Moises Eilemberg, former CEO of Avadyne Health and Managing Partner of Rush Mount Ventures. In this three-part series, he describes his lessons learned as he transitioned to being an operator, his follow-on acquisitions, and exit.  

SEARCHFUNDER INTERVIEW OF MOISES EILEMBERG - PART I

What do you wish you had known then that you know now?

Lots. It's really a challenge to pick a handful, but let me try.

The conventional wisdom is to take some time to learn the business and make sure you understand the business before you start making any big changes, etc. Another conventional wisdom is to keep the Seller around, make sure you learn the business from them and make sure there is some continuity, and so on. That wisdom might give a new operator the sense of needing to be more passive during the transition than the situation might warrant. As a new operator, I would recommend assessing whether and how proactive you need to be and whether you must deviate from convention in light of your vision for the company and the dynamics of the Seller. 

I wish I had known how to start and manage that transition in a more deliberate and proactive way. Obviously, every situation is different. In my situation, there were two parts of what the Seller brought to the table. The Seller brought all the knowledge and experience, and almost intuitive knowledge about the dynamics of the business. Separate from that was his style and the culture he had created in the company and his management style which was diametrically opposed to how I believed the company should be run and the culture I wanted to create.  

He was very dictatorial and hierarchical. He wanted all decisions funneled up to him. People were not really accustomed to nor comfortable with making decisions. I recognized almost immediately that it was something I wanted to do differently. I waited partially due to inexperience and partially due to the advice I had received. I wish I had known to separate the knowledge of the business part from the way the business was run from the cultural and management style standpoint. I wish I had been more deliberate to draw the line around the culture that I wanted to create -- make the transition a little more deliberately to not let the prior seller influence the culture and the style that I wanted to have in the business post sale.  

I've heard that the original owner leaves a DNA imprint on the company which can have a lasting impact through multiple corporate generations. I'm curious about the process you went through?

You're absolutely right. There's a lot in the company's DNA that were his imprint. Middle and even senior managers were not accustomed to making any decisions. They were used to bringing all decisions to the prior owner. The CEO made every decision -- even trivial decisions. I had to train the management team that, first, I don't need to be involved in every decision. I pushed them to make decisions because it was terribly inefficient for me to be making all decisions and wanted them to feel empowered and to have ownership in the outcome.

That was not a one day to the next type of process. It took a long time to train them how to think and how to make decisions for themselves. I set parameters around which problems and which decisions I should be engaged in. Then, how to have a conversation about the decision, such as coming up with potential recommendations before even presenting the issue. It was definitely a process. As you mentioned, the DNA of the company was that everything was "delegated upward".  

The additional issue was that the prior owner was still in the office every day. Even though he wasn't officially in the chain of command, unofficially he had owned the business for 30 years. He hired a lot of the people who worked in the business. You can't [expect people to instantly change their behavior of 30-years from one day to the next] just because the official relationship has changed. It actually takes a while for people to become accustomed to a different chain of command. The fact that he would still ask people to do things in a certain way or that people would come to him with questions created problems.  

When I said I wish I had been more deliberate, I wish I had been clearer with the Seller about delineating where his purview was and making sure he didn't give direction to people, where I didn't want him to be influencing the culture and the direction of the business anymore. I also would make sure communication was primarily between me and him. Then, I would be able to distill knowledge from the other things that I didn't think would be helpful. So, I wish I had been a lot more deliberate and aggressive in setting those boundaries and establishing what his role and what the parameters in which he needed to operate, including probably his having less physical presence in the office.  

How long did the Seller stay on?

Too long. He stayed on for almost 2 years.   

How long did it take after that 2-year period for you to have the culture in a good place?

Probably fairly quickly after that. The 2 years wasn't his full involvement and one day done. He had decreasing involvement over time. After the first 6 months, he was working almost completely remotely. His physical transition from the business was a big step to the start of the culture taking hold.  

Has that reaped benefits in terms of employee morale and a sense of empowerment?

Yes, absolutely. It was incredibly helpful for a sense of career development and empowerment. For most of the employees that I wanted to be a part of the business, it was empowering. Some people were not capable of making that transition. Eventually, they weren't in the business anymore.

There is another piece of advice I would give about transitioning to running a business that almost counterbalances the first lesson learned. If you work in big corporations and especially after business school (where you are exposed to forward looking ways of thinking about business and management), when you come into a small business particularly one that has been run by someone of a different generation or hasn't embraced technology, there is a very significant temptation and almost desire to go in and change everything the first day. Small companies, especially if they have an established culture with long standing employees, can only take only so much change in a certain period of time.     

My lesson learned is that I would try to identify the 2 or 3 (or perhaps 4) big levers of change that would really move the needle in terms of efficiency or profitability or growth or value creation. Out of the thousand things you can change Day 1, I would focus on the few levers that will really make a difference. Letting all the smaller details, such as what kind of health plan you will offer, take care of themselves over time.   

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