The Employee Experience

As a business owner, managing employees is a key part of running daily operations. No single person can get to every task and every customer and every “to do” inside of a growing organization. So, we need people. And people, no matter how awesome they may be can come with management issues, family concerns, sicknesses, agendas, biases, etc. And the bad news for you? They bring all those things to the workplace. The good news for you? They bring all those things to the workplace. And when harnessed, can lead to great achievement.

Great leaders and business owners find ways to guide, direct and steer their people and teams towards a common goal and mission. They are able to use all the things, good and bad that their people inherently bring to work and harness it in a way that drives results. As you think about your business, both prior to a sale and certainly as a part of one, your people will play a critical role in how valuation plays out during due diligence. Here are two areas that you should be focusing on to 1). Continue building a great business and 2). To increase the enterprise value of your organization.

Engagement

“Employee engagement” can be widely defined, but generally speaking it is the extent to which employees feel passionate about their work, are willing to volunteer discretionary effort to their jobs. This is NOT the same as employee satisfaction. Engagement is focused on level of effort, passion and involvement while satisfaction tends to focus more on an overall happiness and contentment.

A high level of engagement is obviously good for business, but it is especially critical in driving the value of your business when you’re ready to sell. A group of employees that will “stay behind” with the company post liquidity event are very important in reducing risk to your companies future cashflows. People that not only enjoy their work, but are passionate enough to go the extra mile and dedicate additional effort send strong signals to potential buyers. Be assured that any potential buyer will absolutely look to measure and get a handle on the state of your employees.

Retention

Employee retention is exactly what is sounds like. How long do your employees stick around after they start? While percentages certainly vary by role (i.e. Sales has a higher turnover rate than operations) buyers will look to understand who’s coming, who’s going and over what time period are people leaving. A high turnover rate pre-acquisition can set off alarm bells. It signals to buyers that there may be a mass exodus of employees after a transaction is announced. After all, if your people don’t want to stick around while you’re there, why would they after you leave and uncertainty fills the air? They probably won’t, your buyer knows that and it becomes a large risk that will reduce the value of your company.

So Now What?

If employee engagement and retention are two factors that can effect the value of your firm, you should be doing something about both of them starting today. On the engagement side, look for ways to include your employees in the decision making process. Find ways to let them be autonomous and solve problems without involving you. Empower them in their roles. People want to make a positive impact. Don’t take that ability away from them and instead allow it to transform your organization for the better.

On the retention front, pull all the levers. Engaged employees are employees that don’t often leave. They work for more than money and give you more effort than what’s asked for in the job description. Pay a wage so that money isn’t a concern for your people (this varies across role) and hire people who believe in the vision you have (and do please have one). Look at things like Key Man insurance policies for those vital to your business. Explore things like an Employee Stock Ownership Plan (ESOP). An ESOP allows you share with your employees in the ownership of the business. Why do this? Well, besides the mounting evidence that says employees who have ownership in the company work harder, provide more value and don’t leave as often (duh) it can provide you as the majority owner with INCREDIBLE tax advantages both pre and post sale.

To summarize, look for ways to engage your people. Allow them opportunities to make decisions, ensure you are hearing their voices and acting on their feedback. And lastly, focus on retaining your people. Build loyalty through all the levers available to you and look for ways to keep folks around for the long-haul. When it comes time to sell, the energy and excitement your people display in the halls will be infectious and build confidence in your buyer. Your firm multiple and valuation will Thank You.