MJ DeMarco
I followed the science; all I found was money.
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Well folks I'm happy to say its finally done. For 3 years, I've been trying to sell my business and its been ONE LONG ORDEAL. In those 3 years, I've received multiple offers varying in range from $4 million to as high as $7 million. The buyer pool ran the gambit from people with rich relatives, to Silicon Valley Sand Hill Road VC's to small publicly traded companies, to private equity firms scattered throughout the country.
All accepted LOI's (Letters of Intent) resulted in LONG due diligence processes that took months of time, energy, and scrutiny. Instead of running and growing a business, I spent countless hours running data reports, financials, traffic metrics, doing interviews -- all sideline activities that lechered my time away from doing my core job -- growing a business.
On Friday the sale finally closed and I received 7 cashiers checks totaling millions of dollars -- this had the instant effect of doubling my liquid net worth - all in a matter of seconds. (Although the *process* certainly wasn't instant).
So like with all my stories, I like to post the learning process -- what things I've learned and what things you can take from my experience.
#1) Making big monthly cash flow doesn't equate to happiness. My reasons for selling my business was because the business WAS NOT ENJOYABLE anymore. Sure I was netting six-figures monthly, but the industry was no longer appealing to me. The thought of hiring, firing, and management was unappealing.
I am an entrepreneur - I build and create things. After the building and creating is DONE, I sell. Management, hiring, firing, CEO activities, etc does not appeal to me. Even though I removed myself from the company's daily hum-drum, it always existed for me mentally.
As far as I was concerned, I achieved all I wanted to achieve over 3 years ago. I felt I was Michael Jordan and trying to retire "at the top of my game" -- this is why the business went up for sale 3 years ago.
Unfortunately, the business didn't sell quick although it drew tons of interest. In the following 3 years trying to sell, I semi-retired. I didn't work very hard and started to ignore the business and live off the cash-flow.
#2) When you ignore your business, especially a technology business, (no matter how automated) its growth will stall and reverse. If you ignore something long enough, it will disappear. During my semi-retirement and zeal to sell for these 3 years, my business lost MILLIONS in valuation. Selling at the top wasn't as easy as "placing a stock order" or "putting the property in the MLS" .. selling a business is long process that takes months, sometimes years. My business is rather simple and it took 5 1/2 months. A complicated business can take a year or more.
In hindsight, ignoring your business is this diligence time frame really is a big risk.
#3) Its harder to sell businesses that are "Passengers in the Fastlane" vs "Drivers".
My difficulties in selling the business promptly was due to the source of my revenue stream. Although I was "driving in the fastlane", a small portion (20%) of my revenue stream was derived from a "super-affiliate" (which is being a "passenger in the fastlane".) A super-affiliate is someone who sells your product/service and does so at a super pace. This meant, if the super-affiliate quit, my revenue would be impacted by 20%. This scared potential buyers as I did not control 100% of my revenue stream. This also meant that any sale would have to include this super-affiliate as a lynch-pin in the deal. It gave someone with ZERO ownership in my business, a certain level of power. Very frustrating.
At some point in the future, I will elaborate on this "Passenger" vs "Driver" in the fastlane concept. If you manufacturer a product and Walmart is your only customer, you are a "passenger in the fastlane" -- Walmart dictates your revenue stream and their business decisions will hold your company hostage. Being a "passenger in the fastlane" can be very lucrative -- but its risky and affords you as an owner, little control giving you the illusion that "I am the boss".
#4) Revenue is almost as important as profitability.
Another difficulty I faced is that my company was operating on very high margins - it was very profitable when correlated to revenue.
Which company do you think is worth more?
#5) What is said vs written are two different things.
Whatever is negotiated in person and verbally is irrelevant. The matters is the legal document that describes what was discussed. If there is a dispute on terms, no one will care, including a judge, what was said at Starbucks or Applebees over coffee -- what matters is the legal terms written in the documents. Be very careful with these documents and ensure they are reviewed by a competent attorney. Hidden language can sweep your rights underneath a rug.
I remember I agreed with a potential buyer on a 30 day provision. When the document came, it said "30 business days" which translates into 45 days, not 30 days. This is how these documents can be tricky. If my attorney (or me) didn't spot this ONE WORD "business", it legally altered a verbal deal.
So whats next for me? I'm taking a mental break and will continue to write. I still have to work with the new owners in transitioning the business and assist them to get it to the next level. I'm excited to have sold - but I'm also excited for the new owners (An investor group consisting of angels and private equity). After a month or so under new ownership, I will probably buy back into my business as an equity investor.
MJ
PS: I will disclose the business once the company is transitioned and my confidentially period expires.
Well folks I'm happy to say its finally done. For 3 years, I've been trying to sell my business and its been ONE LONG ORDEAL. In those 3 years, I've received multiple offers varying in range from $4 million to as high as $7 million. The buyer pool ran the gambit from people with rich relatives, to Silicon Valley Sand Hill Road VC's to small publicly traded companies, to private equity firms scattered throughout the country.
All accepted LOI's (Letters of Intent) resulted in LONG due diligence processes that took months of time, energy, and scrutiny. Instead of running and growing a business, I spent countless hours running data reports, financials, traffic metrics, doing interviews -- all sideline activities that lechered my time away from doing my core job -- growing a business.
On Friday the sale finally closed and I received 7 cashiers checks totaling millions of dollars -- this had the instant effect of doubling my liquid net worth - all in a matter of seconds. (Although the *process* certainly wasn't instant).
So like with all my stories, I like to post the learning process -- what things I've learned and what things you can take from my experience.
#1) Making big monthly cash flow doesn't equate to happiness. My reasons for selling my business was because the business WAS NOT ENJOYABLE anymore. Sure I was netting six-figures monthly, but the industry was no longer appealing to me. The thought of hiring, firing, and management was unappealing.
I am an entrepreneur - I build and create things. After the building and creating is DONE, I sell. Management, hiring, firing, CEO activities, etc does not appeal to me. Even though I removed myself from the company's daily hum-drum, it always existed for me mentally.
As far as I was concerned, I achieved all I wanted to achieve over 3 years ago. I felt I was Michael Jordan and trying to retire "at the top of my game" -- this is why the business went up for sale 3 years ago.
Unfortunately, the business didn't sell quick although it drew tons of interest. In the following 3 years trying to sell, I semi-retired. I didn't work very hard and started to ignore the business and live off the cash-flow.
#2) When you ignore your business, especially a technology business, (no matter how automated) its growth will stall and reverse. If you ignore something long enough, it will disappear. During my semi-retirement and zeal to sell for these 3 years, my business lost MILLIONS in valuation. Selling at the top wasn't as easy as "placing a stock order" or "putting the property in the MLS" .. selling a business is long process that takes months, sometimes years. My business is rather simple and it took 5 1/2 months. A complicated business can take a year or more.
In hindsight, ignoring your business is this diligence time frame really is a big risk.
#3) Its harder to sell businesses that are "Passengers in the Fastlane" vs "Drivers".
My difficulties in selling the business promptly was due to the source of my revenue stream. Although I was "driving in the fastlane", a small portion (20%) of my revenue stream was derived from a "super-affiliate" (which is being a "passenger in the fastlane".) A super-affiliate is someone who sells your product/service and does so at a super pace. This meant, if the super-affiliate quit, my revenue would be impacted by 20%. This scared potential buyers as I did not control 100% of my revenue stream. This also meant that any sale would have to include this super-affiliate as a lynch-pin in the deal. It gave someone with ZERO ownership in my business, a certain level of power. Very frustrating.
At some point in the future, I will elaborate on this "Passenger" vs "Driver" in the fastlane concept. If you manufacturer a product and Walmart is your only customer, you are a "passenger in the fastlane" -- Walmart dictates your revenue stream and their business decisions will hold your company hostage. Being a "passenger in the fastlane" can be very lucrative -- but its risky and affords you as an owner, little control giving you the illusion that "I am the boss".
#4) Revenue is almost as important as profitability.
Another difficulty I faced is that my company was operating on very high margins - it was very profitable when correlated to revenue.
Which company do you think is worth more?
Company A:
Revenue: $30,000,000
Profit: $1,000,000
Company B:
Revenue: $3,000,000
Profit: $1,500,000
In general, Company A is worth more despite it making LESS. If my company operated under a different revenue model which resulted in higher revenues, yet, experienced the same profitability, it would have been worth 5X more.Revenue: $30,000,000
Profit: $1,000,000
Company B:
Revenue: $3,000,000
Profit: $1,500,000
#5) What is said vs written are two different things.
Whatever is negotiated in person and verbally is irrelevant. The matters is the legal document that describes what was discussed. If there is a dispute on terms, no one will care, including a judge, what was said at Starbucks or Applebees over coffee -- what matters is the legal terms written in the documents. Be very careful with these documents and ensure they are reviewed by a competent attorney. Hidden language can sweep your rights underneath a rug.
I remember I agreed with a potential buyer on a 30 day provision. When the document came, it said "30 business days" which translates into 45 days, not 30 days. This is how these documents can be tricky. If my attorney (or me) didn't spot this ONE WORD "business", it legally altered a verbal deal.
So whats next for me? I'm taking a mental break and will continue to write. I still have to work with the new owners in transitioning the business and assist them to get it to the next level. I'm excited to have sold - but I'm also excited for the new owners (An investor group consisting of angels and private equity). After a month or so under new ownership, I will probably buy back into my business as an equity investor.
MJ
PS: I will disclose the business once the company is transitioned and my confidentially period expires.
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