How to Sell Your Startup for Millions (#466)

Shaan Puri

Okay friends family people who like pink pop tarts welcome this is another masterclass my first masterclass was on raising money it was about how to get create a killer pitch deck that's the start of your journey if you're an entrepreneur you're trying to go raise money from investors to to fund the company this is now about the end of the company how do you sell a company and ben asked me to do a a master class he's like hey can you do a can you record a master class today your boy's lazy so I'm repurposing a presentation I gave 3 4 years ago at hustle fund I went on Google drive I found an old presentation I I actually didn't even look through it I'm just gonna do it live here sort of improv style but I remember I remember being on stage and giving this talk about how to sell a company because I just sold my first company and I remember at the time being like I wish there was some more content about this because if you wanna learn how to manage people you're gonna there's tons of books and you're gonna get practice every day if you wanna learn how to grow revenue or sales there's tons of books and you get practice every single day when it comes to selling a company there's very little content out there that's at that I thought was any good and you get very few reps you might sell a company once every 4 years 10 years it's it's not a common thing that you do and so we're not you know if you don't practice you're not very good at anything so I learned something some things during the process of selling my companies and I'm gonna share them with you today so let's see what I was thinking 4 years ago the only thing I did was I removed the hustle con banner at the bottom and I put a new logo there because it said hustle con 2019 I thought that would not look so great so let's jump in and hit the first slide here we go okay hey that's me look a little different nowadays not too different here we go I still got the headphones we still got the headphones that we can rock I've sold 2 companies now 1 to a big company so when we sold to twitch twitch owned by amazon so selling a company to amazon was one way and then milk road we sold to 2 private buyers just like a a you know 2 dudes who were independently wealthy from their previous businesses and it was a it was a totally different transaction so I'm gonna share some lessons from each when I made this presentation I had only sold beboe so I added the milk road one just before I went live here but the rest of the presentation I didn't add any lessons so let's see if I've learned something the second time I always start with this when it comes to selling a company this is a this is a picture of a foot and a dog and it is the first picture ever posted on instagram kevin systrom the founder of instagram he posted this right when instagram went live and you know today it's just like iconic picture of like you know this is how it all started and you know here's the guy himself kevin systrom looks great you know power pose got the white sneaks and if you're kevin systrom you know you got a dozen employees you make a $1,000,000,000 everybody loves you right because you've built the hot thing and everybody comes knocking at your door right if you ask kevin systrom how do you sell your company he'd say well you gotta create you know sensational product and then people will just come and offer you a $1,000,000,000 right like that would be his experience my experience was very different we had built a good not great business we had built a good but early business and we were trying to sell and so here's what we experienced so if you're if you're reading this or if you're watching this you are not instagram and I think my talk will be maybe a little bit more applicable to you than than what you might hear from the people that are on the forbes list because they're they were in a totally different position of leverage and bargaining power than most people are when they go to sell their business this is you you've tried you've pivoted you've hustled it's not working or it's kinda working or it's working but you're just tired you're ready to move on and this is a very common thing entrepreneurs get to and when you're here it's okay to think you know where where should I go I've been there I felt it myself and this advice I heard all the time was great companies are bought not sold that sounds pretty cool it's a nice little fortune cookie but remember you're not instagram and so great companies are bought not sold I think that's true but most companies are sold not bought that's my my contention at least and that was my experience we sold the companies more so than we just immediately got bought because we were just crushing it beyond belief like you would like you see when you know whatever huge companies get acquired here's a headline from when we got bought this number is incorrect which just shows you don't read don't believe everything you read in the media I don't know where they got that exactly but yeah we we sold we sold for you know 8 figures but not not like that you know once you and and sales it's weird when people come up with these numbers too because it's like you get cash up front then we got the signing bonus you get stock then the stock price changes you know there's all there's all kinds of ways to to sort of like manipulate sales numbers but when you get I I let me let me go back here when you got started you thought this is gonna work and this will be big if it works and I can do this and I wanna do this more than anything else that's typically the mindset of an entrepreneur when you start and the reason I say this is because the first thing when it comes to selling your company is figure out do you even want to sell that's why I started here do you even want to sell because when you're in this state of mind no way you would sell why would you sell this is gonna work it's gonna be huge I could do this and I wanna do this more than anything else that's how you should feel when you start a company and then you have to check-in and say alright you're 7 and try not to check-in on your most frustrated day but you wanna say do I still believe this is gonna work do I still believe this will be big if it works do I still believe I can do this and do I still wanna do this more than anything else when we sold our first company we had hit this you know all of them kind of were true except for this will be big if it works I thought we might have a medium sized exit the first time and that's why I decided well let's sell now versus play this out for 4 years 4 more years and hit a medium sized exit yeah it'll be multiples more than where we're at today but it still requires 4 more years and time is so precious with milk road it was more the last one I wanna do this more than anything else it was actually working and I thought it could be big but my brain was wandering to new ideas new things and I was loving doing the podcast so much I just is this the one thing I wanna wake up and do every day and focus on with laser focus yes or no so these these are the questions you gotta ask yourself say are these more true today less true today or at the same as when I started and that gives you this takes you this.

Shaan Puri

Right when should you sell so if you get a great offer cool consider it if you don't believe in the business anymore well maybe sell the assets because if you don't believe you're not gonna really take massive action you don't take massive action you're not gonna get any results and then you'll just reinforce your belief like see I I knew it I knew it wouldn't work right so belief is really really key and lastly the you know common case is you just don't wanna run the business anymore you prefer to exit versus hire an operator and you just you're ready to move on and do other things so three moments where you might tell who do you discuss with I just wanted to put this up here for a second so you know talk about with yourself and maybe some mentors but then yourself and your partners yourself and your cofounders it's really a a lot of conversations in your own head which is why managing your own psychology during a sales process is the number one most important thing it's what helps you be good in negotiation it's what helps you get people across the line it's what helps you you know stand up and operate every day while you're also trying to sell the company it's very difficult to do that so managing your own psychology is really important and then there's a note about your investors and your team there is a finesse you wanna do with this some people believe don't tell anybody until the deals are done some people say well no I wanna be transparent with my team for me I've always been on the be transparent with your team but it does have drawbacks people start to work a little bit differently when they realize oh we're gonna try to sell this thing what does that mean for me should I be looking for a job is this what happens if we don't sell well I'd be rich what's gonna happen and so I think discussing it with your investors or your team is something to be very careful about I probably aired too much on the transparency side I if I would gonna go play it back now I would only discuss with my cofounders and I would not talk to the team until the deal is done and so you wanna create a little like communication table so your cofounders you wanna tell them asap you know hey it's time to explore options I'm gonna do x you can help me by doing y investors you wanna tell them and say hey we're gonna explore a sale here's what I think it would look like employees you might say hey we've been approached we're considering it blah blah blah here's the good news here's what it means for you I wrote you know you can put asap you can say this we're gonna do this when the deal closes you can say that we're gonna do this when the deal's getting close to closing you know you you wanna decide your timelines and create your communication table okay now to the fun parts how do you actually sell the dang thing so who's who might buy you you wanna break it up into buckets of potential buyers because you're really gonna run a sales process no matter who you are you become a salesman when it comes time to do this so I would say there's 4 potential buyers there's the unicorn so high growth companies that might wanna buy you to accelerate their growth there's dying dinosaurs so you know incumbents that might need to get fresh blood fresh tech fresh you know fresh energy fresh cash flow whatever it may be there's your adjacent companies your adjacent alligators this is like what's that game legend of the hidden hidden temple so yeah you got the adjacent alligators they're they're next to you they might be peers or competitors that you merge with and the last one is talent farms this is just go sell it to Google and they just want talent so they they don't care about your company or your market but they've they just want engineers you have to also know the different roles who are you gonna be talking to so when you get bought the other side is gonna have an exec champion so who's the one person that really wants this deal to happen if you can't identify that person ain't no deal gonna happen you should always know who is the person that is pounding the table on that side saying we gotta do this deal or hey come on let's figure out a solution to that problem or dude just let's bridge the gap let's come up a little bit right you need to know who is the champion on the other side identify them and you're gonna nurture that relationship you gotta know who's the company router who's the person in the middle that can get you to the different people that need buy in usually in big companies it'll be corp dev but in smaller companies you might know who else it is maybe there's a admin person or assistant just who are you gonna be able to reliably get information from and to that's not necessarily the key decision maker and then you got your deal doula so this is using a a childbirth metaphor so if you're trying to birth this baby you know a doula who helps you you know remember to breathe think about this you know let's move to this position it's gonna help hey we need to get water here you know your doula is the one helping you through this often you know painful but wonderful you know process and so I like to find my deal doulas these are 1 or 2 people who have done m and a before in my you know they're they're in my corner I can trust them that they'll be keep everything confidential and I'm gonna bug the hell out of them I'm gonna you know these are people that I was texting and saying hey I'm gonna save this back you know is that too desperate no no okay let me you know wordsmithing it like I'm a you know 7th grade girl trying to figure out do they like me do they not like me how do I phrase this in a way that demonstrates strength without pushing too far your deal will help with that for those who love one of the greatest shows on on earth this is the dentist system so I'm gonna take you through the dentist system of how to how to sell your company so stage 1 the d demonstrate value so why do companies buy companies there are financial reasons and then there are strategic reasons so financial reason is obvious you're crushing it you're making tons of money they want your ebitda they want your revenue pretty straightforward if you have it many people don't so who buys companies when there's strategic reasons well here's 6 strategic reasons the ceo finds it interesting that's the first one that is surprising how far that goes ceo's got a pet project ceo has got an itch to scratch awesome if you got if you're so lucky to have that fantastic number 2 there's a new executive or an executive gets a promotion and they need to demonstrate big moves as a signal so they're they're you know they're on the way out or they're on the way in and they're looking for for some kind of big move some big big thing to do as a signal that's good for you when that happens number 3 they're trying to catch up to a surging competitor you know this is adobe trying to catch up with you know using figma to catch up this is there are many examples of this along the way synergy 1 +1equals3 this is uber merging with didi in china so that they don't keep competing each other driving costs up they say hey why don't we merge it to 1 entity and then we own a monopoly we can cut cost actually we can raise prices so 1 + 1 could equal 3 in this case they're afraid of you this is facebook buying instagram you know you do what they do but better instagram is better at sharing photos than facebook and okay you're gonna get a strategic premium when that when that's the case and the last one is you have unique talent so you might have computer vision phds and they're having trouble finding that talent en masse and it's actually cheaper to acquire you and get the talent as a bundle that's proven to work together versus going through a long slow recruiting process and so it's important to figure out for every potential buyer what what might be the reasons that the that that they will they will buy you next step e engage physically so who do you actually reach out to what do you say and what's the goal you know you can reach out to a number of folks you can reach out to executives just go meet somebody who's at the company corp dev their their job is to meet companies that might be interesting to acquire investors might make introductions you know when we were selling we went to I went to an investor who was an investor in discord and I said hey we got this thing discord might wanna buy it he said let me email the ceo ceo gets an email from their biggest investor they're gonna take it seriously and then all of a sudden I'm you know next day I'm in a meeting with the ceo and I'm pitching why this why 1 + 1 could equal 3 there's also advisors I mean what do you say you know you you say hey I wanna discuss a partnership on how we might be able to work together hint hint right like that's discuss a partnership is the best way to to kinda open the door the more aggressive way which I've done also is hey we got an offer we're you know we're considering our next steps maybe we're gonna raise money we or we have an acquisition offer we'd love to talk to you before we just go and make a decision and they say oh yeah yeah come talk to us first don't just don't just do it without you know we wanna we wanna take a peek under the hood we wanna to know our options before we get in your goal here is just to get an in person meeting and so you know use these two frames in order to get an in person meeting now what do you do if you don't know them well you gotta reach out you gotta reach out cold ideally you've been building a relationship over time this is the smart way to do it is you you meet people in the company you keep them posted with light updates they see you they know you they see you at an industry event so that when the time comes you could do this you're not an absolute stranger approaching them but I've done it as a stranger too usually when I'm a stranger corp dev is the easiest way to go I can't find this client info

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Shaan Puri

next n nurture dependence covering some of the words here but you want lust not love lust is gonna get is a high burst immediate like oh I see it it's like greed it's like oh I want something out of your goal is to tap into emotions and when I say this it's about clarity not trickery you're not gonna manipulate anybody into buying your company what you can do is frame what you're doing in a way that is maximally appealing to them something that taps into their desires their dreams their emotions their pain points and you need to trim the fat of your story so that you are the answer to that problem I'll give you an example when we sold twitch I had met in in terms of engaged physically I had I gone I had gone through corp dev corp dev had got me a meeting with the ceo the next day and I said alright well I don't know what to I don't know how to frame what we're doing to the ceo but I had met a guy on a boat in australia of all places who worked at twitch he was an exec I said I gotta hit that guy up so I hit him up I said hey can I get a beer with you today he said oh yeah yeah sure let's do it so I got a meeting with the ceo tomorrow I don't know how to navigate it you know the guy can I just get a beer with you just to to get you download so I go get a beer with him and I say you know here's you know what's he like what's he you know what what should I expect blah blah blah and then I said tell me what are the top like 3 when you're in these exec meetings you're you know you're you're at the highest level I'm stroking the ego you're you're I know you're in the room when they're making the big decisions so what are the top three priorities like what do y'all really care about is it profitability is it revenue is it growth where what are the top three priorities and he'll say them I say okay I said which one of those is like stuck which one of those needs a solution because like sometimes you already have a solution in mind you love that solution you don't wanna interrupt it but which one is still we don't really love our plan here it feels the weakest and needs some bolstering and then he told me hey we have this thing and actually everybody's pretty bullish on it but we don't have the right team and we don't have the tech to do it and the guy we have he's not good with tech so it's gonna be a problem I said oh say less so then when I go into the meeting the next day I say we're great at doing this one thing and I'm a great leader and I know tech and we have the team that we have the tech already built and I have the team that that can that built it and so now I package my story as how I am the solution to their problem versus what most people do is they come in as a start up and say here's what we do here's why we're great you know here's this other feature we have here's this feature we have and oh this guy says this they're all over the place and it's like alright good for you but that doesn't tell me why I want you so it's a it's a sales pitch you gotta package yourself as the solution to their problem another way to say this say this you need to find their pain offer a cure you know other questions that might be helpful what initiative has the most juice or momentum or buy in right now you wanna buy in is like the best word with corporations what what has all what has all the the exact buy in right now oh they're all bought into this idea what are the fires that need putting out who's on the chopping block what company are you guys most afraid of if I only had 20 minutes in front of your ceo what part of what we're doing do you think he'd be most interested in talking about and then you also wanna suss out who's the decision maker so hey right now we're talking to this guy is he the decision maker or who should we be talking to and oh no no his boss's boss is the guy then you wanna talk down talk to this is a little pro tip talk to founders who have been acquired by the same company before so go to them say hey you acquired 3 years ago 4 years ago whatever what was it like how did the process go were the timelines that they told you real or fake was the when they said this is the most we could do was that real or fake did they try to retrade the deal later or not what what was your experience with the ceo was he really into it was he is he more reserved what did what did that mean you're trying to get a bunch of intel and hey this is founder to founder from somebody who you know has done it before ideally who's left the company now I got a ton of great intel on this okay here's another this is just a classic move when we did it you wanna do the work for them so what a lot of people do is they say here's here's what we do then they sit there and they pray I hope they understand it I hope they get it I hope they like it no true that you take matters into your own hands so you basically say hey I wrote up a one pager that explains where I think this makes a lot of sense strategically for you guys because if we're gonna do this then you know I wanna make sure you know I thought about this from your perspective and what what this would look like once we join you know I did some crazy things so basically on the technical side I had our team write a technical one page rule here's all the stuff we built how long it would take for anybody to build it what's our special sauce so that they could just see man buying this is gonna save us so much time look at all these assets they already have here's the talent here's my I I made our team a present like into a presentation of like here's all the talent we have what they've done before make it really easy for them it's a dating profile do I want to swipe right or left on these people and then I this thing I wrote a letter from the ceo I said I said I think this deal makes a lot of sense and I wanted to write that out into a memo I know you guys have this memo writing culture like amazon has this thing like you write 6 page memos for all your strategies so I took a stab I wrote one you know I obviously I don't know some of the internal things so I you know I I took guesses they're they're in blue you can see the guesses but yeah I wanted to put my logic on paper because I don't wanna do this if this doesn't make sense right you're not saying please please please buy me you're saying I'm trying to figure out does this make sense for both of us it's a two way street and so in order to do that I wrote something to give myself clarity I thought you'd like to see it and so I actually wrote for one one of the acquisitions I said this is how I would announce this deal to the to the company to the team to your exec team and the rest of the employees and I just wrote a really persuasive argument of like we bought this company here's why here's why this was a good idea here's how awesome this is gonna be here's the how this solves one of our problems I'm so excited about this acquisition and like in doing so again I made it easy somebody told me this one of my deal doulas he goes you need to turn your company into a giant buy button like a like amazon one click checkout so that means make it easy to understand what you do make it easy for them to understand your team your technicals your your strat how you strategically align and last thing you get your get all your financials in like very clean proper you know data room so that there's no friction in trying to buy your company last one neglect emotionally the dennis reynolds special so you need to find another partner you need to go cold alright you don't wanna be all in hot on one partner that is not how you get the best deal so you need to find multiple partners at the same time you need to be negotiating these in parallel you don't do one at a time you you start the process you're now do it running you know you're starting conversations with 10 folks at once 20 folks at once you're narrowing it down you're trying to get multiple offers in the same week so that you could tell them hey we got another offer sometimes you go cold a little bit make them sweat not too long don't push it but it's not a bad thing I also leave bread crumbs I don't know if this made a difference or not but I would like check-in on my instagram story like I'm in seattle oh cool I've never been to the office to this cool office before and like they know they're like oh he's at Microsoft he's at facebook he's where where is he he's he's talking to he's talking to our competitors so you know I I don't know if that shit works but it it amused me at the least it made me feel like I was doing some some james bond shit alright last one inspire hope this is where you go back to them and say look we got other options but we want you can you make that happen can you get your deal can you get your offer a little stronger here here and here and it's time sensitive look like we have this other offer on the table they're not gonna sit around and wait so if you can get us something we can we would like to work with you we think you are the best fit but obviously you know burden hand this is a really good offer and you know I don't wanna blow it for my team by by sitting here hoping you guys come around you know you need to to use the the leverage from one deal to get a a better deal and then you sell entirely so you need to do the you do have your due due diligence stuff ready you need to make sure that the closing terms are clean you need to get a good lawyer and a good accountant don't and don't burn bridges because deals fall through and you may need to go back so make sure you communicate properly even when you say no to people and do everything with with sort of integrity and grace because many times deals have fallen through we need to go back when we sold the milk road it was somebody we had rejected last minute but we didn't burn the bridge and they didn't burn the bridge and we came back you know later and we said hey still interested and they sure were and there you go the advice I got here was but from my deal doula was this is when you need to sprint the hardest so normally an entrepreneur gets a term sheet it's like they wanna relax finally look at this the big number I'm gonna be rich this is awesome and they take a moment to relax you can't relax here this is where you sprint the hardest to close you cancel everything else you just spend all day following up with lawyers data room your accountant making sure that all your ducks are in a row solving any problems along the way lastly celebrate make sure you celebrate very often the whole process is so stressful that the the main feeling is just relief I think that's common but you wanna let that relief subside and then have the joy and the the the pride that you you did something kind of amazing and so I I don't know if I have any other slides left okay remember some some tips here the great advice I got birds fly fish swim and deals fall through that's what they do just remember deals fall through that is completely normal for them you can't get emotionally too high too low the second deal momentum is everything if you have a conversation going the the speed with which you follow-up and you get them the materials and you you move forward is everything momentum is everything when it comes to deal making and last thing one choice is no choice if you only have one person that could buy you one company that's gonna buy you you have essentially zero people that will buy you you have zero leverage so you need to have multiple choices one choice is no choice alright that's it that's the master class let me know what you thought about that one drop comments on youtube so that's where I read them so go to go to youtube my first million hit the thumbs up if you like this subscribe to the channel we're over 200,000 subscribers now that's amazing if you guys like these I'll do more of these they're not easy to do these master classes right like it ain't it ain't easy to to drop these kinds of bombs but if you guys like it I will make an effort and I will try to do more of these until I'm all out of knowledge and and then I'll then I'll stop and just go retire so let me know if these are worth doing and your compliments fuel me to do more alright I'm out of here