Most sellers want to be paid all of their money up front, and most buyers want to avoid paying anything up front. Deals usually get done somewhere in the middle, where the seller agrees to accept some cash and to be paid some of their proceeds over time.
Eric Weiner, for example, started All Occasion Transportation in college and by the time he turned 35, his company was grossing more than $3MM a year. That’s when Weiner decided he wanted out.
Weiner found a buyer and agreed to accept half of his money in a five-year consulting contract, which sounded great in theory but ended up becoming hard to enforce. In this cautionary episode, you’ll learn:
Have you ever noticed the ads that run before you watch an official online video clip from shows like Saturday Night Live or Jimmy Kimmel? You can thank Nicholas Seet for that. Seet developed the video player that hosts both the content and the ads for some of the world’s biggest media companies. His business, Auditude, was recently acquired by Adobe for more than $100 million according to UCLA's Anderson School of Management.
Although a spectacular exit, Seet had to give up a large chunk of the company—and the CEO title—to scale up, so in this episode of Built to Sell Radio we ask the age-old question: 'Is it better to own a big chunk of a small company or a small slice of a big company?' You may be surprised by Seet’s response.
You’ll also learn:
Ian Ippolito started Rent a Coder as an online marketplace for hiring technical talent. He quickly expanded to go beyond technical professionals and re-branded as vWorker. Ippolito built vWorker up to $11.5MM in annual revenue before he received an acquisition offer from Australia’s Freelancer.com
Freelancer.com had been courting Ippolito for months but their original offer was too low in Ippolito’s view. That’s when Ippolito decided the only way for him to get any real negotiating leverage was to seek out a second bidder. In this episode, you’ll learn:
Peter Shankman started Help A Reporter Out (HARO) to connect experts with journalists who needed people to quote for stories. HARO sent a simple email three times a day to subscribers and because every email had the potential to be a reporter from a media outlet like The New York Times, the email open rates were close to 80%. Most days Shankman worked from his sofa with two employees helping him remotely.
Within three years, Shankman was generating $1.5MM from selling simple text ads on his email blasts. That’s when Shankman’s largest advertiser approached him to buy HARO. In the episode you’ll learn:
Bobby Albert took over the family moving business when his father died unexpectedly. Determined to succeed, he transformed his father’s five-person business into a fast growth company, eventually employing 150 people before The Albert Group of Companies was approached by a strategic acquirer.
Rather than simply accept their first acquisition offer, Albert patiently negotiated the offer up by more than 100% before he agreed to be taken over.
In this episode, you’ll learn:
- The difference between an abundance and a scarcity mindset.
- What distinguishes your company’s core values from the founder’s core values.
- How to 5X your revenue.
- The secret to getting discretionary effort from your employees.
- The difference between a values-driven company that gets results and a results-driven company that has values.
- Why aspirational values kill a company’s culture.
- How to more than double your next acquisition offer.
Julie Pickens and her partner Mindee Hardin created Boogie Wipes, a moistened tissue Moms use so their sick kids can avoid a raw nose in cold season. They patented their formula and won orders from Rite Aid, Walmart and Target leading to annual revenue of $15 million.
But all was not well in Boogie land—in fact, the partners’ relationship became strained when Hardin announced she wanted out, forcing Pickens to find a buyer for their company. The result would leave Pickens disappointed with her exit while partner Hardin had to file for bankruptcy.
What follows is a cautionary tale of what happens when partners decide to go their separate ways.
Bert Martinez is a best-selling author and a national radio host who has sold a dozen businesses in his career. In this episode, you’ll hear the story of Accelerator, a supplements company he sold for just under $1.6MM in 2014.
Accelerator’s main supplement was ephedra, a weight loss pill that was selling well despite a growing group of customers who were getting sick from misusing it.
Martinez started to worry that ephedra could be banned so he put his business on the market, only to realize it was worth a lot less than he thought.
Rajiv Kumar and Brad Weinberg started ShapeUp, a software company designed around getting people to improve their health. Instead of going direct to consumers, they decided to license the platform to large Fortune 500 companies looking to reduce their insurance expenses by getting employees to improve their health.
The partners sold 20% of the company for $300,000 in start-up capital and went on to raise five more rounds of capital at increasing valuations. They got the business up to $20 million in recurring revenue when they got a call from Richard Branson-backed Virgin Pulse.
Kumar was able to gin up Virgin’s initial offer by 50% based on some savvy negotiation skills. In the episode, you’ll learn:
In 1992 Stephanie Breedlove started a payroll company to make it easier for parents to pay their nannies. It began small and she self-funded their growth, which averaged 20% per year.
By 2012 they had hit $9 million in annual sales when she got a call from Sheila Marcelo, the CEO of venture-backed Care.com. Marcelo wanted to buy Breedlove’s company and offered her almost $40 million—more than four times Breedlove’s revenue, an astronomical multiple that only serves to underscore Breedlove’s audacity when she turned it down.
Breedlove wanted more and ultimately settled on a price of $55 million for her $9 million business. In this episode, you’ll learn:
When you get an acquisition offer for your business, it is natural to focus on the offer price, but your employment contract can be a key element of your remuneration.
I know, you don’t want to be an employee but, when you sell, you’ll likely have to sign on for a transition period or earn-out where you will officially be an employee again. The terms of this employment contract are a key element of any deal.
Just ask Eric Sit.
Sit’s company was acquired by Detection Technologies in 2013. Six months later, Detection was acquired and Sit lived to regret the employment contract he had signed.
Barry Hinckley founded Bullhorn with his two partners Art Papas and Roger Colvin. The software company built an application recruiters used to manage candidates and clients. Bullhorn raised three rounds of financing and went on to sell for $135MM in 2012. Hinckley and his team raised money from family, friends, and venture capitalists and have the scars to prove it. In this interview you’ll learn:
The first book I ever read about entrepreneurship was The E-Myth by Michael Gerber.
I loved it.
Gerber’s knack for simplifying the complex art of starting and growing a company resonated with me immediately. Although I’ve never met Michael, I consider him to be one of my very first teachers.
I have not read his more recent books so when his publicist contacted me last week to see if I would interview Michael on Built to Sell Radio, I was keen to hear what he had been up to since The E-Myth.
In this interview, you’ll get a summary of his new book, Beyond The E-Myth including:
For the better part of 40 years, Michael Gerber has been encouraging business owners to work “on, not in” your business. That’s exactly what we do with owners that leverage The Value Builder System™. Each month, you’ll get focused time with one of our Certified Value Builders to help you build your company as if it were a product to sell. Get started by completing your Value Builder questionnaire.
Frank Cottle led an investor group to buy Hi-Mark Software for 10 times EBITDA. Cottle then sold a chunk for 15 times and ultimately sold his last tranche of equity for more than 16 times EBITDA to Lufthansa. In this interview, you’ll get deep inside the mind of a private equity buyer and learn:
Most of our Built to Sell Radio episodes have been success stories but this week’s show is a cautionary tale of what happens when you don’t plan ahead. It features Dan Bradbury, a young entrepreneur who was growing a successful business right up until the day he had a cycling accident and ended up in a coma.
Bradbury made a full recovery after seven months, but his business didn’t make out as well. It suffered in his absence, and instead of committing to build it back up upon his recovery, Bradbury decided to sell it, reasoning he needed to safeguard his family’s finances should anything bad happen again. After a long search, Bradbury found a buyer but the offer he received revealed his weakened negotiating position.You’ll hear Bradbury's cautionary tale along with:
Mark Stephenson and his partners grew their conference business, Media Edge Communications, to north of $10 million in annual revenue when they were approached by an acquirer. They agreed to a deal that was just shy of eight times EBITDA—85% of the deal was in cash with 15% in an earn-out. If Stephenson had the deal to do over again, he would change his earn-out structure to avoid leaving money on the table. You’ll learn about Stephenson’s earn-out mistake along with:
- The emotional impact of selling.
- How buyers try to grind you down during diligence (and how to counter).
- How to tell the difference between a time-kicker and a serious acquirer.
- How long it takes to negotiate the sale of a business.
Steve Huey bought The Learning House, a company that creates online courses on behalf of colleges, for $2.7MM in 2007 because he saw the opportunity to professionalize the sales and account management of the business. Five years later, Huey sold the business to Weld North, a private equity company for $27.5 MM earning his shareholders an 8 to 1 return.
In this episode, you’ll hear Huey’s advice on:
Joe Saul Sehy is the host of Stacking Benjamins, a popular personal finance podcast on which he has interviewed everyone from Jean Chatzky to David Bach.
Sehy’s journey to becoming a podcasting sensation was a little unusual: he started as a financial advisor, building a firm with $65 million in assets under management. Then, on his 40th birthday, Sehy received a letter from a friend which was the trigger that made him want to sell his business. His friend’s letter became a catalyst for him to switch careers and become a professional podcaster. In this episode of Built to Sell Radio, Sehy describes the sale of his financial planning practice and you’ll learn:
Doug Chapiewsky built CenterPoint Solutions Inc. into an Inc. 500 company with $5 million in revenue and more than $3 million in EBITDA before he sold it to Israeli-based Nice Systems. In this episode of Built to Sell Radio, Chapiewsky describes how to:
Manny Fernandez started HomeBuyingCenter.com in 2007, just as the real estate market started to wobble in the United States. As it turned out, his timing was perfect as his site helped underwater homeowners unload their real estate.
In fact, Fernandez was generating so many opportunities for one real estate brokerage, that he received an unsolicited offer from them to purchase his business. He took their offer and parlayed it into a competing offer that helped provide the competitive tension to get a deal done – proving once again, it often takes two offers to maximize the value of your business.
Of course you want an all-cash offer at a beefy multiple with no strings attached, but what do you really need from the sale of your company?
That’s a question Dr. Frank Gibson thought a lot about. He had a successful healthcare business but had stumbled on a new opportunity in a related field. He wanted to sell his company to fund the new idea and, at the same time, needed to retain the rights to some intellectual capital in his old business.
James Garvey and his partner grew Objective Loyalty from a standing start in 2005 to $2.5 million in EBITDA before they decided to sell their email marketing platform.
Garvey’s investment banker spent six months shopping the deal without a single offer. Then Garvey decided to switch tactics and approach the strategic partners who already knew the company well.
Garvey got an offer and was able to double it quickly through some shrewd negotiation. Find out how Garvey 2X'd his original offer by listening now.
An earn out is a way to bridge the gap between what you want for your business and what a buyer is willing to pay. In an earn out, a portion of the sale price of your business is set aside for payment in the future if you reach certain goals the acquirer sets for your business. You’ll need to stay on for a few years as an employee of the acquiring company to lead your team to hit the earn out goals.
Most owners would prefer all of their cash the day they sell their business and most buyers would prefer to pay the entire amount contingent on future performance. Deals get done in the middle where some portion of your money is paid up front with another slice available if you meet your goals as a division of the acquiring company.
Traditional earn outs are typically tied to the profitability of your company as a division of your new owner and they are fraught with problems. Buyers may thwart you ability to hit your number in any number of ways. In this episode of Built to Sell Radio, you’ll hear from Mac Lackey, a veteran entrepreneur who took an alternative approach to structuring his earn out which put up to 80% of the sale of his company, Kyck.com, at risk.
You’ll learn the surprising approach Lackey took to structuring his earn out to maximize his shot at hitting his number.
Peach New Media was launched in 2001 by Dave Will, who carried the title “Chief Peach” until he sold the business in 2015. Will had built his learning-management software company up to 40 employees when he received an offer from the private equity group Accel-KKR that he simply could not refuse. In this interview, Will shares his wisdom on:
- How to create a company acquirers will want to buy.
- How to figure out when to sell.
- How to look at your business as an investor would.
- Cup-holder ideas and how they impact your company’s value.
Jim Beach sold American Computer Experience for $200 million, which sounds like a fantastic exit, but when I asked Beach if he had any regrets I was surprised by how long a list of lessons he had to share including:
How creating new divisions can help grow revenue but reduce the overall value of your company.
- The dangers of raising venture capital.
- Why growing faster than your cash flow may end up costing you more equity in your business than you want to give up.
- The perils of partnering with a celebrity entrepreneur.
- Why you should never take an angel investment from a friend or family member.
- How to avoid a $250,000 legal bill when selling your company.
In 1999, Andrew Weinreich sold Six Degrees, a social networking site based on the same idea that sparked the likes of LinkedIn and Facebook, for $125 million. In the following years, he went on to sell three other companies including one to IBM and another to Match.com.
Most founders are lucky to have one successful exit, but Weinreich has already had four. In this interview, you’ll learn: