Tag Archives: sell

Managing the FUDG factor in a Hold or Fold decision

Norbert Schwarz
Norbert Schwarz

Fear, Uncertainty, Doubt and/or Greed (FUDG) often play a major role in a family’s decision to keep or sell the family business.  Managing these emotions in the decision can have a powerful impact on the success of the process.

Several steps can be taken to manage the first three elements of the FUDG factor to the extent needed to make an informed hold or fold decision. Educating family shareholders on the products, the competitive environment, and the challenges and opportunities of the business is a good starting point. Encouraging family members to be informed on business issues in general can also help those not in the business better understand the current and future business environment in which the company operates. If the company has embraced a comprehensive strategic planning process, management should be well aware of these subjects. The planning process should also clarify the company’s vision for the future and outline its plans to achieve that vision over time.

An outside board I worked with recently had a policy of asking shareholders to discuss and communicate to them their long-term vision for their ownership annually. This was done before the board reviewed and approved the annual revisions to the company’s strategic plan. Building value and growing the company were the focus for many years until the shareholders responded unanimously that they wanted to prepare the company for sale within a three to five year timeline.  A successful, fully priced sale was accomplished in less than three years.

The Greed factor is a bit more problematic. There is a difference between greed and rational self-interest.  The need for individual financial security may become a key driver in the decision process. The question that arises is “what is enough?” When that question cannot be answered rationally, an element of greed becomes suspect and may lead to conflict before, during and after a hold or fold decision is made.

Fear, Uncertainty, Doubt, and to some extent, Greed may always be present in one form or another in every hold or fold decision. The key to success, whether the decision is to hold or to fold, is to manage these factors effectively.

CONFLICT ABOUT KEEPING OR SELLING FAMILY BUSINESS

Bernie Kliska

When family members debate whether to keep or sell their business, anger and tears often are part of the process. Differing interpretation of family’s legacy or level of wealth causes relatives to take sides against each other. Often these battles include arguments over a deceased patriarch’s or matriarch’s true intentions.

Inactive family shareholders may demand a sale for diversification, to create liquidity, to reduce risks or to have a better financial ‘return” on their capital. Those who want to keep the business may see growth opportunities which need family capital, or sometimes they may just want to preserve their own job and  lifestyles. Nothing accelerates tension in a family system more than telling someone his “inheritance” is locked up in the family business. Sometimes the insiders view the outsiders’ family capital as “theirs” and resent what they see as meddling when the outsiders begin asking questions about “our investment

Fireworks will often result when the family conflict includes,poor communication and listening skills, inability to accept change or differences, unwillingness to compromise and lack of respect for others. The family needs to develop a process that focuses on the best decisions in realizing mutual objectives. This is easier said than done, since solutions require trust and commitment from both sides. A cautious and respectful process may take time but can result in favorable agreements and potential transactions that both sides view as”fair”. For most business families what’s “fair” is not the highest price but a price and terms that lead to a graceful exit. Even if you get to deposit a big check if the business is sold, some family members are likely to experience some loss of power, authority and involvement. They may need to find another challenge fast to fill the void.