690: (Solo) The Truth About Selling Your Business (From Someone Who Said No)

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1:03All right, another episode of the Founder to Founder solo pod. Just you and me. I share all the lessons that I've learned from building founder over the past 13 years. This is a good one. This one come up the other day. A founder in our community mentioned it. I thought I wanted to share with you guys. So a lot goes on behind the scenes. And when you're getting traction from your brand, you sometimes get interest of other companies or investors or private equity wanna buy you. And they might be interested in investing in your company. They might be interested in buying a piece of your company.

1:39They might be interested in acquiring your company. And as you're building your DTC brand, you're scaling up, you will get emails. You're getting traction. you'll get LinkedIn messages. People will reach out.

1:51Nathan Chan:Hear the stories, learn the proven methods, and accelerate your growth and future through entrepreneurship. Welcome to the Founder Podcast with Nathan Chan.

2:04I remember the first time that this happened to me with Founder. We were barely 12 months in. I was working in my IT job, nine to five, trying to figure out how to build the magazine, interviewing founders and I had somebody get in touch with me and I remember I was just about getting ready to finish up working at Intrepid Travel and I became friends with one of the founders, Darrell Wade, and I told him this company wanted to buy me and he said he really encouraged me. He thought it was a really good idea and it turned out that this person, he was the person that I ended up buying the founder, F-O-U-N-D-R.com domain from for about 70, I think it was 72 ,000 or$75 ,000 a few years later.

2:50So he owned the founder domain. And what happened was I was sued for trademark infringement. The brand was called Key to Success. And then basically I changed the name to founder. Now I saw that somebody else had the founder domain and this isn't legal advice but i was like oh but no one has the trademark so i got the trademark for founder and then i created the website and i used founder mag f-o-u-n-d-r-m-a-g dot com and then basically he wrote to me and was like hey man i can see what you're building founder really cool we own the domain founder.com and we were just like oh my god someone's building here but we really love what you're doing would you be interested in selling and anyways it never ended up happening there wasn't alignment there and I was just about to go full time on growing the brand and I thought if I was to sell now I would be robbing myself of the opportunity of going at it and I remember my mentor at the time Daryl he was like man you could be really fun you could learn a lot and I remember he said to me because he's bought and sold many companies he said Nathan you got to go to fly to America have a beer and actually get to know the person and he even told me that once he went overseas to do a deal they had a beer and after meeting that person it just didn't align with him and on the plane home he was reflecting on it and he didn't go ahead and it was one of the best calls he ever made and so for those of you that are listening right now you will get people that come to you aggregators private equity firms bigger competitors or you know competitors similar to your size and do you take the call do you entertain the offer Do you tell them to get lost?

4:29Do you sign an NDA? All these different things. So I want to share my perspective and what I think you should do from my experience. First and foremost, you take the call. You always, always, always take the call. I never forget one of my other mentors, Mitch. He said to me one of the best things that he ever did was just like meet other investors, meet potential acquirers because you get to learn and you get to learn so much. That's what I always do, right? I always take the call and I get to learn. So that's the first thing. You always take the call. You genuinely entertain the offer, right?

5:04But how do you know whether you should take it? Well, we're going to get into that. But what you have to know is businesses are not bought. They are sold. So when it comes to selling your business, you will get the best price. And this is from my experience. And I haven't sold. I've only sold one business. But this is from friends' experiences, from speaking to successful founders. your business will get the best possible price on exit if you have two people fighting over it ideally more than two if you shop it around and you have many people going for it very very powerful so when somebody reaches out of the blue they are fishing they're looking for a deal and they have analysts sitting in an office somewhere just scraping the internet for fast-growing Shopify stores or brands and looking for founders who might be ready to tap out and they're hoping they caught you on a bad day, but most people want to buy your business for the best possible price when you are vulnerable, right?

5:59And this is where timing is absolutely everything in this game. So when I reflect, I think the absolute worst time to sell your business is when you are desperate because buyers can smell a mile away. They dig into your financials. They'll see growth slowing down. Like it gives them ammo. So the best time you should sell is honestly when you are absolutely crushing it. You should sell when everything is working perfectly, when customer acquisition costs are in a good place, your lifetime value is up, team is firing, the brand's growing really, really well, and you get an opportunity that is like, okay, this will be meaningful, especially if it's your first potential exit.

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7:17Remember, when you support our sponsors, you are supporting the show. All right, now let's jump back in. That is really where I think, you know, if you can make a life-changing amount of money, you should definitely do it. And when you are killing it, that's when you definitely should consider it. But I can't stress this enough. Don't go out and try and sell your business or try and shop it around. Businesses are bought, not sold. So some of the best things I've ever done is take calls with potential companies just to learn, like purely just to learn, even if I'm not looking to sell because it is so powerful.

7:50It's crazy some of the things you can learn. Like I'll never forget one of my mentors, Mitch, he was speaking to an investor. He took the call and they told him, oh, why don't you have an API? And he was like, oh, that's a really good idea. So you can get really good ideas and you can learn a lot. So when you take that call, the best thing to do is be naive, hold your cards to your chest, give a little bit, but don't give too much and really kind of ask questions like, why my business? What do you like about my business? What kind of multiple would you give a business like mine? Why do you think a business like mine would be attractive to you?

8:22If you were to acquire it, how would you grow it? These are the kind of questions where you can really, really, really learn. And something else to take into consideration is when somebody is looking to buy your business, you know if it's in a good spot ready to be sold. Like, do you have solid recurring customer revenue? Do you have really, really good growth? Do you have defensibility in the market? Strong are your margins? Operationally, what is your team like in place? Do you have a leadership team? Have you taken a step back? These are the things that will give you the highest possible multiple.

8:59And these are the things that you should do to naturally scale your business. Like, you want to get your business to a place where the company does not rely on you. You want to basically replace yourself as the founder and ideally have somebody that is running the day-to-day operations and you're in a really, really good spot. So what do you actually do when the email hits your inbox tomorrow morning? Do not ignore it, but do not get overly excited. I've also had friends where they've taken calls, they're going through a process of selling their business and they've already sold it in their mind and that's how they try and woo you.

9:32Some of these guys are absolute professionals. and if they can get you to a place where you've sold the business in your mind that's how they know that they'll get a much lower price and then i've had friends where they've sold the business in their mind and they've lost three months six months of due diligence and it never goes ahead and they've lost so much traction with their business the business has gone backwards right so if you go down this process if you go down this path and your business is in a good spot It's all looking good. The best thing you can do is really, really make sure that you're not distracted.

10:06How can you have other people help you handle this part of the acquisition and try and stay away and try and not get your team involved and all these different things. And then another thing I wanted to share with you as well is if someone wants to buy your business, it depends on what season you're at. Like I'll never forget one of my really good friends. It was COVID. his business was growing really really well it was booming someone tapped him on the shoulder it was a broker they tried to buy a similar business to his they missed out in a bidding war so then they went to his and he was basically the other competitor i remember he called me up and was like man this company wants to buy me i think it's a really bad idea i'm not sure about it he'd never had an exit before he'd been working on the brand for 15 years i'd you know been through the ups and downs with him.

10:54And he thought, he's like, dude, we're making like five, six mil a year net profit. Like I'm only going to get maybe like 25, 30. I couldn't make that in like, you know, four or five years and I could still hold the business. And his business was very seasonal and it was COVID and he was on a really great run. And I said to him, you know what, man, like, I think you should really consider taking this. I think this would be life-changing for you and your family. You'll never have to work a day in your life again. You've been running this business for 15, 20 years. I see the seasonality of it, how much it drains you, how much it stresses you out.

11:29I said, I think you really should consider, I think this would be an incredibly life-changing thing. And he took my advice and he ended up doing the deal. And I'm so glad that he did. So anyways, that's just a story, right? It depends on the season you're in your life. It depends on whether it's your first exit or not, if you've done it before, it depends on the size of it is, how long you've been running it, all these different things. But I can't stress this enough. If somebody taps you on the shoulder, they wanna look at your business, they wanna look at selling it, don't open up the books, but definitely take that call.

11:57You can learn so much from this experience. All right, guys, this is a little bit of a different one. I hope you enjoyed this episode. If you did and you have a friend that has a D2C brand that is looking to grow it, scale it, please share this podcast with them. we interviewed the best of the best in this space we work so hard over time this podcast is 100 % free and please leave us a review on Spotify or iTunes or wherever you're listening it helps us more than you can imagine share us with a couple of friends would be a massive thank you and that's it from me I'll see you in another episode