Some of the most exciting companies to work with are those that have been resurrected from an earlier iteration by a new investor, who brings new energy and ideas to a veteran team. The concern that is most often raised is whether the old dogs of the resurrected company can learn the new tricks of the new ownership and management.

In a conversation with the EVP/COO of a company that is in the third year of new life, it became clear that the actions and expectations of a new management comprised primarily of investor/operators are vastly different than those of a founder/operator. Having this as a starting point confirms what we already knew: the responsibility for creating success in a turnaround doesn’t lie solely with the veteran players’ abilities of adopting a new way of doing business. Looking beyond the way a rejuvenated business is run, we can easily see in most cases that the handling of the original business model by the new owners is much different from that of the founders.

In this conversation I likened this difference to that of a Farmer vs. a Grocer:

  • The Farmer is focused on the desired outcome: growing tangerines, for instance. He/She is dedicated to growing the best quality tangerines possible at the highest volumes possible.
  • The Grocer makes deals with the optimum number and variety of suppliers to bring a wide variety of finished goods in. These are sold as-is or with minor value-add. If tangerines aren’t selling (for instance), the Grocer shifts to pomegranates without giving it too much thought.

The Grocer’s business objectives are quite different than the Farmer: the Grocer needs fresh, viable fruit to run the store, and will change the product mix to achieve that goal. The Farmer, on the other hand, needs his Tangerines to be fresh and viable, without caring much if at all about the tomato farmer several miles down the road.

While there is no value judgment in the distinction, it is nevertheless very helpful in a turnaround situation to replace the “Farmer” and the “Grocer” with a ”Founder” and an “Investor.” Generally speaking an investor in a turnaround situation has a time frame within which a return needs to be realized, where a founder works to see results but maintains a more incremental view of what “success” means. Like the Grocer, the investor will gladly tweak or overhaul the model to maximize returns. Like the Farmer, the founder is generally too deeply committed to the original vision to change the model toward a more promising market vertical.

The Farmer Loves The Model
This was the critical point in my conversation with the EVP/COO. The few employees who are incumbents were retained based on their “institutional knowledge.” What is generally unspoken and perhaps incorrectly assumed are their abilities – and, indeed, willingness – to embrace the founder’s vision and help make the founder’s model successful.

For its part the new management team has made an investment only in financial success, not in unrelenting commitment to the original model. This new management team certainly has to buy into the model at the close of the transaction but they are willing to change it as necessary to ensure the success of their investment. There is no indictment on them if the model doesn’t fully play out, only if they do not make their investment pay off.

There is no preordained outcome from this experience. Companies are transacted all the time with a small team bringing new life in order to drive the vitality of an otherwise sprawling organization. What this tells us is that, while the model is the most important entry lever for most acquisitions (whether from a distressed situation or not), it is management that carries the organization to success sometimes at the expense of the model.

The bottom line is definitely not that it is better to be the Grocer than the Farmer. What the Grocer and the Farmer example shows is that the new management team needs to be mindful of the context and perspectives of the incumbent workers to ensure that the combined team’s strengths can be fully utilized in pursuit of a revised – or wholly new – model.