The Most Underrated Skill In Preparing To Sell Your Business

The most underrated skill in selling your business is not learning to negotiate or avoid M&A deal killers such as presenting unrealistic growth projections, taking questions from buyers personally, or using simplistic valuation methodologies.

The most underrated skill begins at the beginning - in knowing what problem your exit strategy is trying to solve.?

There are few questions in business more potent than "What problem are you trying to solve?" M&A is no different. Clear problem statements allow you to get more done with more focus and less effort, fewer diversions, less cost, and with greater emotional satisfaction than in their absence.

Clear problem statements can unlock the energy and innovation you and your business need as you head down the road towards an ultimate exit.

And yet, sufficient attention to developing a clear problem statement for an exit strategy is rarely given.

An inadequate problem statement results in doubt, drift and indecision as you move along your exit path. Questions you should have put to rest up front come back to derail progress.

Use my ABCD method to nail your problem statement and accelerate your journey to your peak exit value.

Owners rarely have the luxury to reflect - the exit strategy problem statement evolves through conversation

How familiar is this kind of conversation?

Owner: I'm working harder and enjoying it less than I used to. It's time to put the business in the hands of new owners who can take it further.

What will you do?

Owner: Go fishing, travel, go overseas to catch up with friends

And then?

Owner: I wouldn't mind remaining connected with the industry.

In what sense?

Owner: Perhaps as a company director, but not in any management capacity.

As a board member of this company, if owned by someone else?

Owner: Sure, if that made sense to the new owners.

Since you can decide who the new owners will be, would you prefer those who would offer you a board or advisory role?

Owner: Probably.

What else would you prefer for the new owners?

Owner: I really want to see the company name retained - the brand.

Yes, you've built a great business. So this is a feeling of your legacy??Anything else you prefer?

Owner: Of course, the staff must be looked after and developed. And I have to think about what happens to the family members working in the business.

Good points. How would you feel if you sold for a great price, but it panned out that the new owner delivered on none of your preferences?

Owner: I wouldn't feel good about it... I'd regret selling.

For you, the best price includes looking after your sense of legacy for the business and its people.

Owner: Correct.

If you could get private equity investment, say buying 49% of the company, and then you employ a first-class CEO and COO to grow the business under a Board with your guidance, would that work better for you?

Owner: I don't know. It would work better in building the legacy. But it comes with the danger of me having to remain too committed.

"Too committed" in the sense of stopping you from going fishing?

Owner: Ha. No, I have actually been thinking of doing something related to technology I worked on many years ago. It's been slow coming, but I think that now is the right time.

Start again? Why not do it within the company under the private equity arrangement?

Owner: That's a good question. The reason is that this technology has massive growth potential, far more significant and faster than the current business. We currently dabble in it. But I'd like to downplay that if I sell the company and then, after 6 months or so, use some of the money to focus exclusively on this new venture.

Ok. Well let's think about what this all means for how we are going to find a strategic buyer who aligns with your purpose. May I use your whiteboard to show you a method I call ABCD...?

...etc.?

Not resolving the owner's purpose up front is the main systemic reason M&A completions fail

As you can see above, a "Problem Statement" describing why, how and to whom the owner wants to sell needs to be clarified. It is evolving during the conversation, as it should be.

Here's what we know:

1. The degree of personal preparedness for a sale is often much lower than the degree of business preparedness, and owners voice significant personal concerns throughout the process; and,
2. 37% of owners continue to report at least some misgivings related to the sale, such as concern, sadness, and regret.
3. Generally, as the exit process moves along, owners begin to feel more confident.

Having a Problem Statement shortens the period of uncertainty, reduces misgivings after close, and better prepares owners for the journey.

Not resolving the owner's purpose and their doubts up-front is the main reason M&As fail, and is absolutely the key cause of owners drifting off the green line of their exit path. The first few weeks need to be committed to discovering and documenting the purpose - captured in a Problem Statement.

The ABCD method of developing Problem Statement for your exit strategy

A useful methodology to document the problem statement is the ABCD method.

A - is a statement of the "As Is".

This statement needs to be a realistic assessment of the state of the business, warts and all - the potential and the current constraints to achieving that potential, e.g. constrained by working capital and the owner's risk appetite.

B - is the "To Be".

The goal and ambition for the business, stated in metrics - time, revenue, EBIT. This "B" is not the "what" nor the "how", but the "where," e.g. to be 2X revenue in 5 years' time, with 3X EBITDA and as big in Europe as in Australia.

C - the Constraints.

Identifying all significant constraints which affect how to get to B above, both internal and external. For example, competition, changing buyer behaviours, more significant project risks, working capital, retention of the company name and brand, security for family members, or opportunity for the owner to start a related but non-competitive business.

D - is the "Due Diligence" checklist for validating strategic buyers.

Owners use this checklist to help identify potential partners and buyers and to assess their offers. This list is for the seller's personal due diligence of the buyer, based on the ABC above and ranked by items from mandatory through "nice to have".

D also stands for the Doing of the things necessary to get to B, where you want to end up. It may be the Design of prototype business models, the Designation of responsibilities, the Definition of tollgates and milestones, the Definition of progress.

Not to forget, that D also stands for Doing the work to deliver the three key outcomes from your business today - before approaching potential strategic acquirers, see Three Key Outcomes To Ensure That Your Business Is Bought Not Sold, namely:

1. Bankable growth
2. Ironclad readiness, and
3. Buyer competition.

What D is not, is drift. D is about staying on the line of your exit path i.e., not stepping off that line, and not drifting.

Takeaway

Developing a purposeful, thoughtful and realistic ABCD will inevitably lead to fewer misgivings post-sale.

But, importantly, it will result in greater confidence right from the start and fewer doubts and negative emotional feelings throughout the journey to your ultimate exit. This is going to serve you better, your employees better and your family better - and serve the ultimate acquirer better.

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This Week's Reading

Two articles from my reading list to help you grow and exit successfully.

Article 1: Are You Solving the Right Problem?

“If I were given one hour to save the planet, I would spend 59 minutes defining the problem and one minute resolving it,” Albert Einstein said.

Those were wise words, but most companies aren't sufficiently rigorous when trying to develop new ideas, processes, or businesses. Indeed, when developing these things, most companies aren't adequately clear about the problems they're trying to solve and why those problems are important.?

The rigour with which a problem is identified is one of the most important factors in finding a good strategy for solving it. However, many companies aren't adept at defining their problems and identifying which are critical to their strategic directions.

The article spells out 4 key steps require to properly articulate and solve a complex innovation problem:

1. Step 1: Establish the Need for a Solution e.g. What is the basic need? What is the desired outcome? Who stands to benefit and why?
2. Step 2: Justify the Need
3. Step 3: Contextualise the Problem
4. Step 4: Write the Problem Statement

Source: (hbr.org)

Article 2: CEOs Need Mentors Too

The authors are convinced that more CEOs should connect with mentors rather than assume that theirs is a burden to be shouldered alone.

Special considerations must go into making a match between mentor and mentee, structuring their sessions to deliver the intended benefits, and prioritising the process so that it isn't crowded out by other demands.?

They found three distinguishing features of the most successful CEO-Mentor relationships:

1. In the strongest CEO mentoring relationships, clear rules of engagement ensure that both parties commit to total confidentiality. This emboldens mentees to disclose without fear of repercussions.?
2. Regular sessions—fairly long but fairly infrequent—are a must. Putting dates on the calendar reminds the CEO that it is to be taken seriously, and that there is a certain rigour to it.”
3. The mode preferred by most parties is storytelling. Most mentors shared specific and relevant examples from their own careers—including not only triumphs but also poor decisions that resulted in bad press, tarnished reputations, employee layoffs, or share price declines.

And a common thread among the most successful mentors is that they are able to provide open and genuine advice based on their real-life experience.

Source: hbr.org

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This Week's 3 Business Books

Free for you as a subscriber to my newsletter: Three of the world's most essential and popular business books in acclaimed 12-minute videos. Listen, or watch and listen to take advantage of another big idea.

Book 1:?Business Stripped Bare by Richard Branson (watch on Monday-Tuesday)

While his companies, Virgin Atlantic, Virgin Media and Virgin America, have been tremendously successful, these and other successes have come on the back of some hard work, significant challenges and sometimes David and Goliath encounters.

This summary explores some of the common themes and practices behind the Virgin companies through what Branson calls his "Business Stripped Bare."

Watch or listen to Book 1

Book 2:?From Impossible To Inevitable by Aaron Ross (watch on Wednesday-Thursday)

Aaron Ross and Jason Lemkin know a thing or two about what it takes to grow a business rapidly.

Ross helped grow Salesforce.com's outbound sales efforts from $0 to $100 million in a few short years. Lemkin built and sold his company Echosign to Adobe for millions of dollars and now invests in other rapidly growing companies.

This summary covers how they did it.

Watch or listen to Book 2

Book 3: The Miracle Morning by Hal Elrod (watch on Friday-Sunday)

How you start your day sets the tone for your day. And the tone for your day sets the trajectory of your life. Find out how the magic of The Miracle Morning can work for you.

Watch or listen to Book 3

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? Previous Newsletter:?The CEO's Role in Striking a Credible Adjusted EBITDA Prior To M&A

? Next Newsletter:?Don't Risk Your M&A Deal By Leaving Cybersecurity To The IT Department

Keep winning, Walter

P.S.?If you know you’re ready… it might be time to explore my?Proactive Exit Mastery?model, to see how you might capture the ultimate exit value for your business.?If you'd like to know a bit more, just message me or comment below with "Ultimate Exit Value".