Planning for succession is a critical element of business leadership, and this task posed a unique challenge for Kurt Lustig and Bob Taylor, the founders of Taylor Guitars back in 1974. Taylor Guitars had grown from a small guitar design and repair shop to a US $150 million revenue household name. Neither Kurt nor Bob had children suited to take over the company, so when it came time to sell, the usual family succession plan was ruled out. Like most mid-sized and family businesses, Taylor Guitars was too small to go public, so to sell the business they would need to find a private buyer.
They didn’t like the idea of a strategic buyer because they didn’t want to be rolled up into a much larger company culture. “Every company is different,” said Kurt. “We like how we do business. We make guitars differently. So that would probably be lost if we sold to a strategic partner.”
Neither did they like the idea of selling to private equity. Kurt explains: “They'll have a five-year investment horizon. They're buying you and they're trying to increase the value to then sell the company. A lot of companies don't make it through that process. They don't survive it. We didn't want the company to go that way, although we could have gotten more money and gotten money more quickly if we'd sold to private equity.”
They decided that they needed to protect the company, its culture, and its people: “The only way to do that was for the company to remain independent and to create an [employee-owned] trust, where our long term employees would continue to manage the company.”
It was the only solution that would keep the company and its culture intact. But even better, it meant that the future of the company would belong to all the people who had made Taylor Guitars what it was and continues to be. “And really, any increase in equity and wealth of the company would see the benefits go to the employees, not people that were already super wealthy,” Kurt concludes.
