Should You Sell Your Company?
VAR trades in the risks, and rewards, of running his own company by selling it to IKON Office Solutions. His company has since doubled in gross sales, but was it worth it?
Paul Black's decision was based more on emotions than any other factor. How could he sell his company, The R3 Group, to a multi-billion dollar corporation like Danka Business Systems PLC? Black founded his microfilm service bureau company in 1981 and began document and image management integration in the late 1980s. The R3 Group recorded approximately $1.5 million in gross sales in 1993 - the year Danka knocked on Black's door. "I started the business, so it was my baby. Danka was a perfect fit for my company. But, I had such a personal attachment that it was difficult to even consider a good business offer," recalls Black on declining Danka's offer.
Fast forward to September of 1995. Black's company had grown to 28 employees and the gross sales has also increased. And, Black was now signing on the dotted line to let The R3 Group be acquired by a different corporation, IKON Office Solutions. Black's company would be one of 200 businesses acquired by IKON since 1995. All the acquired companies fall into one of three categories: 1) technology services (computer networking companies), 2) office equipment (copier dealers), or 3) outsourcing and imaging (service bureaus and document imaging integrators). Since the acquisition, the Wichita, KS-based VAR has grown to 43 employees. In addition, it is also preparing to move to a new location in Wichita. The new facility will be three times the size of Black's current location.
Making The Decision To Sell
When IKON contacted Black about a possible acquisition, he was interested in what IKON had to say. Despite rebuffing a similar acquisition deal by Danka only two years earlier, the IKON offer came at a better time for Black. He turned down Danka for emotional reasons. In the two years following that decision, Black had the ability to consider the IKON offer more pragmatically.
"When IKON approached me with an offer, I was 39 years old and I had a different perspective from when Danka contacted me. I was two years older. My two kids were two years older and two years closer to college," explains Black. "If I got hit by a truck, my family would not realize the full value of the company. Selling my company secured the financial future of my family. And, my long-term net worth wasn't tied to the performance of one individual - namely myself. The IKON offer gave me an opportunity to remove a great deal of the personal risk that comes with owning your own business."
Black's company is now part of the $5 billion IKON Corporation. Following the acquisition, Black's title changed from owner to managing partner. Since then, his company has more than doubled in gross sales and added 15 employees. After three years of being an IKON Office Solutions company, Black is able to reflect on the pros and cons of selling his company.
Letting Others Call The Shots
Is it more thrilling to play penny-ante poker or $50-a-hand poker? It all comes down to a risk/reward factor. It is a matter of playing with pocket change or a paycheck. According to Black, the same parallels can be drawn between working for a large corporation and owning your own business. "There is a certain exhilaration in the risk that comes with owning your own business," says Black. "Since the acquisition, I do not personally make every decision that affects my company. Decisions that involve large sums of money have go through an approval process. Personally, the stakes went down a lot."
The thrill of calling every shot comes with owning your own business. Now that Black is part of a large corporation, he admits that he does not make many decisions based on his "gut feelings." For example, Black's company has 43 employees, and more employees will be added when the company moves into its new facility. But, in times past he would have acted sooner and added the employees prior to the move. "My gut tells me to hire more employees, but that decision now has to be approved by the IKON marketplace president (division manager)," comments Black.
As owner of a small business, Black was also a proponent of investing short-term profits for long-term gains. While this strategy may pay off in the long run, the short-term result would be lower earnings. Because Black's company is now part of a large corporation, profits seem to be the main barometer of success. "Large companies seem to be more averse to risk than small companies," explains Black. "That is not unique to IKON. It is typical of most large companies."
Stability Means Security For Customers
While Black's company has lost some of its autonomy, IKON's backing has allowed it to obtain contracts that might otherwise be out of reach. It is rare for a small company to get large million dollar contracts. If a small company gets in over its head and folds, a customer has no where to turn. "The stability of being a publicly-held corporation with billions of dollars in assets makes customers more secure. IKON isn't going anywhere," states Black. "If there is a problem with an IKON installation, a customer will always have a place to voice concern."
This scenario was clear to Black when his company recently secured a contract with a Wichita bank. In what would be a three-phase project, the bank was converting thousands of rolls of microfilm to digital images. While Black's company secured the account, it did not have the proper equipment to perform all of the bank's conversions. While the size of the contract and lack of equipment might have been a stumbling block for a smaller independent integrator, it did not pose a problem for Black. "It was a non-issue with IKON," recalls Black. "We were able to purchase the equipment so we could do the deal."
Once Black began the job, he realized that some of the conversions were too technical for his company. As a result, he contacted IKON's Business Imaging Services in Walnut Creek, CA. The California company has expertise in transforming paper, microfilm, microfiche, or electronic media into digital images and index data for storing and access. They offer these services nationwide to imaging system vendors, integrators, and end users. By working with these conversion specialists, Black was able to complete the first phase of the bank's project.
As an entrepreneur, Black says he would have pursued the account had his company not been part of IKON - but he is realistic. "I would have gone after it like crazy. I might have even had an opportunity to make a pitch to the client. Would I have been selected? Probably not," comments Black.
Defining A Corporation's Talent
As an independent VAR, Black could only draw on professional resources within his company and a limited amount of help from vendors. His company is now part of IKON's Business Information Services (BIS), which is a business unit under the IKON Document Services Division. His business is one of 12 systems services companies that comprise the unit. The President of BIS is Mr. Chuck Adams. In defining these relationships it is important to note that IKON Business Imaging Services, is a separate operating unit. The unite is included in the BIS deliverable-services matrix and it specializes in backfile conversions. William C. Doey Jr. is the president of that unit. Its expertise is high-volume document conversions, including paper to microfilm, microfilm to digital, business continuance services, and converting from one vendor's platform to another (FileNET to Optika, for example).
Relinquishing The Role Of Owner
Is selling your business really a choice of long-term stability in exchange for the exhilaration of running your own business? Black sees the acquisition as more of a compromise. When Black owned his company, he was selling and constantly meeting with customers. Now, he is more focused on company strategy and employee development. "My role in the company is very different now. I miss being out on the street, but what I'm doing now is also challenging," says Black.
The transition from owner to managing partner has not been completely smooth. However, Black says that when a company doubles in size in two years, there are bound to be obstacles. And, these obstacles exist for both independent companies and companies that are part of larger corporations. In spite of the many changes, Black still has the same sense of pride in his company as before the acquisition. "Whether you own a business or work for a corporation, personal pride comes from successful installations and satisfied customers," says Black. "It's the one constant."