In the past I have invested in private equity funds. Here’s how it works – they raise large sums of money from investors. They buy companies from their founders or owners. They try to improve them or join them with other businesses they buy, then flip them in 1-5 years to another private equity company or a big corporation for a profit. Sounds good. And sometimes it is good for everyone.
But I have learned a lot since. The guys at the top walk away with all the money, but they don’t really care long term for the customers or the employees. I have seen the spirit gutted out of companies when it’s all about making the numbers. Often the “improvement” the investment company does is to the P&L and Balance sheet. They know little about the business and have no innovation to bring to the table.
There are some positive exceptions. Sometimes the founder wants to retire or has met his limit and sometimes the investment firm cares about customers and employees for the long term. Most times they don’t and have learned use non-compete agreements to keep people and to bribe the key employees to stay as long as they do with noble propaganda and promises of a piece of the action. But make no mistake, financial engineering is their game. This is often not entrepreneurship. This is too often harvesting and exploitation and leads to the eventual destruction of the company, or at least it being a good place to work.
For the record – I don’t play that. I care about people and create value – and in the long run, I (we, my team) will be here, and we will win.
This happens alot in the HVAC and Fuel delivery sector. The now disgruntled employees come running to us and tell us the horror stories.
This is my second time running a hvac business and second time being successful.
Then, out of the blue, we received a packet from one of these companies.
No way Jose, I thought to myself. They said all the things you said above, just not as clear.
Private equity firms are buying up HVAC firms in my area and killing the culture. I get to hire their employees. Yay private equity!
I have been on the receiving end of those promises and none to date have cashed out as most of the time the company comes into hard times along the path and the PE firms cut thier losses to ensure that they get thier money all to often at the expense of the employees and officers who may have equity options.
It has allowed me to go into business. Since the company I previously worked for got bought out. It left a void in our great network which I was happy to fill.
Larry, You and your team always enhance the companies you bring into the group and We are so great full to be part of this growing concern. I have been exposed to the opposite scenario several times in my career where the former owner gutted the talented staff to make the sale look leaner and the acquiring group finished off the survivors to reduce the payroll expenses. Their intention was to reduce competition and take over any products and patents but had little need for the going concern.
When this happens it’s because the wrong guys are at the top. The right leaders would never trade money to sell out their employees, their customers, and the network that made them what they have become. To flip the perspective, by weeding out the wrong guys at the top the networks will be stronger in the long run. There’s a great deal of work to be done, but in the end, the right people with the right heart and the right culture will prevail. No question.
YES! Larry this was awesome!