Built to Sell Radio

A direct competitor can often be the most likely buyer for your business. A competitor already knows your industry and may see your company as a way to consolidate market share and gain more pricing control. They may also be able to buy your business and eliminate redundancies in your back office, meaning your business is worth more in their hands than in those of many other potential buyers. The challenge with negotiating the sale of your business to a competitor is, if the deal falls through, you can end up regretting all the secrets you shared with them in the process. John Bodrozic is the co-founder of Meridian Systems, which offered project management software to the construction industry. In 2005, Bodrozic began negotiations with a direct competitor and ended up living to regret it.

Part of building to sell is knowing who you are going to sell to. If you don't start thinking about your potential buyers list early, you may end up growing an entire appendage of your business that an acquirer will neither want nor value. Take Northern Lights as an example: Michael Glauser started Northern Lights to offer low-fat frozen yogurt through a growing wholesale distribution network of stores selling his desserts. At the same time, he built up a network of 60 company-owned stores under the Golden Spoon brand. The company-owned stores were expensive to start and complicated to manage. Glauser went on to sell Northern Lights to Cool Brands International for five times net income. Cool Brands turned around and immediately sold or shut down the 60 company-owned stores because they wanted Northern Lights' wholesale distribution channel – not a bunch of expensive retail stores. During our interview, I couldn't help but wonder how much more Glauser and his shareholders would have gotten for their company had Glauser figured out what a buyer would value and then invested all of his limited resources into building his brand and its wholesale distribution channel from the start.

If you run a service, my guess is you've dreamt of owning a product business instead. Service businesses are such a mess – demanding clients, scope creep, and more often than not, slow growth. Which leads many service company founders yearning for a product. They tinker with a product on the side, often sucking cash and other resources out of the service business to fund the development of a product, which can compromise the health of the service business. But there is an alternative: why not sell the service side of your business to have the cash and the freedom to properly invest in your product idea? That's exactly what Talia Mashiach, the founder of Eved, did.

Have you thought about when you want to sell your company? A lot of owners think selling equates to retirement, but selling your business and retiring are not the same thing. Sure, some people sell because they want to play more golf but many others sell because they want to go do something else. Take Josh Latimer as an example, he started Birds Beware, a Michigan-based window cleaning business. He built his company up to $800,000 in sales and decided to sell it so he could move his family of three young kids (with a fourth on the way) to Costa Rica.

When Mark Carlson put Minnesota Mailing Solutions on the block, he got two offers for around $3 million, which represented about four times his pre tax profit – a respectable price for a postage meter reseller turning over $4.5 million in revenue. But Carlson wasn't satisfied, and in this week's episode you'll hear the one simple tactic he used to get the acquirer to boost their offer by 50%.

When the time comes, do you want to sell your business externally, or internally to your employees or family members? Once you decide, a little piece of you may always wonder how the other option would have played out. That's why the story of Barry Wood is such an interesting case study. Wood is a door guy, who started M&I Door Systems in 1995, sold M&I in 1998, and then started another – virtually identical – door business in 2003, only to sell it in 2013. Wood sold his first door business externally and his second internally, so his two exits allow us to see clearly the differences between these two types of sale with an as close to apples-to-apples comparison as possible. The pros and cons of selling externally rather than internally may surprise you.

Mike McCarron sold MSM Transportation to the Wheels Group for $18.6 million. After receiving the letter of intent (LOI) he signed it immediately. If McCarron had the opportunity to do it all again he'd handle this request differently. Listen now and find out why.

For most of its 17 years, Imaging Path was a successful IT services contractor that peaked at more than $16 million in sales. Imaging Path founder and CEO Corey Tansom kept a close eye on his business until, a few years prior to its sale, Tansom went through a divorce that caused him to spend a lot of time away from the office. Tansom was distracted, costs ballooned and margins shrank. Imaging Path started losing about $500,000 a year. The situation at Imaging Path got worse when Tansom's bank decided to pull its financing. Tansom decided his best option was to sell his business – but who would buy a money-losing company?

Carl Silbersky sold his facial recognition software company Polar Rose to Apple in 2010 for a reported $29 million. The negotiation was relatively smooth but Steve Jobs would not budge on one deal point. Learn how one of the savviest deal-makers of our time approached his strategic acquisition.

Katherine Hague, co-founded ShopLocket in 2011 and sold her business two years later to PCH, a billion dollar Irish company. Hague was a prodigious fundraiser in her two years from idea to exit. She sold 2% of her company to a friend before she had a product, another 10% to an incubator before selling an even bigger chunk in a million dollar funding round. In our interview, Hague describes some of the landmines to avoid when raising outside capital and why she still has one regret about the sale of ShopLocket to PCH: listen now.

Dennis Hart sold his advertising agency, Apex Media, for 7.1 times EBITDA. Selling for 7X sounds like a great exit but it disguises the complexity of the negotiations. Hart felt like he knew precisely how much EBITDA he generated until the buyer started questioning his math, adding back extra expenses, and driving down his EBITDA. Hart walked away from the negotiating table twice. Eventually both parties were able to agree on a set of "add backs," but this is a good reminder that, when it comes to selling your business, your EBITDA can be subjective.

How much would someone have to pay you to buy your business today? That's the question Kris Jones was asked when billionaire Michael Rubin approached him about selling. Jones' answer to Rubin's question may surprise you.

Back in 2011, Nathan Latka started Heyo, a social media company that helped businesses advertise on Facebook. By 2016, Heyo had raised $2.5 million in seed and venture capital financing and, by all accounts, it was a growing and successful business. Then Latka sent an unusual email that would ultimately garner him seven offers to buy his business – with the winning bid amounting to an incredible 11 times revenue. Listen to Latka describe the content of the email.

When John Bowen received a $37 million offer to buy his business, he thought it was too good to be true. As it turns out, it was. Bowen had received a non-binding letter of intent from a global bank, who made their bid with no actual intent to buy his business. Bowen came to believe their offer was a decoy designed to disguise their real objective: to understand Bowen's strategy so they could compete better with him. Bowen got wise to their strategy and ended up selling his business to another buyer, Assante Wealth Management, for $25 million. Bowen reveals his three strategies for evaluating the authenticity of an offer to buy your business during our interview.

John Maddox co-founded the digital agency Ten Fast Feet in the depths of the financial crisis. Despite his timing, Maddox was able to grow the business to $2.3 million in sales by 2013, when he got a call that would change his life forever.

If you have ever put a label on a sippy cup, chances are Julie Cole’s company, Mabels Labels, produced it. Cole and her three partners built Mabel’s Labels into a $10 million business providing labels for kids’ clothing and accessories before being acquired in early 2016 by C.C.L. Industries, the parent company of Avery Labels. Cole and her partners were able to add hundreds of thousands of dollars to the price they got for their business using a negotiation technique called “normalization” – listen to find out how.

Natalie Susi started Bare Organic Mixers to supply low-cal cocktail mixers to bars and restaurants in southern California. Susi got her product into 300 locations before she decided to sell her company to a strategic acquirer in the organic foods industry. In order to maximize her take from the sale, Susi had to decide whether she was offering an acquirer the chance to buy her company or her product.

Aaron Houghton sold iContact in 2012 for $180 million. The first round of growth was financed by something called convertible debt, which Houghton recommends to any entrepreneur for its simplicity. To hear how Houghton parlayed an initial investment of $250,000 into a $180 million exit.

In eight years Ryan Born built Audio Micro, which began operations in his spare bedroom, into an Inc. 500 company. Born went on to sell his business for more than $20 million in 2014 – a deal that only happened because he had the foresight to put an expiry date on the "no shop” clause on his Letter of Intent.

Jeff Hoffman sold Competitive Technologies, a business intelligence company serving the travel industry, to American Express in a nine-figure exit. After the Letter of Intent (LOI) was signed, American Express proposed paying part of the acquisition in an earn-out, and you’ll never guess what Hoffman did next.

Most financial acquirers will arrive at an offer for your business by calculating the profit they expect you to make and deciding what they are willing to pay today, for your profit stream in the future. Because you are competing with lots of other places that the acquirer could invest their money, multiples are usually in the low to mid-single digits of your pre-tax profit. A strategic acquisition is an entirely different animal. A strategic acquirer will value your company based on how much more of their product they can sell, which is exactly what Business Objects (now SAP) did when they bought Nick Kellet’s business, Next Action Technologies, for more than eight times revenue.

Yvonne Tocquigny built her Austin-based advertising agency up over 35 years working with clients like Jeep, Dell, Hitachi, USAA and Caterpillar. Then in 2015, she got a call from New York wondering if she would consider selling. The problem was that her agency had become part of who she was. She had become something of a local celebrity and an inspiration for young female entrepreneurs in Austin. In selling, Tocquigny feared she would give up part of who she had become.

Trevor McKendrick had created the best-selling Spanish-language Bible app when he was approached about an acquisition offer. Salem’s original offer was 3.5x revenue but Trevor got them up to 5x with a combination of chutzpah and a knack for reading the fine print.

Stephan Spencer went to sell his consulting business in the late 1990s but buyers all wanted him to sign up for a long, painful, and risky earnout. Keen for a clean exit, Spencer took the business off the market and set out to make it less dependent on him personally. In the episode, he details the three unique strategies he pursued for withdrawing from the day-to-day operations of his business. By 2010, Spencer had the business running so independently that at one point he was able to take a six-month sabbatical. That’s when he knew he could sell without such a lengthy earnout. Ultimately, Spencer sold his business to Covario in 2010 for a combination of cash, stock and a six-month earnout—an earnout so short it's almost unheard of for a marketing services business sale.

Ian Schoen built Two Tree International, up to $4 million in revenue before he sold it in a multimillion dollar exit in 2015. Despite only working in the company for a handful of hours each week, Schoen was able to attract a number of buyers because he had created an operating manual employees could follow.

I loved watching David Price pitch for the Toronto Blue Jays in last year’s pennant race, so I was sad to see him sign a seven year, $217 million contract with The Boston Red Sox a few weeks back. Of course, it wasn’t Price himself sitting across the negotiating table from the Red Sox brass. He was represented by his agent, Bo McKinnis. Price—like just about every high stakes professional athlete—has an agent in his corner because there are just too many things that can go wrong, too many egos with the potential to be bruised, and too many zeroes at stake to negotiate on your own behalf. The same is true when you sell your business. When there are more zeroes involved than selling a home, you need someone representing your best interests. That’s a lesson Alexis Martin Neely found out the hard way when she tried to sell her company on her own. What started out as a promising relationship with a buyer ended up as a DIY disaster.

A shotgun deal is the most brutal form of capitalism. When you can’t stand your partner anymore, you offer them a price for their shares. They have two choices: accept your offer or buy you out for the same amount. Triggering a shotgun deal can have explosive results, as Kim Ades found when she offered to buy out her husband’s share of Upward Motion.

Usually a nine-figure exit takes more than a year to complete but when Blackberry found itself behind schedule on the launch of its tablet, RIM founder Mike Lazaridis saw Jakobsson’s business as a saviour. This led Blackberry to a $150 million acquisition in less than six weeks—that has to be the fastest nine-figure exit ever.

When you get an acquisition offer your eye will immediately go to the offer price. That’s only natural. But — there could be two other negotiating points that could have just as large an impact on your windfall of selling your business. Jack Groot discovered all three when he went to sell JP’s Coffee Shop — a business that USA TODAY® voted one of the top 10 coffee houses in America.

When negotiating to sell your company, the single fastest way to spike your earnings is to introduce a competing offer. But you don’t always have the luxury of multiple buyers. It may be better to simply fake it, which is exactly what Trent Dyrsmid did to boost his take for the sale of his company in 2008.

In this episode of Built to Sell Radio John Warrillow interviews New York Times best selling author and serial entrepreneur, Kevin Kruse. As Kruse went to exit Axiom, the ultimate buyer wanted to avoid competing with Kruse down the road…and that’s where the negotiation hit a giant snag.

When you start a business from nothing, it can be hard to place a value on your “sweat equity”. This is where Phil Carson found himself when he decided to get out of the diabetes testing supply company he and his partner had built from the ground up. He estimated his shares might be worth $250,000 but, through a fortunate sequence of events and some shrewd moves on his part, he was able to capture $1.2 million for his stake.

In this week’s episode of Built to Sell Radio, John Warrillow interviews Beate Chelette, the founder of a Beate Works, a creative company that she sold to Bill Gates for a significant premium in 2006.

Would you rather have one million dollars in the bank today or a chance to have ten million a decade from now? It’s a philosophical question that comes down to the time value of money and your tolerance for risk.

After starting and exiting BabyCenter.com, Mark Selcow built Merced Systems into a profitable business after year one. Ten years later he sold Merced for $192 million, equating to over 3 times top line revenue.

In this episode of Built to Sell Radio you’re going to hear from Erik Huberman, who started Swag-of-the-month, a T-shirt business he quickly scaled from start-up to sale in 18 months. Huberman considers the exit a success, but during negotiations there was one question the acquirer asked that Huberman wishes he had never answered

Rick Day built Daycom Systems into a $26 million dollar business over a 17-year run. Daycom sold phone systems but the company had a problem: it had become too reliant on one supplier. Daycom sold phone systems but the company had a problem: it had become too reliant on one supplier in a business where the technology was changing fast. Motivated by the fear of becoming obsolete, Day decided to assemble an advisory board to help him prepare the business to sell. The board helped him to see his business through the eyes of a potential buyer and exposed a number of things that Day needed to fix.

Mark Patey started Prodigy Engineering in 2010 to help companies leverage hybrid engine technology. Four short years later, Patey accepted a multi-million dollar offer to buy the company. Prodigy Engineering is the latest in Patey’s pattern of starting businesses for the purposes of scaling them and then quickly flipping them. Patey has flipped six companies, and his approach could be considered the counterbalance to the prevailing view that businesses should be built to last a lifetime. When you get to know Patey, his compacted timelines start to make sense. He – like so many successful entrepreneurs – suffers from ADHD, a blessing and at times a curse. Patey credits his ADHD with much of his success at selling businesses.

Andrew Yang had built Manhattan GMAT into an $11 million business when Kaplan Test Prep, an 800-pound gorilla in the education business, threatened legal action against his company. Rather than react defensively, Yang sought to build a relationship with Kaplan executives, who would eventually go on to buy Manhattan GMAT for more than 8 times EBITDA. To see how Yang turned a potential crisis into a clean offer of more than 8 times EBITDA.

Derek Sivers sold CD Baby for $22 million dollars and decided to do something interesting with the money. As an independent musician, Derek Sivers was blocked from selling his music through mainstream distribution channels, so he decided to start a company that would give his band, and other artists like him, a way to sell their music online. The business grew as Sivers entered into distribution deals with iTunes and Amazon. Ten years later, Sivers sold CD Baby for a cool $22 million dollars – and you’ll never believe what he did with the money.

Small service-based businesses are typically not worth very much, but Walter Bergeron made one simple change to his business model that garnered a $10 M acquisition offer. Bergeron started a small company servicing circuit boards for large food processing plants. It was a “break/fix” business with lumpy demand and cash flow. Struggling to grow, Bergeron starting offering a membership model where instead of calling when they had a machine to repair, subscribers paid a monthly fee so they could have their circuit boards serviced at any time. The switch to a membership model transformed the business and Bergeron quickly grew the company to $7 million in annual sales, at which point he was offered $10 million to sell it.

The first time David Phelps sold his dental practice, he ended up in a legal battle that cost him more than $100,000. Phelps eventually got his practice back and was determined to sell it the right way the second time around. David Phelps started his dental practice in 1986 and built it for 20 years before his daughter was diagnosed with Leukemia. Fighting for his child’s life, Phelps decided to sell his practice in a hurry. He agreed to provide financing to the new owner to buy the practice, which would end up being a decision he would come to regret.

Bobby Martin had built First Research up to $6.5 million dollars in revenue when he sold the business to a Fortune 500 company for 26 million dollars. But despite getting four times revenue for his business, Martin ended up feeling empty after the sale. In this week’s episode of Built to Sell Radio, I interview Bobby Martin. Bobby built his business from the ground up and had a great exit. He sold his business to a Fortune 500 company for $26 million dollars – four times his top line revenue at the time. Martin’s exit was a financial success but life after the sale took a big turn for the worse.

John Ratliff started Appletree Answers in a spare bedroom of his house in 1995 and by 2012 had grown it to 650 employees and 24 locations when he decided it was time to sell. John Ratliff was able to scale Appletree Answers by buying small competitors for around 3 times EBITDA using borrowed money. He quickly went from 1 to 650 employees in less than twenty years while his EBITDA went from nothing to more than $5 million a year. Then one day, he got a call from a strategic acquirer that would change his life forever.

Finding a buyer for Killer Shade was relatively easy. Closing the deal -- and getting paid -- was a whole lot harder. Mike Campion had built Phoenix-based Killer Shade up to more than $3 million in sales and $700,000 in profits when he decided he wanted out. Killer Shade was in the business of constructing shades and awnings for playgrounds, patios and parking garages. They did large, profitable jobs but city hall paid slowly and Campion was always stressed about cash. Campion was able to find a buyer and agree to a price, but that’s when the problems started.

Rick Martinez is a military nurse who stumbled into the staffing business by accident and grew his company to 600 employees. Then, when he decided to sell his business, he took a surprisingly zen-like approach to negotiating the deal. It typically takes a hard-nosed, sharp-elbowed entrepreneur to build a 600-employee company but Rick Martinez built a successful staffing business with no previous entrepreneurial experience. Years later, when he went to sell his company, he took a low-key approach to negotiating the sale. Rick’s story provides a welcome alternative to the often adversarial business of selling a company.

Kevin Sullivan was riding high running one of Seattle’s largest printing companies when the 2008 recession hit. Within months, sales tanked and Sullivan was forced to slash his work force from 185 down to 90. Nine hundred thousand dollars into a million dollar line of credit, the bank called and demanded Sullivan and his two partners re-capitalize the business. That’s when he decided he wanted out. In this episode of Built to Sell Radio you’ll hear how Sullivan and his team pulled the business out of the ditch and eventually got it back to profitability, which is when he and his partners decided to sell. His partners were happy to just get their names off the debt the business was carrying but Sullivan thought they could do much better, He turned down the 2 - 3 times earnings he was offered by financial buyers in search of an offer closer to six times…in the end - he was able to do even better.

Selling internally is not the first thing that comes to mind when an entrepreneur thinks about an exit strategy, but it could be the best fit. After all, who knows your business better than someone who is a part of it? In this episode of Built To Sell Radio, you’ll hear how Heather Osgood smoothly exited her business along with some ups and downs while selling her business to a partner.

In this episode of Built to Sell Radio, you’ll hear how Jason Swenk built up his digital advertising agency from nothing to thirteen million dollars in sales before he sold it to a strategic acquirer in 2012. Swenk then went to work for the new owner — but the new owner’s business got acquired nine months later by an even larger firm. Swenk found himself two levels away from power and struggled to hit his earn out. What follows is a success story with a cautionary tale about the dangers of agreeing to an earn out as part of the sale of your business.

At the age of 27, Aaron Walker sold his business to a Fortune 500 company. He thought the money would make him happy, but life after selling was a lot harder than he thought. In this episode of Built to Sell Radio, Aaron Walker shares his story of rags to riches to depression and how he climbed back out. He also provides three tools you can use to help visualize your life after selling so you can avoid the trap that many cashed out entrepreneurs fall into.