For part 1 of this analysis, go here.
Quick Context đ¨
What is ColorIt: E-comm business that sells coloring books and suppliesâŚBut for adults.
Founder:Â Mike Jackness
ColorItâs customers:Â Adults
When was it founded:Â 2015
Business hours Spent per Week by the Founder:Â ~ 6 Hours
Team Size Including Founder:Â ~5
The founder, Mike Jackness, put it beautifullyâŚâWhile the process of selling a company is mostly between the buyer and seller, most people forget that it also greatly affects the people on the front lines of running a business: the employees.â
The Teams Reaction to the Sale đ§
âWe were shocked and sad. It was a roller coaster of emotions since we loved the team. Weâre not just coworkers, we are like a family. To have heard the news that ColorIt was going to be sold along with us was scary, we didnât know what to expectâ.
An immediate reaction like this is expected and normal. Humans love certaintyâŚbecause it gives us comfort. Whenever something challenges our âcertaintyâ, a flight or fight response is triggered and our protective instincts kick in. Knowing that this is our innate human reaction, there are measures a buyer and founder can do to mitigate these. But before we go into those, letâs go through one more reaction. đł
âThe change was really scary and we didnât know who the new owners were going to be. Thats why my initial reaction was fearâŚBut when we got to know Nirav and Matt[New owners] and their big plans for the business, we got excitedâ
The buyers emphasized the #1 positive element of the sale which was to speed up growth. Everyone wants to be part of something successful...Employees are no different. So Nirav and Matt were intelligent in highlighting this positive element during the transition. More importantly, the new buyers shared how the employees were part of their growth plan. Often what will happen is a firm will buy another company and perhaps cut the # of employees in halfâŚthis is where the fear comes in. When buyers emphasize the important role that current employees will play for the future of the company, it gives the employees a sense of security. A sense of security is one of the cornerstones of trustâŚBusiness buyers that ignore this are guaranteed to pay big time when employees quit three months down the line out of fear of being let go.
How was the team rewarded? đ°
The founder of ColorIt set aside a portion of the sale to give it to the team. For every year that a member had worked for ColorIt, they were given one month pay. So if they had been there for 2 years, they get two monthâs worth of pay. If they had been with ColorIt for six months, they got half a month of pay plus a bonus.
Ensuring the Team Doesnât Leave đ
Every team member that moved to the new company was promised a full month of extra pay once they had been with the new company for six months. The goal of this was to to encourage them to stick around and have something to look forward to.
This did two things:
1) Terms like these reduce the risk that employees will quit.
2) If new management has treated them fairly, then after those six months are over, the employees might sayâŚâThis wasnât too bad, I guess Iâll stay, I like these new ownersâ.
Overall, being intentional during this period of transition can make or break relationships and future deals. These transactions are full of emotion and stress. The easier one is to work with, the better the outcome will be.
Whatâs next for the Founder? âŹď¸
Take a few months off to clear his mind and focus on his other three brands
It will be at least a year before Mike begins the process of selling the other brands. Mike has already gotten approval from Amazon to separate the three remaining brands into individual Amazon accounts & LLCâs. This will help make future acquisitions easier and faster. Ka-ching!
And thatâs a wrap my friends. Subscribe and Iâd love to hear from you. What are you liking about these, what can I do better and what are your goals?!
Say hi on  Twitter (@JaygerMcGough) & LinkedIn , together weâll become smarter about buying and selling businesses.Â
Donât forget to subscribe and thank you to everyone who shared last weeks analysis with their friends, I appreciate you and trust this will also help them.
Mikeâs Interviews of ColorIt: Why I sold ColorIt, Preparing for the Sale of ColorIt - Pt 1, Part 2, How Our Filipino Team Reacted to the Sale
My lawyers told me to include this:
This newsletter is presented for informational purposes and educational purposes only and should not be construed as professional financial advice. Should you need such advice, consult a licensed financial or tax advisor. No guarantee is given regarding the accuracy of information on this letter. The newsletter is composed of opinions and is not intended to give investment advice.