When we model the sale of a company, we can get incredibly precise.

What’s the valuation? How much cash comes off the table? What are the tax consequences? Is there rollover equity? An earnout? How long does the seller stay? What does working capital look like at close?

I’ve spent a lot of time around transactions, and these are exactly the questions we should be asking. An exit is a capital allocation event, and the details matter.

Then the wire hits.

And somewhere in all those spreadsheets, we may have forgotten to model what happens Monday morning.

 

 

The owner who spent 10, 15 or 20 years being the person everyone called suddenly has no company to run. There’s no payroll problem waiting. No customer issue. No employee who needs a decision. No lender asking a question.

The financial event may have gone exactly according to plan, while the personal transition is just beginning.

Years ago, I talked about this with Elliot Roe, a performance coach who has worked with entrepreneurs, Wall Street traders, professional athletes and poker players. He’s seen a pattern after some entrepreneurs sell that I think deserves a lot more attention.

They get liquid. Then they start investing.

And sometimes they start losing a lot of money.

 

You Sold More Than an Asset

Elliot was careful about how he described this. He wasn’t claiming every entrepreneur does it. He was describing something he’s seen repeatedly among the high performers he works with.

An entrepreneur sells a company, then quickly starts investing in startups and other opportunities. Before long, that person has put enough capital back at risk to make life uncomfortable again.

Elliot has a theory about why.

Entrepreneurs tend to get very good when their backs are against the wall. Years of ownership train you to operate under constraint. You solve the customer problem because you have to. You find the cash because payroll is coming. You make the decision because nobody above you is going to make it.

Eventually, pressure becomes familiar.

Then an exit removes a remarkable amount of it at once.

There’s research behind the idea that this transition reaches beyond employment. Researchers Ha Hoang and Javier Gimeno describe the founder role as something entrepreneurs incorporate into their broader self-concept. Elizabeth Rouse later studied founders leaving their companies and found that psychological disengagement can destabilize identity because founders often develop strong identity connections to the organizations they create.

That distinction matters to me.

A company can be an asset on your personal balance sheet while simultaneously becoming part of the answer to:

• What do you do?
• Who depends on you?
• Where are you useful?

 

A buyer acquires the first thing. The seller has to figure out what happens to the rest.

 

Liquidity Creates Its Own Problem

There’s another feature of exits that makes this transition particularly interesting: successful sellers suddenly become very attractive people to know.

As I told Elliot, after somebody sells a company, people come out of the woodwork with their hands out. Everyone can smell it.

 

 

A former owner may go from spending years allocating scarce capital inside one company to having substantial liquidity and a stream of opportunities competing for it.

Those are completely different capital allocation environments.

Inside your company, you probably knew what $500,000 could do. You understood the employees, customers, equipment, competitive position and operational constraints. You had informational advantages because you lived inside the business.

After the sale, somebody brings you a startup investment in an industry you’ve never operated in. Somebody else has a fund. A friend has a deal. Another entrepreneur needs capital.

And now you can afford all of them.

I think that’s where activity can masquerade as purpose.

You miss operating, so investing feels productive. You miss having consequential decisions to make, so a deal gives you one. You miss the pressure of ownership, so putting capital at risk restores some stakes.

None of those feelings improve the investment.

This is why Elliot gives some clients approaching an exit unusually simple advice: get the money and don’t invest in another company or startup for a year.

Travel. Get away. Give yourself enough time to figure out what you actually want to invest in.

I like the idea because it separates two decisions that can otherwise get tangled together:

• What do I want my life after this company to look like?
• Where should I allocate this capital?

 

Those questions deserve independent answers.

 

Plan the Owner’s Transition Before the Company’s

The M&A process has mechanisms for transitioning nearly everything associated with a company.

We negotiate transition services. We decide whether the seller stays for 30 days or 12 months. We determine which relationships need introductions. We transfer authority, knowledge, contracts, systems and bank accounts.

 

Source: Global Risk Community

 

The seller’s own transition usually gets far less architecture.

Research on retirement provides a useful parallel here, with an important caveat: selling a company at 45 obviously isn’t the same thing as retiring at 65. The relevant overlap is role transition. Research has found that retirement can involve changes in daily structure, social roles and personal identity, while work can be an important source of meaning and purpose. Studies of retirement transitions also suggest that people enter them with different combinations of work and non-work identities, which can shape how they adapt afterward.

For an owner preparing to sell, I’d want to think about that before closing:

• What structure survives the transaction?
• Which relationships survive it?
• Do you want to operate again, invest, teach, acquire another company, sit on boards, or take 6 months with nothing scheduled?
• How much of your current identity exists independently of the company?

 

And I’d put a particularly high bar on the first investments after closing.

Ask yourself whether you’re underwriting an attractive opportunity or responding to the discomfort of suddenly having capital and no operating problem attached to it.

Those can feel remarkably similar from the inside.

 

The Buyer Gets the Company. The Seller Gets a Blank Calendar.

One of the strange things about a successful exit is that it can produce exactly what the owner worked for:

• Liquidity
• Optionality
• Fewer obligations
• Control over your time
• Financial freedom

 

However, the founder role becomes deeply incorporated into the owner’s self-concept, and the owner undergoes continual identity shifts and practical adjustment challenges after leaving businesses they’ve run for years.

That changes how I think about exit planning.

The transaction has a closing date. The owner’s transition doesn’t.

And perhaps the most expensive mistake after selling a company is assuming that because you now have the freedom to do almost anything, you need to immediately do something.

For owners thinking through both sides of an acquisition, those are exactly the kinds of questions we spend time examining inside Acquisition Lab.