Why entrepreneurs should learn about acquisitions, even if they don't want to sell
Since I was 19, I've been running my own companies. Yet, it wasn't until last year that I even began to think about the idea of "selling" the companies I've built.
While the idea was always somewhat on my mind, I didn't even think it was possible or I was anywhere close to being capable of producing something of that value.
Ironically, the lack of understanding acquisitions was actually limiting me as an entrepreneur in building something worth acquiring.
In this article, I'm going to share why it is so important for entrepreneurs to learn about, and prepare for, an acquisition now even if they have zero intent to sell.
Let's be honest, you don't want to work in your company forever
While entrepreneurship is amazing, and you can pick your own path. The reality is that most of us don't wake up with an aching passion to work every day. At some point, it's still work.
Sure, there are some companies that are a mixture of creative fulfillment and work, but those are few and far between. And those would be considered more of a "lifestyle company" anyway.
But for the rest of us, chances are that if we didn't have to do work every day, we wouldn't.
Even if you are enjoying it now, imagine 20 years out... do you still want to be doing the same thing?
At some point, you are going to want to transition or exit and, without a plan, you are building yourself into an endless job.
You need an exit plan of some sort...
Why it is so important to learn and understand acquisitions
For years, I didn't have an exit plan. I was just trying to pay the bills and figure out how to even build a company. In that stage, thinking about exit may have been a bit premature... but maybe not.
The interesting thing I found while learning about business acquisitions is that it made me understand business so much better.
When you begin to understand why someone would buy a company, you begin to understand what makes a business a good long-term investment.
That means, even if you don't sell your company, you are learning to look at your business through the eyes of an investor.
This mindset and perspective is incredible. It forces you to step out of the day-to-day weeds and look at the bigger picture. It forces you to see the weaknesses and vulnerabilities of your business, and take actions to fix them.
If you don't understand what investors want to buy, you can't build something worth selling
If there was one reason that Lead Cookie didn't sell, it was due to platform risk. The fact that our business model was 100% built around LinkedIn during the time of acquisition was a huge red flag for potential investors.
One change from LinkedIn in the coming years and the business model could be massively disrupted. I knew this and even wrote about it over a year ago.
Yet, for some silly reason, I went toward acquisition anyway. The was partially due to brokers misleading me and saying, "Oh, don't worry about that. It won't be an issue..."
Lesson learned. Brokers tell you what you want to hear.
But frustrations aside, I now see this flaw in my business and why this is an issue to potential buyers. This is enabling me to now tackle this challenge and fix the problem.
Over the past few months, Lead Cookie has now rolled out:
Cold Email Campaigns
Appointment Setting
Cold Calling
Low-Volume, High Touch Outreach
While, for years, our business model has been 100% reliant on LinkedIn, this acquisition showed me that basing 100% on that channel was not a sustainable, safe strategy.
Our solution is to diversify, to focus on the brand promise of "lead generation," and accomplish that by whatever channels are necessary.
With this new direction, we can build a company without any single flaw or weakness. Sure, LinkedIn still represents a large portion of our business today, but over the next 12 months, we will diversify and reduce our platform risk.
Buyers want to place a safe bet
At the end of the day, a buyer of your business doesn't want to take a risk. They want to look at your deal and see a guaranteed ROI. Typically, a buyer of a service business will pay 2-5x of annual profits.
That means, it is going to take them 2-5 years to earn back the investment they make in your business unless they are able to come in and produce significant growth.
That means you have to think in the long-term.
How can you future proof your business for years down the line?
How can you make your business as safe and predictable as possible?
How can you reduce volatility?
How can you keep customers around longer?
How can you make lead flow predictable?
How can you make your business valuable, even when you aren't around?
How can you increase profit margins?
These are hard questions, and there is no easy answer. But this is your task as a founder, especially if you ever want to sell.
These questions have helped me also be much more intentional in the business model that I am building for Content Allies. I've been able to architect this business from the start with acquisition in mind.
Acquisition requires clean books
When I started thinking about acquisition, my books were an absolute disaster. I had been running my consulting through the same LLC as Lead Cookie which meant I had mixed expenses.
On top of that, I had hired a cheap and crappy bookkeeper who basically didn't do my books for 6 months before ghosting.
What was worse than that, though, is that I didn't have visibility into my numbers. We were making money, but I had no clue how much. My COO and I had put together some makeshift excel sheets to give us indicators, but it was scrappy to say the least.
If there is one area where my game has 10x over the past 12 months, it is in financial management.
A year ago, I was not even literally opening up Quickbooks, and even if I did, I would have no clue what to do.
Today, we have migrated to Xero. I can do any bookkeeping action required myself, and easily generate reports giving me the info I need to know.
We have weekly accounting syncs where all of the finances are reconciled and prepared into reports so we can keep tabs on the business.
We have forecasts set up for the year, and now consistently measure both our revenue and expenses in line with that forecast.
Even though I didn't sell, I leveled the hell up in my bookkeeping skills.
Preparing for acquisition forces you to do the hard work
You know that change in your business model you have been delaying? Acquisition forces you to take action.
You know those uncomfortable layoffs you have been afraid to do? Acquisition forces you to take action.
You know that hire you have been needing to make to replace yourself? Acquisition forces you to take action.
When you start moving toward the idea of having a company that is ready for acquisition, it changes your whole mindset about your business.
You view your business as something separate from yourself, and this allows you to make objective decisions that are no longer based on emotions.
What happens if you don't prepare
My business advisor, Alex McClafferty, and his co-founder ended up selling their company, WPCurve, to GoDaddy. While this was a huge win, Alex had not really prepared for the acquisition.
So when GoDaddy showed up, Alex was literally cramming and trying to learn about how the acquisition process works while he was in the acquisition with GoDaddy.
A deal of this size is not something you want to "practice on." Instead, you want to come prepared, trained, and ready for action when the deal happens.
Even though I failed at selling, I'm prepared and ready for when the day comes
Recently, I wrote about how I failed at selling Lead Cookie. While the acquisition ended up being a huge time suck and distraction, I am grateful for it.
I am grateful because the entire process leveled me up as an entrepreneur. I now understand the acquisition process. I went through everything up through due diligence, and experienced what it is really like.
So whenever the day does come that I decide to sell again, or get an appealing offer... you can bet your ass I will be prepared.
If I could go back and do it again, I wouldn't list the business.
I would simply study, learn, and prepare for acquisition.
But, instead of going for the sale with a business that had known weaknesses, I would have focused that time and energy on fixing the weaknesses.
1-2 years from now, Lead Cookie will probably be in a great place to sell.
But by then, the business will be so robust and stable that who knows if I will even want to sell it.
Building a business worth acquiring means building an asset that you can own and leverage.
How to get started in learning about acquisition
So if I have convinced you it's worth learning about acquisition, then here are some recommendations and starting points to begin learning.
Built to Sell - A classic read. Even if you have read it, it's worth re-reading it to hammer home the concepts as you begin this journey.
Value Builder System - John Warrilow, author of "Built to Sell," now has a website called Value Builder System where you can take a quiz to see how valuable your company is, and then get some video training on different "Value Levers." The content is short, to the point, and I found this to be quite valuable in leveling up my understanding.
Ryan Tansom's Ultimate Guides - Ryan Tansom is another leading voice in the small business acquisition space. He has some amazing ultimate guides for free on his website. Don't know the difference between an "Asset Sale" vs a "Stock Sale?" Then these guides are great places to learn the nuance and lingo of acquisition.
Life After Business Podcast - Ryan also has a great podcast where he interviews entrepreneurs who have sold their company. I found that listening to the stories of people who have been through the process was incredibly enlightening and encouraging.
Smokey Mountain Tax - Are your books a mess? Does your accountant suck? Here's mine. Avery helped me build strong accounting systems and practices and got me up to speed on how to better manage our finances.
Set milestones and work toward them
You probably aren't ready to sell your business today. But once you go through these resources, look at what is between you and being able to list your business.
Then start to set some milestones like:
Read up on acquisition material
Separate out non-core revenue into a new LLC
Clean up and improve bookkeeping workflow
Replace yourself in sales within 6 months
Replace yourself in marketing in 12 months
etc.
Know where you are today and then begin to tackle the big challenges between you and having a sellable business one by one.
Even if you don't choose to sell, you will have a stronger and more stable business as a result of it.