Sent: September 1
From: Dean Chompers, CEO
To: Rick Dogood, Premium Investors
Subject: Offer Letter
Rick,
I have some serious concerns about the offer and the deal points.
In section 3, it discusses the payout packages for Larry and Joe, both of whom have been with me forever. I distinctly remember telling you that they needed to have positions in the new venture, not just a severance and buyout. What’s going on here?
Chomp
Sent: September 1
From: Rick Dogood, Premium Investors
To: Dean Chompers, CEO
Subject: RE: Offer Letter Chomp
Not to worry, my man. I’m still working it for you. We’ll get them something, but like we’ve said, these guys are a little long in the tooth and might really benefit by us just throwing some money at them, so you’re not saddled with deadwood in the new venture.
These guys really want you and the staff that’s under 50—can you see their point? Your buddies are way past their prime, and the last time they came up with anything innovative was WWII! Just kidding, but you get what I mean.
I know you’re loyal to them, but won’t money help ease the exit a bit? They can ride off in their golf carts and have enough to play every day and visit the new massage parlors next to Mar-a-Lago!
C’mon, let’s get creative and see if we can come up with something that will make their eyes pop and their wallets bulge.
Rick
Sent: September 2
From: Dean Chompers, CEO
To: Rick Dogood, Premium Investors
Subject: RE: RE: Offer Letter
Rick,
This is a deal breaker for me, Rick. These guys have been with me from the beginning. We graduated together. I know they may not be the sharpest tacks in the pack anymore, but they helped get me here, and I’m not going to give up on them now. Can’t we find someplace for them in the new org that will bring this strategy together and takes advantage of all they bring to the table? There has to be a way.
Let’s get creative with titles—how about Chief Fun Officer? Larry does stand-up comedy on weekends. Every company needs a laugh now and then, don’t they?
And Joe will literally do anything; he’s always been that kind of guy, so how about Chief Cleanup Hitter or Shortstop—you know, the extra guy on the field? You know it’s a great idea. Besides, the board and the rest of the company will not be happy about sacking their two mascots. They’re my brothers-in-arms!
Chomp
Sent: September 4
From: Rick Dogood, Premium Investors
To: Dean Chompers, CEO
Subject: RE: RE: RE: Offer Letter
I’m working it for ya, man, but it’s not looking good. The board of the new company is not liking this direction at all and is going to get cold feet if we can’t move past this.
Remember, they have your competitor in their sights if you don’t pull the trigger soon—they would rather have you guys, but they’re also willing to walk. But you know I’m in it for you first—you’re my client, and I’m here to make you happy and get you a killer deal!
The sale to this company lines up so perfectly with your strategic and exit plans. Your three-year deal is killer, and the buyout will be fantastic if you hit your numbers!
Besides, Larry and Joe will make millions on the stock if this does what we are projecting.
Let’s be reasonable here: if those guys are as loyal as you say, they’ll do anything for you, so why wouldn’t they take the package? This is really a win all around. Let’s set up a call and talk it through—you know I’m right. Together we can make this happen.
Believe me, we’ll give them as soft a landing as possible, but making up dumb titles will just make you look bad to the investors. Let’s get your board on the call too and get their opinion.
Rick
Sent: September 6
From: Dean Chompers, CEO
To: Rick Dogood, Premium Investors
Subject: RE: RE: RE: RE: Offer Letter
Rick,
I told you from the start, I’m not going to budge on this one. They are my foxhole buddies, and they’re coming with me. And I want them to have their current titles, Head of Engineering and Chief Technology Officer. I don’t need to talk to the board, and I don’t want to talk to anyone else. It’s my company and my decision.
My wife told me to let them stay, so now I know I’m doing the right thing—if you can’t stay loyal to your friends, then who can you count on? So, you just go tell those dirty, money-grubbing bastards that if they want me and my company, they have to take all of us or none of us.
Chomp
Sent: September 12
From: Rick Dogood, Premium Investors
To: Dean Chompers, CEO
Subject: RE: RE: RE: RE: RE: Offer Letter Chomp,
I tried to call you multiple times to discuss this, but since I can’t reach you, here’s the final offer. $20M upfront, contracts for you and all execs except Larry and Joe, same buyout and share price and deal points as before. If you want to keep Larry and Joe, you can, but it comes out of your contract fee and they get no shares in the new company, only what they currently own. They cannot keep their current positions, so feel free to make up whatever titles you want.
You’ll notice the offer is now $5M less, which is their estimation of how much drag the new company will have with your buddies on board, even in made-up positions.
They are done negotiating, so this is the final offer. You have 24 hours to decide.
Rick
In the end…
Chomp dithered on the decision—his buddies or $5M+ in his pocket with much more down the road? Sell to the best strategic buyer he could imagine, or place a higher value on friendship and loyalty? The deadline passed, and the investors pulled the offer and went to his competitor, and that deal was closed in record time. Chomp and his Chompsters struggled with cash flow and technology while the new venture cleaned their clock.
The company closed two years later, after filing for Chapter 7 bankruptcy—not the ending he imagined after thirty years of building the company. But the band stayed together—Larry, Joe, and Chomp (aka, Mo). All of them are still living by Mar-a-Lago but can’t afford golf or massages.
LET’S GET REAL
Loyalty to comrades will act like an anchor dropped from a boat traveling at full speed. The envisioned strategy will never be fulfilled if you have people on board that have long outlived their usefulness—either because they didn’t grow with the business or simply don’t have the skills to move up the chain or learn new things.
All good things must come to an end. And when you employ friends and family, don’t count on a buyer placing the same value on them as you do. In fact, it’s likely to really drag your valuation down when it’s clear the company has performed in spite of them being involved.
When working an exit strategy, think long and hard about who will really be of value to a potential buyer, and have those hard conversations with the rest early on. Money will help grease the exit, but you’ll have more of it if you do the right thing and help them out before you have to carry them on your back.
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