coaching

View on separate page

Transcript

Alex McClafferty: When you sell your company, what some people don’t understand is that you let go of a piece of yourself because you’ve put so much effort and time and love into the company. It’s quite an emotional rollercoaster.

 

Joe Casabona: That was Alex McClafferty. He has a wealth of business experience to share with us this week. Not only did he build a successful business within the WordPress space, WP Curve, but he ended up selling it to GoDaddy. That experience, which we’ll talk about, showed him that the number of resources for selling your business were scarce. Now he’s creating those resources, completely embracing the teach what you know mentality. We’ll get into all of that and more. But first, a word from our sponsors.

 

Break: This episode is brought to you by our friends at Ahoy! The easiest way to increase customer engagement on your WordPress site. Install Ahoy! Create a message box, configure a way to display it, and start seeing conversions come in. You can create messages for cart abandonment, up-sales and cross-sells, custom support, and so much more. Ahoy! Has flexible conditions that let you choose exactly where and when you want your message to be displayed. I’ve recently installed it on my own WooCommerce site, and I’ve already seen increased engagement. I know this because of Ahoy! and it’s powerful analytics and reporting. You will see ROI within days of installing Ahoy! If not sooner. That’s even more true for listeners of How I Built It. You can get an exclusive 20% discount on any plan. Visit UseAhoy.com/HowIBuiltIt and use the code HOWIBUILTIT at checkout. Use those today and increase your engagement in sales on your WordPress site. Thanks to Ahoy! for their support of this show.

 

Joe: Hey, everybody. Welcome to another episode of How I Built It, the podcast that asks, “How did you build that?” Today my guest is Alex McClafferty, a CEO coach of Productize.co. Alex, how are you today?

 

Alex: I’m great, thanks for having me on.

 

Joe: Thanks for coming on the show. I appreciate it. Based on your accent, I’m going to say that it is later in the day for you? Maybe it’s early in the morning for you now?

 

Alex: You know what? I’m actually in Arizona.

 

Joe: So it’s earlier.

 

Alex: We might be in the same time zone.

 

Joe: I think there is a 2 or 3-hour difference, depending. I’m on the east coast of the United States. That’s what I get for assuming. Is your accent Australian?

 

Alex: Yes. You got it. I’m glad you didn’t say New Zealand.

 

Joe: I think at this point, I can differentiate between the two because I’ve gotten in trouble for that before.

 

Alex: We’re a little bit precious about that, for sure.

 

Joe: Yeah, absolutely. I imagine it’s like if– I’m from New York if you accused me of having a Deep South accent I probably would take some offense to it. Not real offence, of course. We’re not here to talk about accents. We are here to talk about building and selling WP Curve. WP Curve was a product or service that you had that you then sold to GoDaddy, is that right?

 

Alex: Yeah, that’s correct.

 

Joe: Awesome. Why don’t we start at the beginning with a little bit about who you are and what you do?

 

Alex: Yes. Today I’m working with a bunch of different entrepreneurs, founders, and CEOs who are building and scaling their businesses. The reason that I do that is because when I was going through building, scaling, and then selling my business, I wished there was someone that was doing what I did. I couldn’t find anyone. I could look for advisers, and I could look for blog posts and those things, but I didn’t know of anyone that was boots on the ground that could serve the stage in the phase of the company that I was in. The quick summary for my background is in 2013 I co-founded WP Curve with an Australian co-founder, I was based in San Francisco, and he was based in Australia. We grew it for 3 years and then sold it to GoDaddy. GoDaddy came by way of introducing themselves to us, talking about a partnership. Then that escalated into the talk of an acquisition. End of 2016, the company was acquired. Later on, probably late 2018, I resigned from GoDaddy and went full time to coach founders and CEOs. The way I explained it is “I have the best job in the world. All I do all day is help those folks solve their business problems.” I get to do it face to face. I get to do it over the phone. It is a whole ton of fun.

 

Joe: That’s fantastic. I like that what you’re doing today is something that you wish you had when you were going through it. That’s often how I start a lot of my online courses or even blog posts, educational material. It’s stuff I wish existed when I was doing it. I think that’s cool. You co-founded WP Curve in 2013, for those who don’t know, what does– What did or does WP Curve do?

 

Alex: We did 24/7 WordPress support. The premise of the service was basically if you had WordPress, you would get frustrated with WordPress, trying to change a theme or update a plugin or do some CSS. We had a team of developers that were on standby that could solve that problem for you. Very simple monthly subscription model where you would have a headache or have a problem submitted to our team, we’d turn it around really quickly and then let you know that it was fixed. The reason that I was interested in that type of business is that I dealt with WordPress months and months before deciding to partner up on the business. I realized how frustrating it was. Anyone that knows WordPress knows that it’s a bit of a nightmare of a platform to get your head around and you need some level of technical expertise. When I had my headache of trying to update an image that was in a blog header, and then it looked worse off 4 hours after me tinkering and tweaking it, I figured there’s probably a lot of other people out there that have the same feeling, the same problem. It turned out there was. It was a painful problem, an annoying problem, but we tried to take the headache out of WordPress.

 

Joe: That’s fantastic. I feel like you hear echoes of people saying, “The great thing about WordPress is it’s so easy.” It’s easy if you, just like anything, if you’ve been doing it for a long time. Sure, it comes easy to you, but I think that with 5.0 out it’s a little bit easier for new users. There’s a lot of stuff that you need to know about WordPress. There are a lot of unique problems because there are so many themes and plugins and ways to add content that it’s almost like being a mechanic. There’s not just one model of car that you can work on, there’s tons of models of cars, and they all work the same way, but a little different. It could be frustrating.

 

Alex: The reason that this service was sticky and the people raved about the service was because the pain was so great. They would get that frustrated and that upset with dealing with, I don’t know, like a hack site or some conflicts that they’d been working on for hours and hours. Or they’d go to a marketplace to try to get the problem solved. Then they’d have to send all of their credentials across to a developer. The developer would disappear for two or three days and then come back, and the site would be worse off than when they started. I was stoked to see customers that we had would say, “I love your service.” They were using the word “Love,” which to me was a good indicator of product-market fit. When people rave about it and get emotional, which is cool.

 

Joe: That’s fantastic. One of the important things about having a product or a service is defining the problem that you solve for your potential customer. I made this mistake up until very recently. I think a lot of people make the mistake where they tell you, “What is this thing? What does it do?” But really, you want to tell the customer the problem you’re solving. With WP Curve, it sounds like the problem revealed itself with a vengeance and WP Curve solved that problem.

 

Alex: It was really clear. What I look for in products that become sticky is that it solves a problem that elicits some emotion out of someone. Something like WordPress makes you that frustrated, makes you that upset that you will pay, at some levels, an inordinate amount of money to have the problem solved. We didn’t push too hard on pricing or doing any pricing around urgency or severity of fix for the problem. People will pay hundreds of dollars to have that problem solved because it just gets people so upset. For anyone out there that’s listening to this trying to hone in on a pain point to build a product or service, look for emotion. Look for upset people who are complaining in forums or taking to Twitter and just ranting, that’s usually a good signal.

 

Joe: That is excellent advice. It flows perfectly into what I like to ask next, which is about research. You mentioned, with WP Curve, that this was a frustration that you experienced personally. How did you know that this was a service that went beyond what you experienced and you knew that it would be a good business model?

 

Alex: I used some rough approximations. I figured that I was technical enough to be dangerous, but didn’t have a high enough care factors to figure out how to learn HTML and CSS. I tinkered for a while, but my working assumption was that there would be at least a thousand people in the world out there who were in a similar position to me. That was at a level of expertise, which was like I could set up a blog, I could write posts, I could like make some tiny updates. Anything beyond that would be too time-consuming and frustrating to learn. I was messing around with a personal blog that didn’t even generate any income. Looking out at the market. Look at how many web design agencies there are. There are already people doing some level of retainer support. Before us, there were a couple of companies like Maintain, WP Valet, WP Site Care, a couple other folks. What we looked at to do was figure out how to have a scalable model, to be able to serve thousands of customers. That came back to how the business was built, as far as having a remote team and figuring out processes and systems that enabled that.

 

Joe: Yeah. That’s great. Having 24/7 access requires a team around the world, right? Or at least a big enough team that people are willing to work the night shift in some cases. What was that like, exactly? Remote teams are something that’s becoming increasingly popular. It sounds like you decided to build one right from the outset.

 

Alex: Yeah. The interesting part is I’m a real people person, and I love being face to face because I’m a big personality and I love bouncing ideas off people and getting energized and being in a room and coming up with ideas of how to build and grow a business. It took me a couple of years to figure that out about myself. It was great to build a remote team. We had probably like 70 or 80 percent of the people that were based out of the Philippines. Then we had a guy in Costa Rica. We had a couple of folks in Africa, Hungary, a few other countries. What was fun about that was seeing the diversity and the cultural melting pot that was the Slack channel, because you’d have all of these different cultures, all of these different points of view and personalities commingling. It was just fun to sit back and watch this big social experiment. Part of the things that I learned about building a remote team is that the culture– you have to basically triple down on the culture, because you don’t have the opportunity to stand around the water cooler and have those conversations or get that interpersonal connection that you have when it’s a physical thing in an office. You need to figure out ways to recognize your people and celebrate their success and do all of those good things but in an online fashion. We used to goof off with stuff, and if it was a team members birthday, we’d have the entire team sing them happy birthday and record it on YouTube and then send them a link to a playlist. People would lose it. It’s just little things like that would get people super engaged. I think that was a huge learning. Ultimately, what I found for myself is that I love to be face to face with people, and I can help people build remote businesses and help them grow remote businesses. My personal skill set is being face to face. I can rock out all day and hang out with someone and jam on their business.

 

Joe: That’s fantastic. I feel the same way. One of the reasons I have this podcast is because I like talking to people. I’m a very extroverted person, and I’m self-employed and work from home. It can get a little bit isolated. But having that personal connection, no matter what you do, is incredibly important. As you decided, you knew you wanted to build this highly scalable business, and you created this remote team. Then over the course of three years, you built it to a point where GoDaddy came to you and said “We think what you’re doing here is special.” They were interested in an acquisition. What kind of research did you do around that? How did you figure out if you were getting a good offer and stuff like that?

 

Alex: That was a crash course in mergers and acquisitions. The first thing that I did was I bought a book off Amazon. I think it’s a 400 or 500-page book. I basically sped read that across a weekend, to get myself up to speed and familiar with all of the terms and all of the conditions and all of the different vernacular that was used as part of working through the deal process. If you’ve seen the scene in The Matrix where Neo gets this information uploaded to his brain, I basically did that with M&A, where I went into vacuum mode and tried to consume as much information and as many blog posts and things as I could to get my head around what would be a workable deal. What would a good valuation be? What would make everyone happy? How would I make sure the team was taken care of? That was a five-month process. As soon as there was an opportunity to engage on that level, I dropped everything else that I was doing and worked on that deal for that period of time. I’m super glad that I did it, because now with the business that I run today I have helped a couple of folks through their acquisition and through the process, helped them get more money on the table, helped them navigate the turmoil that comes with going from a small company to a big company and all of the change that’s associated with that. Also supporting founders through the back of that, because when you sell your company what some people don’t understand is that you let go of a piece of yourself. Because you’ve put so much effort and time and love into the company that it’s quite an emotional rollercoaster. I’m very sensitive to that now. I’m stoked that I get to share that wisdom and pass that on in whatever form I can with the folks that I get to work with.

 

Break: This episode is brought to you by Pantheon. Starting a new project? Looking for a better hosting platform? Pantheon is an integrated set of tools to build, launch, and run websites. Get high-performance hosting for your WordPress sites, plus a comprehensive toolkit to supercharge your team and help you launch faster. On Pantheon, you get expert support from real developers, best in class security, and the most innovative technology to host and manage your websites. You can sign up a new site in minutes with a free account, and you only pay when it goes live. That is my second favorite feature to Pantheon, only to the easy ability to create dev staging and live servers and push to GitHub. It’s very easy to set those things up on Pantheon, so you can head over to Pantheon.io today. Again, set up a free account and pay only when it goes live. Thanks so much to Pantheon for their support of this episode and this season of How I Built It.

 

Joe: When I was in college, this place approached me to buy a couple of Facebook apps that I wrote. It was modest offers, what they offered was more than I was making, but I couldn’t relinquish control of this little application that I wrote. I’m sure if they offered me enough, I would have said yes. It’s just very interesting. I’m sure there are a lot of emotions in that process. You’re excited and nervous and, like you said, you have to let go of some piece of yourself when you make the sale.

 

Alex: Yeah, totally. The thing that I advise people on today when they get into the acquisition process is basically, “The deal is not done until the money is in the bank.” At any point, up until you see the dollars in your bank account, I assume that it’s not going to go through. That’s not in a way where you dismiss it and say, “This is not a chance.” When you start to become attached to the outcome, rather than focusing on working through the process, it clouds your judgment. I’ve seen this a couple of times where you future pace a little bit and you go “Once I have this money, then I can pay off this, or buy this, or do that.” It becomes a real distraction from figuring out, “What do I need to put in place to make sure that the team is successful when they land? What does that integration plan look like? How are we going to support our people through the turmoil of this change?” All of those things. If you lose sight of that, then you shortchange yourself, because one of the weirdly fun parts of going through the acquisition is learning the process. Understanding how a company would run a process to figure out “Who’s the target company in this space? What’s interesting about this company? What levers do we need to pull, once we acquire them, to make it a successful transaction? What are the motivators for it?” One thing I let founders know is that you can pretty quickly become a deer in the headlights when a big company comes and knocks on your door and says, “We’re interested in you.” You get a little bit starstruck, and then you start to see dollar signs, and you get carried away. Ultimately, it’s a financially motivated transaction. I try to level people out with that, which is to remember that “You’re in business. It is nice to get the kudos of having a company that’s interested in acquiring you. If you are going to sell something that you poured your heart and soul into for that period of time, then you need to be measured and patient and disciplined and think about what you want and get clear on the outcome that you’re looking for.”

 

Joe: Yeah, absolutely. As you’re saying this, I’m in the middle of buying a house. A lot of what you’re saying resonates with me on that level. It is a long process. We see a house we love, and then we need to put an offer on it. The seller probably wants more than we’re willing to pay because to them it’s their home. To us, we’re trying to get the right deal. Like you said, the deal is not done until the money’s in the bank. We’re 24 days from closing as we record this. They have accepted our offer. They have accepted our requests for fixes and stuff like that. I’m not confident in saying “I have the house” until we sign that last document in settlement and the lender gives the money to the seller. It’s looking good right now, but I’m still nervous to say, “Yes, we have a house.” Because money is not in the bank yet.

 

Alex: Yeah. It’s easy to get carried away and also emotionally attached to what the outcome could be. See yourself in the house, and you’re going to make all of these improvements, you can see the kids running around in the yard and all that good stuff. It’s easy to walk that path and especially when it comes to an acquisition, because often that’s one of the biggest financial transactions of someone’s life, depending on the scale of the outcome. Emotion is absolutely going to play into it. What I advise people of is not to try and shut down or avoid the emotion, but be super aware of what is driving the decisions that you’re making and how you’re thinking about things. People will come to me, and I’ll become the sounding board, and they’ll say” This is happening,” or “That is happening. How do I think about this?” or “What should I look out for?” I can be the impartial observer and say “Given my experience, being on the sell-side of an acquisition and also looking at some deals from the buy-side of an acquisition, I can tell you that these are probably the things that we’re looking at. Here are some stumbling blocks that you might approach. This is probably the timeline that it will take if things go as planned. These are some signals to look for whether the deal is going to be cold, lukewarm, or hot.” There’s a lot of different angles to look at it from. When you’re a founder, and you’re selling your own company, it’s hard to have that level of awareness because you have tunnel vision on trying to get to the outcome.

 

Joe: Yeah, absolutely. As we get to the title question, I want to focus more on building an acquisition plan. There’s one more point I want to touch on here, which is I suspect most founders think their business is worth more than it is. I have no data to back this up, but if GoDaddy were to come to me and say, “I want to buy your courses.” I would think, “How much money will they give me?” They have so much money, but they’re going to look at the hard bottom line. How much did you make over the last few years? How much can you expect to have made in the next five?

 

Alex: Well, it depends. The answer to that question is, it depends. I think, in short, my experience is founders expectations are often either really on the low side of what’s possible or really on the high side. That’s because they don’t know what the comps are, the comparable sales in their market. A good place to figure this out or a good way to figure this out is to look at similar companies with a similar size and try and piece together data that will help you understand “What is your company worth?” There’s different ways to do this. For online businesses, you can go to website brokerages, and you can go to places like FEI International or FAA International, rather. Flipper, QuietLight brokerage. There’s a handful of these guys that are in the business of buying and selling, transacting businesses through a marketplace. They’ve got their own multiples so they’ll do a multiple of seller discretionary earnings, depending on the business, or they might do a multiple of revenue if it’s a software company. The other X factor in a deal is sometimes revenue, for a company like GoDaddy, is not a huge motivator. What they would look for is, “What’s the potential for scalability of the business?” When I was talking to those guys, the question that I had to answer is “What does this model look like with 10 times the amount of customers, with 50 times the amount of customers, with 100 times the amount of customers? Do I have confidence that I’ll be able to help to take it to that level?” When you look at it from the buy-side, as far as the company that is acquiring, trying to try to understand their motivators of what they want to do with the product. That helps you as a founder to understand how to best position your product for sale. If you think it’s all about dollars and cents and that’s everything that they care about, and what they want is an amazing team that they could maybe point out another product or integrate your product into, understanding what motivates them, I think, is even more important than understanding what motivates you. Because it helps you to think about “If I’m trying to maximize the outcome from this exit, what kind of language do I need to be speaking when I go into these discussions and meetings, and talk to corporate development and so forth?”

 

Joe: That’s a great point. I always look at the bottom line of things. If you along with the acquisition, you’re bringing an amazing team of developers that your acquirer can employ in other places, if you have the best community in a specific space and your acquirer is using that for a jump-off, then that’s the X-Factor or the motivator that you’re talking about.

 

Alex: Yeah. The interesting part is I’ve seen acquisitions that range from anywhere from a couple months’ worth of revenue, to 50 times annual revenue. The spectrum is that large, and obviously, the outliers are towards the far end of that, but as far as a software company goes, it’s reasonable to expect anywhere between three to eight times annual revenue depending on the space, depending on how hot it is, depending on a number of different factors. The other elements that you take into consideration with that is, as far as the deal is structured, do you get all of that money upfront? Are there, earn-outs? Are there performance kickers, other clawbacks? Are there other terms of the deal that you might not be aware of, or might not have visibility of? Someone could say, “I got six times annual revenue.” But they’re locked into a four-year earn-out, and they have to hit performance bonuses to unlock half of that money.

 

Joe: Yeah, that’s interesting. Let’s get into this. You could talk specifically about WP Curve if you can, but if you can’t, we get to speak more generally. How do you build an acquisition deal?

 

Alex: An acquisition deal in so far as like positioning a company for sale, do you mean?

 

Joe: Yes. Let’s say I want to position my company for an acquisition. How would I get to there? Then briefly, what are the things that I should look for when some company approaches me or whoever about getting acquired?

 

Alex: Sure. The thing that I think that every founder should do is they should look– Even have it on their radar, to start to build connections with competitors and to start to build connections with the big boys in the industry. Whether that is the senior leaders at a particular company or other folks that are involved and invested, it’s just starting with networking and getting to know who’s who in your space. As far as reputation goes, that is a big driver of a deal, because when you think about it GoDaddy the company doesn’t buy the business. What happens with my acquisition or any other acquisition is there’s a leader within the business that has a strategy that they need to execute, and then they need to figure out how to marshal their resources to make that happen. What they’ll look for is “I need to add this much revenue to the top line or the bottom line by whatever time period. These are my goals. How do I go about doing that?” What you’re looking for is that internal motivator for that individual. I think what can happen is you look at a big company, and you go “It’s such a big company. I don’t even know where to start.” You start with the individual, start with the person that runs the department, or is a leader in the department or is even in the department to help you to start to build relationships with folks. That would be the place that I would start if I was looking to pursue an acquisition. This is a long time, and it’s a big-time investment because a bunch of different things have to line up for you to even be in the crosshairs to have an acquisition. Other ways that I’ve seen it happen is people will build a prospectus for their company, and they will have and build relationships with corporate development at each of the potential acquiring companies, and say “We are looking to sell. This is what the business looks like. These are the financials. We’re seeking a valuation in between this range. We’re running a process, and we’ve got a handful of other parties interested. Let’s move forward and see if this is something that you’re interested in.” This happens a lot more than you might think. I’ve seen some acquisitions happen where I know that the founder has been looking to get out for 18 months, and they’re trying to figure out a way to exit the business. What will happen is an announcement will come out, and it’ll be like “These guys got acquired. Good for them.” They’d been in the background either working with a banker or working with an advisor to figure out, “How can we exit the business and who are our natural acquirers? Then what do we need to have in place to be made whole from the transaction?”

 

Joe: Gotcha. That’s super interesting. I love what you said about starting with networking because it’s always about that. If people don’t know about you, then they’re not going to buy you. Reputation is incredibly important. Building a prospectus. That’s almost like listing your– If we’re going back to the house analogy that I can relate the most with, it’s almost like listing your house for sale. Saying “I have a company, I want to sell it. Here’s how much I think it’s worth. Is anybody interested?”

 

Alex: Yeah. It’s that simple. Funnily enough, when entrepreneurs get into their first or second business, they’re thinking about sale. I talked to a lot of entrepreneurs. I always ask them what they’re building it for. They don’t usually say, “I’m building it to sell or to make a bunch of money.” We’re that narrowly focused on getting through the next day, or the next week, or the next month, or quarter. We’re not usually thinking that far out. It’s not that it’s a bad thing, it’s just a thing that I’ve noticed with a lot of folks that are early stage. They’re going to be pouring months or years into the business, but they’re not thinking about what outcome they want from it.

 

Joe: Yeah. That’s interesting. That reminds me of business plans. I wrote a business plan for a potential business. It was a business plan competition when I was in college. The last section that we had to fill out was, “What’s your exit strategy?” I thought, “Why would I have an exit strategy?” I’m building this business because I want to have this business. I want to run it. This section implies that I’m going to sell or leave or something. To that end, if people are going to be investing in your business, they want to know when are they getting their payout? If you are a business owner and you grow to a size that’s either too big for you or you want to move on, then it’s something that you should have in the back of your mind, right?

 

Alex: That advice and that point of view is consistent, whether or not you want to sell. If you’re in a business if you’re in a relationship with the co-founder. My recommendation is always have a buy-sell agreement in place, should anything happen. Whether your personal circumstances change, or something happens within your family, that each partner knows, how you will value the business and how you will offload that portion of the business to either another party or the other founder in the business. The way that I think about it is like signing a prenup. It’s not to say that you are expecting the thing to crash and burn, but the same thing applies to having that level of clarity is super helpful, because it keeps everybody on the same page and the same level. Also having an internal valuation for how you look at what you value a company at. If there’s, and this is where other people get tripped up, there’s some inbound interest. They’re trying to figure out “What would a fair offer be? There’s all the emotion flying around because they’re feeling really happy that a big company has reached out to them. All this stuff is happening, and it’s hard to make a rational judgment on what is a reasonable multiple, given their size and the scope and the market. All of those different things that feed into figuring out what a company is worth. If you have a number in the back of your head, and you say “I would be happy with one times annual earnings, or five times, or whatever that number is.” An acquirer comes along and says, “We’re interested, here’s a term sheet, let’s move forward.” It takes a lot of pressure off, and you can start to focus on other parts of the deal versus going “Did I leave too much money on the table? Now I’ve got to scramble to do research to look at comparable deals or other things.” That would be my advice, as far as getting into any business, understanding what’s a reasonable multiple for it? If someone came along and they said “Here’s a check for whatever it is.” Would I be happy with that? Because it just it saves a lot of time.

 

Break: This episode is brought to you by Creator Courses. Do you feel confused and overwhelmed by the amount of tools to help you build websites? Are you worried that you are not using the best tools for the job? Do you feel like you ought to spend more time building and less time researching? Like you, I thought I needed to learn every tool, language, and platform under the sun to be a good web professional. As somebody who’s been doing this for 17 years, I can now tell you, you don’t. Creator Courses offer short focused courses, tutorials, and webinars to help you learn the right tools quickly. Then you don’t have to waste any more time researching, and you can get back to producing billable work, confident that you’ve made the right choice. Now you can access all of those resources by becoming a Creator Courses member. You’ll be able to take any course we offer, including member-exclusive mini-courses on how to use specific tools. You’ll also join a great community, and listeners can get 15% off the already low price by going to CreatorCourses.com/Build. Spend less time researching and more time building. Visit CreatorCourses.com/Build today.

 

Joe: As far as the second part of my question, let’s say now somebody has approached me and they are interested in an acquisition. What are the top X things I should think about? Are they just going to say straight out, “We want to buy your company?” Are they going to court you a little bit and test the waters? What’s the 10,000-foot overview of the process?

 

Alex: It depends on the acquirer and the company. I would say that it’s unlikely that a big company is going to come out and outright say, “We’re interested in buying you.” Because they need to do their due diligence and research on their side to understand “Who are the founders? What is the team like?” It often starts as “Let’s explore a partnership. Let’s see how we can work together.” That’s probably the introductory phase. When that happens, it’s unlikely that you’re the only person that’s being reached out to. You can get a little bit starstruck and feel like you’re Cinderella going off to the ball, or whatever else. Oftentimes there’s 5, 7, 10 other companies that are having the same conversation with the company. As you think about that, my advice to people is to try and understand what the motivation is for getting the deal done. Hone in on “Why does the company care? Why are they pursuing us? What does it mean to their business?” Understand what success is going to look like for them? Instead of worrying about all the things that you want, you care about, actually try and dig into questioning, “How would this look if this was to come off? What’s the business benefit of pursuing this acquisition? How big do we think we can grow that business?” The reason that matters is because it gives you something to anchor towards, as far as what the value of the company is going to be in the eyes of the acquirer. Assuming that you’re past that stage and that dance of “Let’s maybe partner, it looks like there’s something more here we can explore.” Then remember that if you are going down that path on the buy-side of the deal from the acquirers point of view, they have a model in place. They know what they’re willing to pay. They’ve got a range which they will work within. It’s not a guessing game. They have a spectrum. The first offer is never going to be the offer that you should take. That takes a little bit of courage because you do you see a big number on the screen. Then you go, “I’m going to say no to that. Am I crazy?” That’s just how negotiation works. If you’re not comfortable having that conversation, then that’s the time to engage a professional, whether it’s someone that works on deals, or is a commercial banker, to be able to go in and negotiate on your behalf. As far as it goes getting into the deal and looking at these different elements, there is the courting. There is whether there’s going to be an offer in between some of that. There’s going to be “Let’s talk about some of the history of the business.” I advise people not to give away all of their information until you actually have a term sheet and you’re actually in the process of due diligence. This is another common mistake that founders make. I’ve seen prospectuses that people have put together, which are long and detailed and give away all of the secret sauce of the business. Unfortunately, there are some companies out there who will– it’s basically information gathering. They will say, “We’re interested in partnering, or we’re interested in acquisition.” They’ll get you hot and bothered and learn about the ins and outs of your business, and then it’ll immediately go off the boil. You’ll be like “Huh, that’s weird.” We experienced that, as well. I went through that with another company, and I’ve seen that happen. It’s a theme. Keep your eyes on the prize and remember “It is a dance. It is a slow dance.” Entrepreneurs try to force things and push things quickly. As far as it goes, be patient, don’t expect something to happen. As you work through it, go slowly and move slowly and be patient. It’s hard because when there’s millions of dollars on the table, you’ve got dollar signs in your eyes. It’s hard to hard to go slow.

 

Joe: Yeah. You get excited. Don’t give it all away in the first date, I guess. The first offer should never be the one you take. I think that’s important for people to hear because even though it may look like a gigantic number to you, they are probably giving you the lower end of their range. Not because they’re trying to lowball you or anything, but their job is to make this as profitable as possible for them. Just like buying a house. I’m never going to go in and ask for asking price right off the bat. I’m going to figure out, “What are other homes assessing for?” I’m going to make a reasonable offer, based on that. Then if the seller comes back and says, “We think we can get this much.” Then we negotiate. It could be really hard if you want something.

 

Alex: I never work in absolutes, so the caveat to that is if you’ve got a multiple in mind and then the offer comes in way over multiple of what you’re expecting, then get on with it. That’s the exception to that rule. I don’t know that that often happens. The goal here, if you are serious about the acquisition, is to sell the company. If you get what you need, you can move forward. That’s not a stumbling block. I would say that the vast majority of the time, those early offers are bottom finders. Where it’s enough to get you interested, but then you’re like “That’s not going to work out, so let’s revisit, and we’ll go back and forward with a couple of counteroffers on each side.”

 

Joe: The other thing there is that if they come in with a lower price, now they’re anchoring you to that lower price. It seems like “Anything more than that is a steal for me.” Those are things that you should keep in mind. Maybe it is worth it to engage an objective third party to help you work through that stuff. When they’re offering a number that you’ve never seen in your life before, then it could be very hard to stay objective.

 

Alex: It’s not impossible to stay objective, but you’ve got to be extremely disciplined. You will want to move things quickly because you’ll create your own sense of urgency because you will be like “The door is closing.” This is another thing that happens in a lot of deals, which is pacing. There’s pacing that happens where there’s certain phases of the process where things will speed up or slow down. Ultimately, once you get past a certain phase, which is maybe a term sheet getting into diligence, that is exclusive, and there’s certain terms around exclusivity, and you can’t shop your company anywhere else. According to the terms of the term sheet, or whatever else is in place. You are basically beholden to the process for that window of time. That creates some intrinsic urgency in getting the actual deal done, but you have nowhere else to turn. Because you have committed to not shopping the company anywhere else, so you can stay focused on the deal. The point of all of this is there is a lot of nuance to the process. It is a dance. It is hard to be patient when you’re an entrepreneur. If you get into this process, and you feel like you’re going to get too excited to get too carried away, find someone that’s been down that path before or find a banker or find a coach, find an advisor, find someone that’s had their company acquired and engage them and ask them questions. Again, is just another business process. It’s like a sales process or a marketing process. It’s something that you can learn. It’s not a dark art that only certain few people are gifted with.

 

Joe: I love that. This is definitely something that can be learned. We are slightly over time, but I do want to ask you one more question before we wrap up. Aside from the money side of an acquisition. What are other things that you should look for? I assume that stuff like helping with the transition from your team into the bigger company. Do you have to stay on for a certain amount of time, are there other things that you should think about, other concessions you might have to make, as far as an acquisition outside of money?

 

Alex: It depends on the individual. A lot of acquisitions will come with strings attached, which will be– you’ll be golden handcuffed into a very attractive looking offer, based on staying on with the company for a period of time. That’s a really hard thing for an entrepreneur to stomach because they go from being the master and commander to then working in a company that’s got a completely different culture and a completely different way of doing things. That is totally a consideration, and it depends on the phase of your life. I know entrepreneurs that have been happy to sell and happy to go and take a desk job because they’ve been grinding for  5 to 7 years, and they feel like that’s a break. That’s a holiday from working 18 hours a day, or whatever crazy stuff they’ve been doing. That’s one thing. Also remembering that once the deal is done and the money comes and hits the bank, or whatever the timing of the transaction is. That’s where the work begins. “You’ve sold your company. Now it’s on you to go and make it successful at scale.” That was something that I learned post-acquisition, which was that the first 18 months of WP Curve, I was super involved and super active. I scaled myself out of the business in the second 12 months. Then I came back around and got involved in the deal and then post-acquisition getting into GoDaddy. I had to be all hands on deck to get the business back up and built because obviously, I wanted to be successful and not fail. That’s also a little bit of risk mitigation for the acquiring company, which is to say that the entrepreneur wants their company to be successful and they don’t want it to crash and burn because that’s what happens with a lot of acquisitions. They don’t integrate well. The product gets shuttered. The entrepreneur will leave. For someone like me, I had to commit to relaunching the product, figuring out how to scale it, figuring out how to sell it in a completely different space. I learned a whole lot. I learned just as much before the acquisition as I did after the acquisition because that’s where I truly learned how to scale. Probably the summary of all of that is, take it as a learning experience and go into it with eyes open and look at it as how you can learn rather than what’s different. You’ll be in good stead.

 

Joe: That’s great advice. It reminded me of two competing, very public acquisitions, as far as success and failure. Disney and their acquisition of both Pixar and Marvel has been very successful, but Flicker, every acquisition, it seemed, it tends to get worse off. One that got me was LaLa, and I don’t know if you remember LaLa, it was this online web-based music streaming service where you basically paid 10 cents per play, or you can become a member. Apple bought it, and I’m like “This is great. They’re going to rebrand it as iTunes in the cloud, or whatever.” They just shuttered it. It was like basically an acqua-hire. I was bummed about that.

 

Alex: That happens. I think one happened with maybe it was Google or Apple. There was a calendar app called Sunrise. People were crazy about how cool this app was. Then it just went nowhere, and it disappeared. I think it got shuttered as well. It does happen, and it’s totally a thing. This is what I mean about the strategy. If you don’t understand the underlying reason that you’re being bought, that can totally happen. That can totally happen.

 

Joe: Yeah, absolutely. You just gave us tons of great advice, but I always need to ask my favorite question, which is, “Do you have any trade secrets for us?” What’s this one overarching lesson maybe that you’ve learned in this whole process?

 

Alex: I would say that doing work that you would do for free, is probably a good litmus test to see if that’s something that you would want to continue to do. Whether you’re going to be successful with something. I found myself coaching entrepreneurs for free in 2015, just because I loved it. This was slapping me in the face the whole way along. The WP Curve path. It’s because it filled me up. I enjoyed helping people. If you can anchor into that and figure out what it is that you love and then how to get paid for it. You probably won’t feel like you do any work. I don’t feel like I do any work, because I love the work that I do so much. I don’t know too many people that can say that, especially folks in office jobs who have to follow the TPS Reports, or do whatever other stuff they need to do. Meanwhile, I’m hanging out, chatting to you and talking about entrepreneurship and trying to help people. I love it. That’s probably my trade secret, which is anchor into the things that you truly love and enjoy. Then you will reap the rewards if you keep showing up day after day.

 

Joe: That is excellent advice. I can totally vouch for that, because when I first started making websites, I could not believe that people would pay me to do something that I enjoy doing, like a hobby. Fantastic advice. Alex, thank you so much for spending time with us today. Where can people find you?

 

Alex: They can go over to my site, it’s Productize.co. If you load up the site, jump on my mailing list. I’ve got a couple different resources, depending on the stage and the scale of your business, whether you’re starting out or you’re all the way down the path of potentially being acquired. I’ve got something that I can help you with, and it’s all free content. Get over the Productize.co and check it out.

 

Joe: Awesome. I will link that and a lot of the things that we talked about, in the show notes today over at HowIBuilt.it. Alex, thank you so much for joining me. I appreciate it.

 

Alex: Hey, great to be here. I’ve got to give Jaclyn a shout out to making this connection happen. She is an awesome person. She is at PodReacher.com. I love her work, so I had to make that connection, too.

 

Joe: Awesome. Thank you so much for shouting that out. Jacqueline is also going to be a guest on this show, so be sure to look out for her episode. Thanks so much to Alex for joining us today. I liked his story because it is different from the stuff that we normally talk about. We usually talk about building plugins or a small business. He built up maybe the first WordPress maintenance company and then sold it to one of the biggest hosting companies in the world. He decided to take what he knows and teach it to all of us. His trade secrets are very unique because of the uniqueness of him being on the show, especially the “Understand why you’re being bought” part. You always want to know what motivates someone to act the way they’re acting. The more you can understand about why somebody wants to acquire your company, whether it’s for you and your specific talent, or the brand you build will help you come to a better agreement that works for both you and the potential buyer. My question of the week for you is, “Would you ever consider selling your business?” Let me know by emailing me Joe@Casabona.org or via Twitter @jcasabona. Thanks so much to this week’s sponsors, Pantheon, Ahoy! and Creator Courses. They make this podcast happen. Of course, thanks so much you for listening. If you like this episode, share it with somebody. Maybe they’re going through an acquisition process right now, and Alex’s advice can help. Thanks again so much for listening. Until next time, get out there and build something.