Robert: In this episode of the Stretch Goals Podcast, Scott and I are gonna be talking about how to sell your business. This is the Stretch Goals Podcast, where each week we’ll share insights and lessons learned based on our experiences as entrepreneurs. We’ll challenge you to create ambitious goals as you start and grow your business. I’m your host, Robert Dickerson.

Scott: And I’m Scott Davis.

Robert: So Scott, this week we’re gonna talk about how to sell your business. We’re gonna share some of our own thoughts, since we’ve both sold businesses. One thing we were just chatting about was, I guess maybe the first part is really how to go out and find a buyer, and how to start the process.

Scott: Yeah, exactly. That’s the question that I think a lot of people ask themselves when they’re either tired of running their business or like, “You know what? Now’s the time to sell.” And it’s not like you put a for-sale sign up in your front yard, and people drive by all the time. You have to know where to go. So I was curious, how did you go about selling your business?

Robert: We actually, the first business I had, You Awake, that we sold, we actually sold it to an existing customer, so that’s one area that you can take a look at. A lot of times you already have relationships with your customers that are using it. Maybe they wanna incorporate your whole product into what they’re doing, or they see the value and they wanna use it. So that’s a great way that you can reach to existing customers, existing contacts, to see if they’re interested in purchasing your business.

Scott: Now did you go to them and say, “Hey, we’re shutting this thing down, and if you wanna continue you need to buy it”? Or was it like, “Hey, is there, you know, any interest in buying this?” I mean, how’d that conversation go?

Robert: Yeah, it was more of a feeler conversation to say, “Hey, we’re, you know … is this something you’d be interested in purchasing?” The purchaser of our site, marinas.com, actually had relationships with a bunch of marinas. So not only were we on their site, but we were in other smaller marinas that actually were their customers as well, so it made sense for them to acquire us because they had all those customers under themselves already using a different product. So this just kind of expanded upon the products they were able to offer to all their customers.

I think it’s kinda like a feeler conversation to see if they were interested in first. We wanted to move away from the business, but that’s not something that we went and started talking to them about immediately, saying, “Hey, we just wanna throw this away. Do you want it?” kind of thing. Try to really bring the value and talk about what we were doing, what our vision was, and tried to sell it to them that way.

Scott: Yeah, I think my situation was a little bit different. I had a good customer base, and I just wasn’t enjoying what I was doing. The fun wasn’t there for me anymore. I wanted to keep building apps, but I didn’t wanna do it under the confines that I was having to do it under. So I actually put up a notice on the front page that said, “We’re not accepting any new customers.” Existing customers would continue to be maintained without any issues. That started getting questions. “Well, what’s going on? What’s going on?” Yeah, again, I was committed to keeping everybody running, but I wasn’t taking new offers.

What was great about it, from a timing perspective, was I did it right before a trade show that I was going to attend in the sports industry. So there was lots of people who had planned on coming to talk to me at the trade show who saw the notice and was like, “Wait, wait, what’s going on?” Long story short, I had several companies and people reach out to me with serious interest in buying my company. Through a negotiation process, which we can talk about next, you whittle down who’s serious or who’s got the best offer for you, and you can pick and choose. Ultimately, I ended up to selling it to somebody. A friend of mine had seen my notice on the website and had asked me what was going on and if I was trying to sell, and he referred me to the ultimate buyer of my company.

Robert: Yeah, I think a lot of times people get tired of working at their business and they wanna move onto something else. I mean, that’s a legitimate reason. That was my reason as well, as I kinda got tired of working on it. I wanted to get some value out of it. I put a lot of time, a number of years, just as you had in your business and wanted to get that out of it. I didn’t wanna throw it away because I had put so much in it, but yeah, it is a process to find people. Another angle you can go at is there’s brokers out there in the software space. There’s FE International, which is a broker that you can reach out to. They have a network of existing buyers, so they-

Scott: What’s that website?

Robert: I think it’s feinternational.com. We’ll link it up in the show notes. But they basically have a network of buyers that are interested in different spaces, and a lot of these buyers are interested not in coming up and kinda starting the business, but they’re interested in growing the business and taking it to that next level. If that’s something you’re good at developing businesses, or you’re just starting out business and you want some help to take it to the next level, that could be another area to take a look at. They take a percentage of the sale. I think it’s normally 10% to 15%, something like that, depending on the sale size. So just something to think about if you decide to go that route.

Scott: Yeah, that’s a good point. The reason I asked is because I actually know somebody right now who’s trying to sell their startup. It is not a huge startup. It does $6,000 or $7,000 monthly recurring revenue right now, which is enough. It has a good customer base, so there could be somebody looking to scale it or acquire it and consume it and do something with it. But it’s good. Like Rob said, we’ll link it up in the podcast and YouTube.

But one thing that you said that was interesting to me was using existing customers and approaching them, and I especially like that idea from a customers who may be licensing your product. When I started to think about selling my business, I had a lot of people asking me if they could license my IP. Really that was, when I started to think about selling, I thought about going to them first because they had already expressed interest in wanting to buy my software, but they wanted to buy and own it, versus licensing it which, yeah, it’s under my terms but you can use it. So I reached out to them, and they had extreme interest as well. That’s similar to what you were doing. You went to existing customers. Licensing customers are the same except they probably have a bit more inclination to become a purchaser of your company if it’s a good fit.

Robert: Yeah, I think, and this discussion too is not something that you wanna think about just when you’re selling your business. I feel like you need to think about it maybe even from the start when you’re building your business, about what your strategy is. How long, is this a life-long business you wanna be involved with? Is this a short-term business? You wanna grow it to a certain point and sell it? You really need to be thinking about that in terms of your strategy of how you’re building your business from the start.

With Mapout, that’s something I’ve been thinking a lot about, because, you know I’ve been talking to you about that too, is that we license our technology, the use of our technology, to different companies. And I’ve also had interest of people wanting to basically purchase it or create IP rights to use the platform, which is not something I really wanna go down right now, because we’re used on different customers and it just gets really sticky and hairy when you start getting into the legal IP issues and IP sharing and code of use and stuff like that. So you really need to think about it, where you’re gonna go. With Mapout, this is an area that I’ve been thinking about and eventually trying to sell it, is that these customers that I have relationships with, they can start seeing the value of what we’re doing. And by purchasing the platform, they can now have ownership of it and control of it, and really grow it in the way that they want to, right?

Scott: Absolutely. Like I said, I think it’s a great approach. It depends on what industry you’re in, and how to do. The other thing, like you touched on, is you have to think about what acquisition could look like for your company in the future. When you’re starting the business, you know in your head, usually early on, if you’re creating an idea to sell it in the short term, or if it’s going to be something you work on for a while and maybe eventually sell if the opportunity presents itself.

And then sometimes, opportunities just come up. I was on a train to D.C. one time talking to a guy who, he was comfortable. He built his business himself, and somebody one day said, “Hey, you know, you interest in selling?” He was like, “No.” And they were like, “Well, let me make you an offer anyway.” It was an offer he couldn’t refuse. He had no intention of selling his company, didn’t want to. Now he’s retired. So it just depends. Sometimes you may not wanna sell, but something comes up and you’re like, “You know what? I can’t pass this up.”

Robert: Yeah, I think that’s a good point. I think, another point I wanted to make too is that if you’re under the impression that you’re just gonna sell your business and walk away, you need to get that out of your mind. Most acquires are gonna want you to come on and stay on with the business to help that transition process. That’s something you really need to think about, is that you’re not just gonna sell it and walk away and be done once you get the money. There’s earn-outs and other things that come involved with that, which I sold. I was involved with the business for a number of years after that. A lot of it was, I basically was okay with doing it, and so I worked beyond what I had to. But it’s just something you need to think about. I think you had a similar situation, right?

Scott: I did, yeah. I was contractually required to stay on for at least six months and help the transition. I had certain incentives for staying for a different period of time, I think two years. One thing to consider too is, if you look at the previous episode we recorded in the podcast, How to Protect Yourself and Your Business, we talk about what happens if you were to sell your company and that non-compete after that time. I sold my sports-related business, and I couldn’t compete in the sports industry for two years, and I’m sure you had something similar. You couldn’t go out and create a new Geo Wake competitor.

So think about those things. If you’ve got an idea. Let’s say you sell your retail business, and you wanna create another retail business idea. You might wanna make sure that that’s written up explicitly when you’re going to sell, or you might wanna think, “Am I actually going to be able to do this new idea because of the competition in this space?” So those are things to ask yourself. Don’t just be like, “Meh, I’m gonna sell it,” and don’t think that there’s not any repercussions that will prevent you from doing your next idea. Sometimes legally there are.

Robert: And remember as well that people aren’t just buying your business as an entity. They’re buying the team too. That’s really important, because they want that intellectual property that you have in your head of how you built the business, the ideas that you had, how you’re gonna grow it, how you’re gonna scale it. So they might provide additional resources, additional money to help you achieve that vision that you had in your head, but they need to get to, right? And with those resources, you could really, really grow the business, maybe in areas that you didn’t think you could before because you were limited, say, in cash or in development time or whatever it might be.

So that’s something to think about as well, that they’re interested in the team. It’s something that you need to show to potential buyers too, that you have a really strong team, and why you’ve been able to grow this business and how you can help them once they’ve acquired. Because if you think about yourself, if you’re buying a business, you’re gonna wanna make sure that it’s successful once you make the purchase, and it just doesn’t fall off the wagon type of thing. They’re in the same mindset, which is, “How can we continue to make this successful? How can we grow it?”

Scott: Yeah. Playing devil’s advocate though, they could also be the flip side. Maybe you sell your company, and the goal for what your product was is no longer the same as what the acquiring company has. If it’s not clear during the purchase of the company and what expectations will happen with you after the sale, then it could be a little hard to deal with. So when you’re talking about selling and they’re talking about an acqui-hire scenario, or you have to stay on for a certain amount of time to help them transition, make sure that you’re not gonna be uncomfortable with that scenario. And if so, maybe find a different buyer.

Robert: Yeah. Their vision is really important, I think, in kinda the scheme of things. The sale’s not always about the money. You could not care about your business, but most people do. They have a vested interest. They wanna see it being successful. They have customers and employees and team members that they care about, and so it’s kinda, you wanna make sure that it moves on. And you’re very right, is that a lot of times people even purchase businesses to kill the competitor, right? And they wanna-

Scott: Yeah.

Robert: Kind of absorb that team and kill the competitor, and it helps them. So there’s a bunch of different reasons that people might purchase a business, and you just need to make sure throughout your diligence process you figure that out, what their reasons are.

Scott: Well, let’s look at a larger company acquiring a smaller one. Google and Apple and all these guys, they do it all the time. They buy, like Google bought Waze, but Google kept Waze running, which is not typical in the tech space. Typically what happens is, Google would buy Waze, Google would turn off Waze and just take the one or two pieces that they really wanted, probably the crowd-sourced information, and bring it into Google Maps. They didn’t do that for that particular app, which I find kinda interesting.

But that’s typically what happens. Somebody who has got a larger customer base buys some of their competition. They take out one or two pieces that they don’t have. They shut down the previous company and the previous product, and they now make it part of what they have. Sometimes that’s not successful. Sometimes you can never quite take that and make it work with an existing product, and that’s fine, but that’s something to think about. You may have an app that had 100 features, and they might be really buying you just for one or two, and then you’re going to take that and put that into their app as part of your transition process.

Robert: Yeah, and a lot of times too now, with if we talk about AI, machine learning, there’s fewer and fewer people that are experts in those fields. So a lot of companies are being acquired just to get those teams to internally work on stuff, so they might be buying the company and the product just to bring on those teams to work on other things. So that’s something to think about also.

Scott: I’m gonna use AI and deep learning to acquire companies and remove the need for the people who started them, and integrate it with my product line [inaudible 00:14:37].

Robert: Nice. So let’s talk a little bit about negotiation, because I think after you’ve kind of found an acquirer, you start that negotiation process. For me, that was a really stressful time to go through all that, especially if you haven’t done it before. I’d recommend you have a broker or an attorney or someone that’s gone through the process, because there is a whole lot of paperwork that you have to fill out, and it’s really nice to have someone, when you’re discussing different things about the negotiation, that you can go to and ask questions that is kind of on your side.

Scott: Sure. I remember you reaching out to me when you were going through the sale, like, “Hey, what did you do? And like, you know, is there somebody I can talk to?” I don’t think I had a lot of great information for you, but at least the understanding was there. I knew what position you were in and how to go about it. But I re-

Robert: I think you gave me the attorney that I used, actually.

Scott: I did. I know I did that. I did something good. That was my good deed for the year. I remember being at dinner with my family, more or less reasonably certain who I was going to sell my business to. Then I got a phone call, a last-minute, 11th hour phone call from another person who had expressed interest before that wasn’t really serious about it, and they made another offer to me at the last minute that I had to heavily consider. I didn’t sleep that night because one offer was very much in favor of me getting lots of cash, and the other one was not as much money, but my co-founder and some other people on my staff would be taken care of as well. So I had to weigh that. The selfish part of you is like, “Yeah, well, I just want all the money, so just give it to me.” But the reality is, I went with the other option, which was less money for me but it made everybody who was a part of the process receive a little bit of benefit from that.

Robert: Yeah, I think it’s easy to say now which way you’d choose, but I think in the moment, like you said, it’s a lot more difficult. It weighs on you, this decision.

Scott: Yeah. And the other thing is, it’s like, don’t be afraid to ask for something during the negotiation process. You will … Typically what happens is, somebody presents a legal terms sheet, and if you don’t like something, you go, “Can we scratch this one and add this bullet point?” What’s going to happen is, they’re most likely not going to be offended by whatever you’re asking for and then take out your contract all together. Usually what happens is, worst case, they’ll go, “No, we’re not going to give you a football helmet filled with cottage cheese as part of this deal. We are going to instead keep the offer as is.” Or they’ll go, “Okay, that’s fine,” but they’ll rework it.

So it’s just a process. It’s like buying a house or even buying a car, to an extent. It’s just multiple rounds. It’s, “Here’s our offer,” and you, “Okay, but what about this?” Either they’ll say, “No, the offer stands,” or, “Okay, we’ve modified it to some agreeable term.” Very rarely do people walk away because of something you’ve asked for. Now if you do say, “Unless you do this, I’m not accepting,” then they might walk away. Just be careful how you word it. But it’s a negotiation. It’s a little damp.

Robert: Yeah, I’ve found too that in-person conversations, or even over the phone, were really, really important during the process. With any negotiation, it’s really about that communication. It’s hard to do something like that over email, where you’re sending stuff back and forth. We almost had our deal fall apart because we started getting the lawyers involved, and the other side thought we were gonna try to take advantage of them with these legal agreements. I mean, there’s a lot of agreements, so a lot of legalese, and it can become overwhelming. Is someone trying to put something over on you in these legal documents that’s gonna hurt you in the long run?

I think really getting on the phone and talking it out and say, “Hey, this is what we’re trying to do here. This is what we’ve agreed on. This is what we’re trying to do. We’re not trying to pull the wool over your eyes or something or flip something past you. I mean, really these agreements are in place to protect both of us in the long run, right?” Because a lot of times you’ll get paid out over … like we got paid out over a couple years, so it wasn’t just one huge lump sum payment. So with a couple-year payment, we wanna make sure that we received all the payments, and we wanna make sure that those legal documents were in order so we could do that. So I think just having these one-on-one conversations and really communicating, if you can, face-to-face, what you’re trying to accomplish, I think that’s really important during the process.

Scott: Sure, and I think, don’t be afraid to reach out to people who you know in the industry and ask for advice on these negotiation terms. I reached out to people who knew my business, but didn’t really know the financial details, but who knew me and I knew them really well. I reached out and said, “Hey, here’s what’s on the table,” and just asked for some advice. You get different opinions. And it’s not to get an answer so that you can make a decision. It’s to get more information from people who have insights that you haven’t thought about. I reached out to five or six people and said, "Here’s the options in front of me. I didn’t say, “Which one would you choose?” I just said, “Let me hear your feedback.” You got different pieces from different people, and that really helped me.

I remember one time during those conversations somebody said to me, “Sometimes life just gives you a little nudge.” And that, to me, was the kick in the pants that I needed to sell the company, because I was kinda going back and forth a lot. “Do I really wanna sell it? Well, let me just make some changes and it’ll be fun again, and I can scale it.” But that statement, “Sometimes life just gives you a little nudge,” was like, “You know what? You’re right. I need to sell this. I need to move on, need to do something else.” So don’t be afraid to reach out people, and even maybe people that you don’t know well, but you’re an acquaintance and they know who you are in the business world. Make that connection. Ask for some tips.

Robert: Yeah, I think that’s a really good point. That’s something I did as well, and I think sometimes it can be hard to make those decisions, but I think once you make the decision to sell, you should move forward with it and try to get it done. Selling is not something that happens overnight either. It’s a process. I think our sale took a couple months to get everything in place, and then a couple years after that before we saw the money from the deal all come through.

So it’s a long-term thing you have to think about, so you need to kinda plan that out. And that doesn’t really include even finding the buyer, so there’s time in front to even find the buyer and then go through the process of the sale and all that. So it’s a process, something you need to think about, but hopefully this episode was helpful in giving you some ideas and kinda help you in those negotiations when you’re trying to sell your business.

Scott: Absolutely, and don’t be afraid to reach out to us for advice or to reach out to us on social media, email, on the website, YouTube, or whatever. We’d be happy to give you an opinion on your situation and maybe send you some links or put you in touch with some people that we know to give you some advice. Thanks again, guys.

Robert: Thanks for listening to this episode of the Stretch Goals Podcast. You can access the show notes fro this episode and listen to other episodes by heading over to stretchgoals.fm.