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.