Why Selling Your Business Feels Like Grief | Ep 303 with Sunaina Sinha Haldea

0:04So Sunaina, there's a few things that I am very excited to talk to you about today because it's been weighing on my mind. And when I get something in my head, I can't get it out. It's crazy. It bothers me until I can talk to someone. But I wanted to really understand from your perspective, every founder that I know wants to exit their business. At least most founders in the US that I meet, they're like, the pinnacle is I want to make a business and I want to exit that business. But I don't think people understand what do you have to do early on to even get a business to a place where it could even be acquired by another company?

0:41What would you say is critical things that people need to think through early on? Selling a business or engineering a business to a successful exit is a juxtaposition between two different ways of thinking about growth, right? On the one hand, you want to build something to last, to use the old Jim Collins analogy. you've got to think about this business being a seismic staying force in your industry or vertical for decades to come. So you've got to build day by day, like this business is going to not just survive, but thrive and have the impact you think it can have in its vertical and its industry and its community of business people for the next many, many decades.

1:30So build for the long term, but at the same time, and especially with your troops built for the long term, at the same time, when you have a board of investors, board of advisors, board of your personal board of directors, whatever you call it, with them, think about when is it the right time to hand this business over to the next fiduciary, right? It's all about seasons and chapters of lives and businesses that you start are yours for a season or chapter. What is that season or chapter where you are the best player to hold the business as either the primary shareholder and or the CEO? And when would be the right time to hand it over?

2:08So think about that and think about it early, but do it with a very small group of people who really know what they're talking about, i.e. a board. And think about what are the milestones that the business needs to hit financially. One of the key KPIs, financially, operationally, with respect to the cap table, with respect to the industry, depending on, of course, what type of business you have. Think about what those inflection points might be between now and then that you need to hit to make sure the business is on the right track for it to be of value to someone else. So what do I mean by that?

2:42Say you have an enterprise SaaS business. Speak to a really smart, savvy software investor. You may have them on your board. You may seek them out through your network to think about what are the metrics by which SaaS businesses are valued? When are they interesting for a strategic to acquire them? When are they interested in for private equity to acquire them? What is private equity looking for? What is the strategic looking for? Have that in the back of your mind as you build something to last. I think what happens then that is really dangerous is that people really focus only on the latter.

3:12I've started a business. I want to sell it. What are the 10 things I need to do? Markets turn, cycles turn. You've seen what's happened to software. It's no longer the darling of the public markets anymore. Things, you know, stuff happens. So for that reason, from a day-to-day perspective with you and your troops, you've got to build something to last that has tangible value, profitability, great unit metrics that can be here for years and decades on its own if that's what the world throws at you. Yeah, I'm almost nervous for a lot of SaaS people, people that are in SaaS, because I think, for example, I make something and an LLM like a Gemini or a ChatGBT could recreate what I'm doing in five minutes and then just destroys my business.

3:57I feel like there's so many apps that I see that I'm thinking like, I don't know what either is special about them or they can be totally disrupted by AI or some other software or something or their service. Like the cost is really going down so low to do things now. And there's so many companies doing the same thing. Something that interests me is a lot of people will say, my company is my baby, right? Like, like, they really feel like this company is attached to me. So when you exit that business, like for yourself, did you realize something afterwards, that maybe you didn't expect? Like, oh, my gosh, now I feel different.

4:39I feel sad. I feel a way that I didn't expect to feel? You're absolutely right. And that process is a parting. It is grief. It is sadness. It's a changing of the seasons. It's the ending of summer and the beginning of fall and winter, and you've got to take time to transition. And you hit upon a really important question because I hear two things. It's one of them is how do you feel through the sadness of the changing of the guard, if you will? But secondly, what else should you be thinking about or at least preparing for as you transition when you do sell a business. So the two slightly different but interrelated questions.

5:18The first one, as I said, it is grief. It is a parting of being the majority shareholder and or the CEO and or the owner operator of a business to now giving it to a new owner, handing over the keys, just like you would say goodbye to an old house that you're leaving. take your time to say goodbye and end that chapter mark the milestone so that your you feel it within your body that something has shifted i don't act like it's another day in the office and i know a lot of founders who do that and they're only about a year six months or a year later something hits them like okay no it's not another day in the office right the shingles have changed outside things are different here make sure you get the moment to to to really land within you that somebody else now has the keys to the door.

6:08And if you're still with the business because you're in an earn-out structure, you honor that. Or if you're handing the keys over and you're leaving, you mark that departure and you feel through your sadness because the seasons have changed and the chapters in your life have turned. The second part that I worked on, in addition to this first part, is there's something known as upper limit theory. Gay Hendricks, very famous psychologist and life coach in the US coined this phrase, which often happens to people when they go through inflection points. You're used to operating in a band in your life.

6:43And life has a way and your mind has a way of pulling you back into that band, that band where you're most comfortable. Well, what happens sometimes is the band moves upwards really immediately, like when you people that win the lottery, or sometimes it goes the other way too. You go through deep grief or deep trauma, your band moves seismically downwards too. But let's talk about the positive side. We're talking about founders and entrepreneurs, do the work to understand that your band has shifted through the exit, if it's a successful one, and that you've got to shift with it. Because what often happens is the research, again, Hendricks' research showed this, that a lot of people who win the lottery or have something really amazing happen, they actually self-sabotage their way back into the older band, right?

7:26So often people who have won the lottery within five years will find themselves back down to the same income level they were at because all the wealth is gone or they go through divorces or they go through other traumatic events that happen to them. That actually happens to most lottery winners. And that's because of the upper limit theory that is now activated in the brain that brings you back into your original band. Well, life has changed. If you're an entrepreneur or a founder with a successful exit, the band has moved up and your mind's limits have to move up too. So make sure you invest in doing that work to flex your mind up towards a new reality of your life.

8:00How does somebody do that? Well, I would suggest get a really good coach because hopefully at this point with your exit, you'll be able to afford one. So I used a coach who talked me about the theory, talked about the ways you can be aware of when it activates itself in your day-to-day life, in your family, in your business world, to be able to notice it. And awareness is the light that burns away many ills, right? So that's the first step to it all. The second step, of course, is to be able to talk your way through whatever emotions you're feeling when you hit that upper band limit so your band can start edging up.

8:39Said another way, when you find yourself hitting the band, instead of dragging yourself lower by having a massive reaction to something, keep yourself there. Feel the discomfort. We spend so much of our lives as a society racing away from discomfort. Actually, discomfort is sometimes really good to hold at because that's where the change happens. You know, amazing. I love that. And it got me thinking that sometimes what I do for myself, at least I've heard a friend of mine say the same, I want to exit for X amount of money. Because if I get X amount of money, then I can invest X amount of money, then I can take dividends of X amount of money, or then I don't have to work anymore.

9:22I need to make$10 million in an exit because da-da-da-da. But I don't think people fully understand too, like how much do you take home in the exit? Because I've heard a lot of different things. But at the same time, do you think this is a bad way to think about it in terms of, I want to exit for X amount when, how would we even know? But also, maybe that's putting a limit on ourselves. It is putting a limit on yourself. And I would ask anyone who's going into a new business with that endpoint of a really specific financial goal to say, take a breath, because there's other ways to skin that cat if that's what you're after.

10:02And entrepreneurship is by far the hardest, because entrepreneurship comes with a tremendous, tremendous amount of failure risk, execution risk, and ups and downs in the journey. If your only motivation or your primary motivation by a long ways extrinsic. It's outside of yourself. It's this dollar goal or it's I want to go buy that house or actually I really don't want to work at all. I want to be living at the beach. Then you're living a deferred life plan. I'll quote another book that I read as a very young person. I was in my 20s when I read this book. It's called A Monk and the Riddle by Randy Commissar.

10:43Randy went on to become a venture capitalist at Plano Perkins. He was a professor at Stanford at the time. I met him there. And he says it beautifully. If you are chasing the money and you are chasing what's out there, you're living the deferred life plan, right? You're working to live another day. That motivation can only take you so far. That motivation has got to cap out, especially when the going goes rough. And in entrepreneurship, almost always the borrowing gets rough and sticky and full of incredible emotions. find a reason to do it inside of yourself because you have something a gift to offer the world because you are building something with tremendous impact for the world because you believe in your business idea solving a need that the world has if it's inside yourself you're able to reach for those muscles of resilience when the going goes uh it becomes tough what's it's happening if you're just tracing the number, things get hard, things get wobbly.

11:44You think, oh, gosh, this is really hard. Maybe there's another way I can solve for that number. Off you go to do that. And then off you go to do that. And don't we all know so many people who just ping pong chasing that thing that's so elusive. And guess what? Often eludes most of those people. So I guess if you're extrinsic, then you need to play the lottery. Don't be a founder. So it makes sense. I like that. I'm only kidding. But I totally could see. I mean, most people, I don't know what the percentage, but it's like majority of companies will never, you know, exceed to five years and then 10 years.

12:15And I think it's like only 6 % of companies in the U S will even hit a million dollars in revenue. Um, it's, it's quite low. And then that's not counting, uh, you know, net profit is even lower. I have some friends and I told them like, don't be an entrepreneur. Just keep your day job. Like you make a couple hundred grand a year, invest that maybe invest in someone else's business and then retire. and then you have no stress. Like why would you even, why would you quit to start a company? Indeed. And you know, help others from a, go join banking, consulting, go work at startups, be an employee, right?

12:54Go do that journey. If you're solving for a number, if you just want a great life out of this journey, go do it that way rather than, hey, I'm going to become a founder entrepreneur because that is a journey that has to come from deep, deep within because the going does get rough. Yeah, something like I work 80 hours a week, so I don't have to work 40 hours a week. So you've been a part of three exits. Each time, what was your personal, what was your intrinsic motivation for the next thing? And maybe going back to your most previous one that happened in 2021. Yeah, so I was fortunate that the business that I started and founded, Sebeal Capital, was acquired by Raymond James, Fortune 300.

13:36company. I was first investor in and chairman of the board for several years of a business called Mindful Chef. It was a healthy recipe box delivery business that Nestle acquired and a third one, which was a boutique bar-based fitness business called Barcore in the UK that got acquired by Private Equity Strategic. So those are the three. They were all sold in the 2021, early 22 era. So always better to be lucky than right. So grateful for that. What I will say is that with each of them, I wanted to do well while doing good. Now, it might sound cheesy and hokey, but I truly believe in the mission of the businesses to be able to really add a dimension of, in these cases, vitality, health, wellness, a different way, a different approach in my financial services business, a radically different approach to doing age-old lines of business.

14:29I believed those pieces going into each of those journeys. And guess what? If you as an investor entrepreneur yourself believe firmly that what you're doing is different, unique, differentiated, and has a place in the world as evidenced by your customers, then somebody else will too. And that's what happened in all three cases. Somebody else stepped in and said, I recognize that what you've built is unique and different, and it has value. It has value for me to be, and here's what I'm willing to pay for it. That has to be the thesis. I was involved in another startup journey just as a passive investor.

15:06In this case, it was a fintech business. Guess what? It wasn't such a happy ending because that team was very focused on staying alive, fundraise to fundraise. Don't we all know entrepreneurs who just live fundraise to fundraise? How much can I raise? Then I'll burn through it. Then how much can I raise next time around? And kicking the can of profitability down the road saying, well, let me go do this with this money, and then I'll come and think about that later. That strategy, you can certainly do that, but at the end of, the clock will run out at some point on that. Somebody, when they're looking to buy value, are going to ask the tough questions.

15:44So you're either going to have to answer those tough questions now, or you're going to have to answer the tough questions later, four or five years later, but the questions are coming, they still need answers. So the sooner you think about them, the better. I know a lot of people like that. They're just like you're saying, they're hyper focused on the growth, which not maybe it's the VC pressure of like, grow, grow, grow, grow, grow, exit without really looking at profitability. And then they don't really take home any money. They're not even making a salary like they're doing 100 million dollars a year, then they get kicked out of their own company.

16:17And they're not now they're suing. And now they're trying to get back. I mean, that's the whole reason why I never personally raised any money ever. I know I could have grown 10 times more, but I was always afraid of these things happening. I've heard mixed things around private equity, NBC, angel investment. What do you look at when you think of all these different ways that people can get capital from taking out a loan? If a founder came to you right now, what would you look at to help them determine what is the best route. Absolutely. And listen, nothing wrong with venture or angel capital, but venture does focus predominantly on growth and ensuring you get to size and scale before turning your mind to other metrics.

17:04Now, in the last three or four years, profitability is being mentioned more and more in venture conversations, special unit economics being mentioned in investor conversations more than they were in the cycle previous to that. So that's good to see. Private equity is, especially private equity buyouts, leverage buyouts, as they're known, that's heavily focused on cash flows and profitability. To go and play that game, you must be profitable or you must have a pathway to profitability. But venture and growth capital, very much all about growth hacking yourself. And there is a place for that. You have to grow first to get to a scale where you can then engineer for profitability.

17:41But don't delude yourself as to when that occurs, right? You're seeing that with some of the AI champions now that are having to look at gross margins. You saw those filings out for Anthropic and thinking Anthropic is now revising its gross margin. Downwards, people are talking about why that is, compute costs, et cetera. At some point, it's coming for you. You better have those answers sooner than later. Unfortunately, too many founders just don't want to answer that question now. They're thinking that the next fundraiser is going to bail them out of this one, and then onwards they go. That's a dangerous place to be.

18:16You may be saying very conscientiously, I'm going to grow for the next three years and get myself to this minimal scale. And then I'll turn my mind to ensuring that that's my last round. Some of the entrepreneurs and businesses have invested in that I respect the most have done that. They've taken the venture funding. They've taken the angel funding to grow to a minimum scale, but have said, listen, this is likely my last round because I'm now focused on a steady state, profitable cash flow producing business that continues to grow, but maybe grows a bit less because I'm not burning to grow. That is the best, most sustainable way to do a business that's built to last.

18:52And when you build it to last, somebody will absolutely see that value. I'm going to get a tattoo, built to last. It seems like, was it like Ford or one of those like trucks? Their motto is built to last. That's what I took away from today. If you really want to exit and you want to be sustainable, then it needs to, you need to build something that's going to last. But I scares me every day. I'm thinking this, I'm thinking the same, like, I don't know if I'm the last because I really don't know if I'm going to be disrupted tomorrow. Like all the time I see new tools, new things. I'm like, oh my gosh, if you can automate everything I can do with some app, I don't know if I'm even going to be valuable.

19:32You and I talked briefly before that. I know we're going to change a little bit here. I'm very interested around the wealth transfer that's going to be happening specifically from baby boomers down to mostly millennials and Gen Z. And I say, because I think Gen X is kind of like retirement age already. So I'm kind of like removing them, but millennial Gen Z, I saw something 38 trillion in real estate, not counting retirement stuff. And I know you have a number too. And this is just speaking about the US perspective. I don't know much like outside of that, but what is going to happen? Like what's going to change when this trillions and trillions of dollars now get placed on the people that many of them can't afford a home?

20:19Many of them probably don't even have$500 in their savings account. And they've been like working these jobs or maybe they're laid off. They can't even find a job. And now they're about to get what? Yeah, absolutely. I think that it is much larger than the$38 trillion number because that was very real estate focused. The answer is somewhere in the$80 to$90 trillion of wealth transfer that will occur from baby boomers to millennials and Gen Z over the next two decades. That is a seismic shift of asset and wealth that is going to go to another generation. Now, keep in mind, this is the largest reallocation of private capital in the modern history, number one.

21:07And number two, millennials are already in their late 20s to kind of call it early 40s. When this transfer occurs sometime in the next decade, two decades, this will be some of the youngest ages of the recipients that we've ever seen before. right millennials and gen z will be fairly young when they inherit so much of this wealth and it's going to be you know all because and they'll hold on to this wealth if they can for longer than ever because of longevity increased you know health care uh getting better and and and other sort of strategies to live longer so we're looking at a really interesting inflection point in in humanity in general.

21:50And by the way, this is US and beyond. Keep in mind that millennials and Gen Z, but let's talk about millennials because they're going to inherit most of that wealth first, really have a very different mindset. It's been recorded and discussed ad nauseum. I'll paraphrase by talking about the fact that millennials really prioritize purpose and impact, as you've mentioned. I think they talk about flexibility. They talk about liquidity. They want transparency and control and to do good for the world. They want balance in their work and life. It's not all about work, work like it is for the boomers.

22:23It is a very different generation. Now, here's another thing that's true. Most wealth transfer results in wealth loss. There's a lot of research that shows that by the end of the second generation, but certainly by the third generation, something like 60 or 70 percent of the wealth that was transferred down is lost, whittled away in bad decision-making. It's not performance-related. It's really all about a lack of leadership around the transfer and decision-making. So it's going to be quite interesting. And what a lot of financial advisors, the advisors at Raymond James and beyond, are doing with their Boomer clients is putting together structures in place to ensure the wealth isn't whittled away quickly in the hands of the next generation.

23:09There's a tremendous amount of estate planning going on, guardrails being put into the estates and trusts as to when the transfer occurs, under what conditions. It's both financial, but it's also very emotional and relational about family governance and education and requirements around preservation of the wealth and decision-making powers and how that's shared and how the money will be managed that it does last. So all of these discussions are ongoing as we speak at the Big Wealth Advisors and the clients around the US and beyond. But it's going to be fascinating to watch, no question. I've been telling people and listening to you, this is like universal basic income, but not from the government.

23:54It's from our parents. I think if you all of a sudden get millions of dollars and you can't just spend it on a jet and then going out and doing something, if you have guardrails and it disperses money every month or every year, however it is, set up. I'm not, I'm no expert in any of this, but I'm just thinking out loud, like if it is and you get a home, maybe that's paid off and maybe you live in that home because you don't really care where it is. So then people will move to different. I'm, I'm very, very interested to see how it's going to be fascinating. It is going to be fascinating. And you know, there was an article in financial times a couple of years ago saying that, you know, the, the, the default bank is now the bank of mom and dad, right?

24:37You don't have to go and get a bank loan the way boomers had to do to get their first mortgage and pay it off. You go get it from the bank of mom and things are going to shift when it comes to the financial landscape of the world, but certainly of the US in a meaningful way in the coming decades. It's going to be fascinating to have a ringside seat on that. Well, what we have to do is in a year or two, in five years, if I still have this show, then you come back and let's talk about the well-trail for the transfer that's happening in five years. Hopefully, I'm not going to be here in 10 years still doing this, I hope.

25:09So I know for you and for me, mindfulness has been really, really a struggle. It's been really important in my life at the same time. I know you've really mastered mindfulness and meditation, and I need to get better at that. I need to get there. So what have you learned and what could I do right now to get better? Well, firstly, I'm not sure anyone masters it. Even the Zen masters will cringe at the word master because I think it's a journey for a soul. We're all learning. We're all walking the path together. We may be in different places in the path, but the end is certainly not available for us to see because you're continuously walking and you're continuously practicing day-to-day, moment-to-moment.

25:52So the end is the journey itself, if you know what I mean. So my one and only superpower, working in finance, three children, sitting on boards, and so forth, has been supporting entrepreneurs, has been focusing on my internal mental state and mental energy. And I do that using Vipassana meditation. It's the meditation type that the Buddha practiced. It's very purest. and goes back thousands of years. There are free courses in centers across the US, across Europe and beyond. I was lucky enough to find my way to my first course almost 14 years ago. And since then, I go to a course every year and certainly over the last decade or so, I meditate every day.

26:41My suggestion to anyone is just to get started. Dip your toe. In fact, dip the nail of your toe in the water. People get shocked when they hear that I meditate for at least an hour a day, usually two hours if I can. And they're like, well, where do you find the time? Firstly, go look at your time on your screens and how much time you spend on the device every day. I'll show you the time is right on there in terms of your screen usage. Go shave that down by 90 minutes. There you go. You got it. But secondly, it's all about training the mind muscle. The way I describe it is the mind is an organ and a muscle that needs training and development.