How To Sell Even The Smallest Online Businesses
on Aug 12, 2009 - 10:00 AM PST
I’m going to show you how you can sell even the smallest startup. I’m doing it because Michael (my brother and partner at Bradford & Reed) says that entrepreneurs who hear the big sales discussed in Mixergy interviews might be discouraged and think that only big companies can be sold.
Selling a small startup may be easier than selling a large one
For a big company, buying a small startup can be as quick and easy as buying online ads. There’s little to no due diligence involved in those deals. The contracts and negotiations are quicker. And, because they don’t meaningfully change the company’s income statement, there’s little risk in them.
Back at Bradford & Reed, I probably did half-dozen buyouts of small web sites that cost under $100,000. Financially, most were of so little consequence that I didn’t bother getting my partner’s okay on them. But to the young guys whose companies we bought, the deals helped validate their work and were a point of pride.
Why big companies buy smaller startups
Most smaller startups don’t think of trying to sell their businesses because they think, “Why should a big company buy my little business? I’m too small to matter. I can’t change their business.” Well here are a few reason.
1. To learn – I recently asked a friend who runs a major online shopping site why he bothered buying a little blog. He said the blogger was a good affiliate. His company wanted to learn how he drives affiliates sales and have him teach their other affiliates.
2. To hire – My buddy Dan Gould (who was one of Mixergy’s first interviews) is working at Fox Interactive now because they bought his company. They would never have found someone as entrepreneurial as Dan by placing a help wanted ad. Sometimes an acquisition is the only way to get top talent.
3. To test – As B&R got bigger, I became risk averse. I didn’t want risky ideas to jeopardize my biggest investment. But buying a small web site and testing ideas on that was fine. If the ideas failed, we could just shut down the acquired site, but the main business would stand soundly.
4. To hide – When you’re big, all eyes are on you, which makes it harder to launch new products. Sometimes an acquirer buys a small company to launch an idea quietly.
5. To showoff – I had a company try to buy B&R because adding the size of our mailing list to their mailing list would make the resulting list size impressive to Wall Street. They didn’t care about the quality of our list as much as they cared about the number of people on our list. Sometimes, you can give another company a way to show off a larger number.
These are just SOME reasons. I didn’t even list the obvious ones, like maybe they think you have a good business and want to invest in growing it. My point is that there are more reasons then you realize. Don’t think you can’t be sold just because you’re small.
How to prepare for a sale
One of the first things I learned in my NYU business classes was to prepare for a sale the day you start your company. It’s not just so you can sell it. Making sure your company an be sold will instill discipline in you that will make it into a company that will force you to run it like a business instead of treating it like a job. With that in mind, here are some suggestions for doing that.
1. Make sure the company can run well without you. Unless it’s a talent acquisition, acquirers want to know what they’re buy will continue to be valuable if you decide to go off and start another company.
2. Make friends with your competitors. Because your competitors are often your most likely buyers, you have to walk a fine line between trying to crush them and staying friendly enough to sell to them some day (or maybe even buy them).
3. Get to know the people behind the companies you work with. The people who are doing business with you — selling your ads, or buying your services — are also potential buyers. Get to know them well enough that they can visualize you as a part of their family.
4. Don’t complain publicly. Acquisitions are as much emotional as rational. If you talk publicly about your company’s trouble, it’ll have the stink of failure on it and others will be afraid of associating with it.
5. Be proud of your work. There was a time when my competitors at B&R were so fierce and I was so exhausted that I didn’t think I could beat them. When I got a terrible buyout offer, I took it to my brother and suggested we accept it. Thankfully, he talked me out of it. There will be times when you’re so tired of the pressures that you’ll just want to take any offer. Buck up and take pride in your work. If you don’t value it, no acquirer will give it the value it deserves.
How to get buyers interested in your company
Yes, there’s Flippa.com (hear the founder on Mixergy) and you can sell your company on ebay, but I’m going to suggest a more subtle way to sell your baby.
This is how some entrepreneurs got me interested in their companies.
Step 1: Find the big, aggressive buyer in your industry.
There’s always at least one company that’ll make anyone an offer — it won’t necessarily be a good offer — but this acquirer is an offer machine.
A good way to find this company is to talk to others in your space. The ad brokers, the big affiliates, the headhunters — they all know who’s buying.
Step 2: Call the aggressive buyer and ask what they’d pay for your company.
You don’t have to be subtle with companies like this. Making offers is what they do. You’ll probably get an insultingly low number. Or you’ll get terms that are outrageous. But you’ll get something.
Step 3: Seek out advice from your ideal acquirers.
Tell them that you got an offer for your business and don’t know what to make of it. Ask them what they think of your business and in the process, suggest that you’d rather be bought by them.
What’s your experience?
I love hearing from entrepreneurs about how their buyout experiences. Tell me yours in the comments or by email. If it’s a really juicy story, let’s get on the phone or grab coffee and talk about it.
And, as always, I’d love your feedback on this post.
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August 12th, 2009 at 11:52 am
I've been competing in the iPhone App market for about a year and it occurred to me that a way to address the challenges of selling in this market would be to apply acquisition as way to win marketshare.
Of course this is nothing new, but I believe the current climate in the App Store (market saturation coupled with frustrated developers) could provide someone talented in acquisitions some very juicy deals.
Imagine a dozen or so developers, all with separate apps that compete for a relatively large nut, but individually they don't bring in enough revenue to satisfy each developer. If you were to purchase all of these applications and combine them into a single product, you not only combine the overall revenue but potentially reach new customers as well due to improved features and placement on the app store charts (as the purchase counts are now combined).
August 12th, 2009 at 12:04 pm
Thanks Andrew… this greatly helps the little guys like myself…
Here is my meager repayment to you :)
Point #2 on “Why big companies buy smaller startups” …. the first sentence should read “b/c they bought HIS company”…. We, your humble consumers, take pride in your work as well! :)
I am excited to see you follow this path of discussion, as it is very rarely brought up. The general idea is that you're on your own till you start making headway. And to an extent. this is true. You can't really distinguish yourself as an entrepreneur if you require other's continuous attention and assistance. You have to blossom and cultivate your plant, despite the toil and heat of the day. It's what makes the fruit ever so sweet. But that doesn't mean that tips can't be provided on how to better position yourself, given that things take a turn for the better. It is always the individual who prepares himself, that is able to anticipate a favorable outcome. I personally love the quote: “Success happens when 10,000 hours of preparation meet 1 moment of opportunity.” And I personally feel that, that is what you are illuding to here. So thank you again and keep up the good work!
August 12th, 2009 at 12:05 pm
Another solid post, Andrew. As a corporate lawyer doing deals for 15+ years, I would suggest the following: (i) make sure the sale is in writing and has been vetted by an experienced corporate lawyer — indeed, the seller must make sure he is protected by buttoning-down certain key issues (including a cap on liability); (ii) talk to a strong accountant/tax advisor prior to the sale to determine the best sale structure from a tax perspective; and (iii) be careful about using brokers and/or websites as intermediaries without fully understanding the terms of the arrangement. Thank you.
Scott Edward Walker
Walker Corporate Law Group, PLLC
August 12th, 2009 at 3:02 pm
Anybody want to buy my site? http://www.iconfinder.net
August 12th, 2009 at 5:34 pm
I bet there's someone out there thinking of rolling up iPhone apps right
now.
August 12th, 2009 at 5:36 pm
I think you'd do better with that kind of question on Flippa.com
By the way, I just checked out your site and I love it. I wish it had come
up in my Google search results when I was looking for icons. It's a very
helpful site.
August 12th, 2009 at 5:39 pm
Thanks Scott.
Looking forward to interviewing you.
August 12th, 2009 at 5:41 pm
Thanks for catching that! I added the H.
And I love that quote. Glad you're on the site.
August 12th, 2009 at 8:13 pm
Great article! now the next article can be “How to negotiate a reasonable price when selling your business”, though that is a really subjective topic to begin with.
But anyway, great info here, looking forward to more!
August 12th, 2009 at 8:32 pm
Thank you very much for this post! I am right now in the process of trying to sell a small business that I own! It would be great to have a bigger company buy me out!
August 13th, 2009 at 6:38 am
Oh man IconFinder.net is such a brilliant site. I use it very frequently, awesome stuff.
August 13th, 2009 at 6:38 am
Oh man IconFinder.net is such a brilliant site. I use it very frequently, awesome stuff.
August 13th, 2009 at 8:24 am
Ok thanks, I'll check Flippa.com out.
Great blog post as usual – I love your interviews as well.
August 13th, 2009 at 4:57 pm
Really is a great site. Hope it finds a good new owner.
August 13th, 2009 at 4:58 pm
Let me know how the sale goes.
August 13th, 2009 at 7:24 pm
It would be great to interview some attorneys.Many of us that are start up companies can get a better idea on how these negotiations should be approached. It would be beneficial to gain insight to better negotiate the deal when thinking about the types of options available.
Speaking to an attorney first gives you a different angle and also better negotiating skills when talking to VC's.
August 13th, 2009 at 7:28 pm
It would be great to interview some attorneys.Many of us that are start up companies can get a better idea on how these negotiations should be approached. It would be beneficial to gain insight to better negotiate the deal when thinking about the types of options available.
Speaking to an attorney first gives you a different angle and also better negotiating skills when talking to VC's.
August 13th, 2009 at 7:53 pm
Yes, Andrew will be interviewing me in Sept. I am a corporate attorney who has been doing deals for 15+ years (including nearly 8 yrs at two major firms in NYC). Pls call me or shoot me an e-mail if you have any questions, which I am happy to answer at no charge. I am also in the process of building a blog to provide practical legal tips to entrepreneurs. Thank you.
Scott Edward Walker
swalker@walkercorporatelaw.com
310-288-6666
August 13th, 2009 at 8:16 pm
Good suggestion. Thanks.
August 21st, 2009 at 2:03 am
[...] How to sell a startup – how to get buyers interested – selling a startup – strategy – Link. [...]
August 27th, 2009 at 2:37 am
I have a site, http://www.smart-wax.co.uk which I would like to sell, I have no idea where to start.
September 8th, 2009 at 9:01 am
thank you for all the wicked awesome articles VERY helpful, it might be your kick butt last name (most likely)
November 8th, 2009 at 10:46 am
At my website size I think that Flippa.com is not useful for finding a good buyer ….so I have a problem.
November 8th, 2009 at 5:46 pm
At my website size I think that Flippa.com is not useful for finding a good buyer ….so I have a problem.