Shaan's Masterclass: How To Sell A Business For Millions

0:05Okay, 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 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 fund the company. This is now about the end of the company. How do you sell a company? Ben asked me to do a masterclass. He's like, Hey, can you record a masterclass today? Your boy's lazy. So I'm repurposing a presentation I gave three, four years ago at hustle con. I went on Google drive. I found an old presentation.

0:37I actually didn't even look through it. I'm just going to 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 want to learn how to manage people, there's tons of books and you're going to get practice every day. If you want to 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 I thought was any good.

1:06And you get very few reps. You might sell a company once every four years, 10 years. It's not a common thing that you do. And so 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 going to share them with you today. So let's see what I was thinking four years ago. The only thing I did was I removed the HustleCon banner at the bottom and I put a new logo there because it said HustleCon 2019. I thought that would not look so great. So let's jump in and hit the first slide. Here we go. I've sold two companies now, one to a big company.

1:41So when we sold it at Twitch, Twitch owned by Amazon. So selling a company at Amazon was one way. And then Milk Road, we sold to two private buyers, just like, you know, two dudes who were independently wealthy from their previous businesses. And it was a, it was a totally different transaction. So I'm going to share some lessons from each. when I made this presentation, I had only sold Bevo. 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 I come to selling a company.

2:11This is a picture of a foot and a dog, and it is the first picture ever posted on Instagram. Kevin Sistrom, the founder of Instagram, he posted this right when Instagram went live. And today it's this iconic picture of this is how it all started. it. 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 billion dollars, 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?

2:44He'd say, well, you got to create, you know, a sensational product. And then people will just come and offer you a billion dollars, 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 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 what you might hear from the people that are on the Forbes list because they were in a totally different position of leverage and bargaining power than most people are when they go to sell their business.

3:18This is you. You've tried, you've pivoted, you've hustled. It's not working or it's kind of 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 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.

3:52That'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 sold for eight figures, but not like that. 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.

4:26There's all kinds of ways to sort of like manipulate sales numbers. But let me go back here. When you got started, you thought this is going to work and this will be big if it works and I can do this and I want to do this more than anything else. So 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 going to work.

4:57It's going to be huge. I could do this and I want to 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, all right, you're seven and try not to check in on your most frustrated day. but you want to say, do I still believe this is going to work? Do I still believe this will be big if it works? Do I still believe I can do this? And do I still want to do this more than anything else? When we sold our first company, we had hit this, you know, all of them kind of are true, except for this will be big if it works. I thought we might have a medium-sized exit the first time.

5:28And that's why I decided, well, let's sell now versus play this out for four more years and hit a medium-sized exit. Yeah, it'll be multiples more than where we're at today, but it still requires four more years and time is so precious. With Milk Road, it was more of the last one. I want to 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 want to wake up and do every day and focus on with laser focus? Yes or no. So these are the questions you got to ask yourself, say, are these more true today, less true today, or at the same as when I started?

6:03And that gives you this, takes you to this point, point, 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 going to really take massive action. You don't take massive action. You're not going to get any results. And then you'll just reinforce your belief. Like, see, I knew it. I knew it wouldn't work, right? So belief is really, really key. And lastly, the common case is you just don't want to run the business anymore. You prefer to exit versus hire an operator and you're ready to move on and do other things.

6:31So three moments where you might sell. Who do you discuss with? but I just wanted to put this up here for a second. So you'll talk about it with yourself and maybe some mentors, but then yourself and your partners, yourself and your co-founders. It's really 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 stand up and operate every day while you're also trying to sell the company. It's very difficult to do that.

7:01So managing your own psychology is really important. and then there's a note about your investors and your team. There is a finesse you want to do with this. Some people believe, don't tell anybody until the deals are done. Some people say, well, no, I want to 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 going to try to sell this thing. What does that mean for me? Should I be looking for a job? What happens if we don't sell? Will I be rich? What's going to happen?

7:27And so I think discussing it with your investors or your team is something to be very careful about. I probably erred too much on the transparency side. If I was going to go play it back now, I would only discuss with my co-founders and I would not talk to the team until the deal is done. And so you want to create a little like communication table. So your co-founders, you want to tell them ASAP, you know, hey, it's time to explore options. I'm going to do X. You can help me by doing Y. Investors, you want to tell them and say, hey, we're going to explore a sale. Here's what I think it would look like.

7:58Employees, 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 can put ASAP. You can say this, we're going to do this when the deal closes. You can say that we're going to do this when the deal's getting close to closing. You want to decide your timelines and create your communication table. Okay. Now to the fun parts. How do you actually sell the dang thing? So who might buy you? You want to break it up into buckets of potential buyers because you're really going to run a sales process. No matter who you are, you become a salesman when it comes time to do this.

8:26So I would say there's four potential buyers. There's the unicorn. So high growth companies that might want to buy you to accelerate their growth. There's dying dinosaurs. So, you know, incumbents that might need to get fresh blood, fresh tech, fresh energy, fresh cashflow, whatever it may be. There's your adjacent companies, your adjacent alligators. This is like, what's that game? Legends of the Hidden Temple. So yeah, you got the adjacent alligators there. 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 to Google and they just want talent.

8:58So they don't care about your company or your market, but they just want engineers. You have to also know the different roles. Who are you going to be talking to? So when you get bought, the other side is going to 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 going to happen. You should always know who is the person that is pounding the table on that side saying, we got to 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?

9:26You need to know who is the champion on the other side, identify them, and you're going to nurture that relationship. You got to 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, there'll be corp dev, but in smaller companies, you might know who else it is. Maybe there's an admin person or assistant. Who are you going to be able to reliably get information from and to that's not necessarily the key decision maker. And then you've got your deal doula. So this is using a childbirth metaphor. So if you're trying to birth this baby, a doula who helps you remember to breathe, think about this, let's move to this position.

10:02It's going to help. Hey, we need to get water here. Your doula is the one helping you through this often painful, but wonderful process. And so I like to find my deal doulas. These are one or two people who have done M &A before in my, you know, they're in my corner. I can trust them that they'll keep everything confidential. And I'm going to bug the hell out of them. I'm going to, you know, these are people that I was texting and saying, hey, I'm going to say this back. Is that too desperate? No, no. Okay. Let me, you know, wordsmithing it. Like I'm a, you know, seventh grade girl trying to figure out, do they like me?

10:33Do they not like me? How do I phrase this in a way that demonstrates strength without pushing too far? Your deal-to-do list will help with that. For those who love one of the greatest shows on earth, this is the dentist system. So I'm going to take you through the dentist system of how to sell your company. So stage one, the D, demonstrate values. So why do companies buy companies? There are financial reasons, and then there are strategic reasons. So financial reasons, 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.

11:03Many people don't. So who buys companies when there's strategic reasons? Well, here's six strategic reasons. The CEO finds it interesting. That's the first one. That is surprising how far that goes. The CEO's got a pet project. CEO has got an itch to scratch. Awesome. If you're so lucky to have that, fantastic. Number two, there's a new executive or an executive gets a promotion and they need to demonstrate big moves as a signal. So they're on the way out or they're on the way in and they're looking for some kind of big move, some big thing to do as a signal. That's good for you when that happens.

11:34Number three, they're trying to catch up to a surging competitor. You know, this is Adobe, you know, using Figma to catch up. There are many examples of this along the way. Synergy, one plus one equals three. 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 into one entity? And then we own a monopoly. We can cut costs, actually. We can raise prices. So one plus one could equal three 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.

12:03And OK, you're going to get a strategic premium 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 in mass. 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 might be the reasons that 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 can reach out to a number of folks.

12:35You can reach out to executives. Just go meet somebody who's at the company. CorpDev, 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 want to buy it. He said, let me email the CEO. CEO gets an email from their biggest investor. They're going to 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 one plus one could equal three.

13:03There's also advisors. I mean, what do you say? You know, you say, hey, I want to discuss a partnership on how we might be able to work together. Intent, right? Like that's discuss a partnership is the best way to kind of open the door. The more aggressive way, which I've done also is, hey, we got an offer. You know, we're considering our next steps. Maybe we're going to raise money or we have an acquisition offer. I would 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 want to take a peek under the hood.

13:30We want 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 got to reach out. You got to reach out cold. Ideally, you've been building a relationship over time. This is the smart way to do it is 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 can do this. You're not an absolute stranger approaching them, but I've done it as a stranger too.

13:57Usually when I'm a stranger, corp dev is the easiest way to go. Next, N, nurture dependence. I'm covering some of the words here, but you want lust, not love. Lust is going to get is a high burst immediate like, oh, I see. It's like greed. It's like, oh, I want something out of this. Your goal is to tap into emotions. And when I say this, it's about clarity, not trickery. You're not going to 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.

14:32and 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 to Twitch, I had met, in terms of engage physically, I'd gone through CorpDev. CorpDev got me a meeting with the CEO the next day and I said, all right, 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 got to hit that guy up. So I hit him up. I said, hey, can I get a beer with you today? He said, yeah, yeah, yeah, sure. Let's do it. I said, I got a meeting with the CEO tomorrow.

15:07I don't know how to navigate it. You know the guy. Can I just get a beer with you just to get you download? So I go get a beer with him and I say, what's he like? What should I expect? Blah, blah, blah. And then I said, tell me, what are the top three? When you're in these exec meetings, you're at the highest level. I'm stroking the ego. 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 of your priorities and he'll say them i said 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 want to interrupt it but which one is still we don't really love our plan here feels the weakest and need 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.

15:59And the guy we have, he's not good with tech. So it's going to 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 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 startup 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.

16:27they're all over the place. And it's like, all right, good for you. But that doesn't tell me why I want you. So it's a sales pitch. You got to package yourself as the solution to their problem. Another way to say this, you need to find their pain, offer a cure, other questions that might be helpful. What initiative has the most juice or momentum or buy-in right now? Buy-in is like the best word with corporations. What has all 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?

16:59If 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 want to suss out, who's the decision maker? So, hey, right now we're talking to this guy. Is he the decision maker? Who should we be talking to? And oh, no, no, no, his boss is boss is the guy. Then you want to talk down, 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 three years ago, four years ago, whatever. What was it like? How did the process go? Were the timelines that they told you real or fake?

17:28Was 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 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 want to do the work for them. So what a lot of people do is they say, here's what we do.

18:00Then 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. Cause if we're going to do this, then I mean, I want to 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 going to save us so much time.

18:37Look at all these assets they already have. Here's the talent. Here's my, 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, 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 six 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.

19:07So I, you know, I took guesses there, they're in blue. You can see the guesses, but yeah, I wanted to put my logic on paper because I don't want to 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 of the acquisitions. I said, this is how I would announce this deal to the company, to the team, to your exec team and the rest of the employees.

19:36And 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 going to be. Here's how this solves one of our problems. I'm so excited about this acquisition. And 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 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, how you strategically align. And last thing, get all your financials in very clean, proper data room so that there's no friction in trying to buy your company.

20:16Last one, neglect emotionally. The Dennis Reynolds special. So you need to find another partner. You need to go cold, right? You don't want to 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 start the process. 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 can tell them, hey, we got another offer. Sometimes you go cold a little bit.

20:43Make them sweat. Not too long. Don't push it. But it's not a bad thing. I also leave breadcrumbs. 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 is he? He's talking to, he's talking to our competitors. So, you know, I don't know if that shit works, but it amused me at the least. It made me feel like I was doing some, some James Bond shit. All right. Last one. Inspire hope.