This week I spoke with the Chairman of a boutique private equity firm who invests in media businesses. He is in the midst of exiting his last of five investments in a mini fund he created and boasted that their worst investment delivered a 2 X return for his investors. Great for his shareholders, you might think, but what about the five entrepreneurs who gave up their sweat equity so he could treat his investors to such glorious returns?

Professional investors  (private equity, venture capitalists etc.) offer business owners one important — yet often overlooked–  currency beyond their money: they know how to sell a business.

My friend and venture capitalist Sam Ifergan (you can read my two part interview with Sam on what he looks for in an investment here )  just exited his investment in Visualsonics by engineering a sale of the company for $75 million. From the moment Sam invested his firm’s money, his eye was on how to build the company to a point where it could be sold.

To be sure, there are downsides to taking other people’s money. I was reluctant to take on outside investment in my last business, but as I have met more money men and women in the process of writing and promoting my book, I have become more posiitve about the role they play in helping business owners get out.

The money men and women know how to package your business so that it will be attractive to investors; they are two degrees separated from just about anyone with the money to buy your business; and they are coldblooded negotiators which is handy when they are on your side of the table.

If you’re going to play with the pros, it helps to know their motivation. Kind of like signing a free agent solely focused on winning a championship before he retires, I have found that professional money people have only one goal: to maximize the return on their investment for themselves and their partners. To win at this game, they need to buy a slice of your business for as little as possible, using as much debt as they can scrounge up,  and sell their stock fast for as much cash as possible.

As long as you know Return On Investment is their goal — and that they’re not trying to build a legacy, create a culture, win awards, help the homeless — then I think you can use professional money to your advantage.

I’d love to hear your thoughts. Do you think it is worth selling a piece of your business to a professional investor so you’ll have a ringer on your team when it is time to sell your business? Please use the comments section in my blog to tell me where you stand.

While we’re on the topic of your equity, the first of the two new articles below provides an alternative incentive scheme you can use to avoid giving up equity to employees when preparing your business for sale.

(photo courtesy of PocketAces)

Should You Share Equity With Your Employees?

~ published BNET August 25, 2010

Offering stock (or options) is a great way to attract and retain key employees, but it can be risky and expensive. Before you do it — and regret it later — consider this alternative.

The first time I was tempted to share equity in my ad agency was to attract a creative director I’ll call Alison. »more

RIP to RFPs: Why You Should Stop Chasing Bids for Business

~ published BNET August 26, 2010

Requests For Proposals (RFPs) are the business owner’s enemy.

I think they commoditize a category down to the point where the only way to win a contract is to be the lowest cost provider. As a result, the companies who use RFPs to pick vendors get what they deserve: crappy, cheap work.  »more

I owned a business called “Warrillow & Co.” and our product was “The Warrillow Subscriber Network” and our biggest marketing program was “The Warrillow Summit”.  When the Warrillow in Warrillow & Co. decided to sell his business, things got tricky, which is what I wrote about in this article.

This week one of my fellow columnists at BNET, Donna Fenn, wrote a counterpoint to my article suggesting that a family name could be a good company name.  She used the example of Joel Bomgaars who started a software company called Bomgar, which is an anglicized derivative of his Dutch surname. Donna points to Bomgar’s success – they have been on the Inc. 500 list for two years running– as proof a family name can work as a company name.

Donna’s article forced me to refine my thinking on whether or not a surname is a good company name if your ultimate goal is to sell your business. I think Bomgar’s name works primarily because it is not immediately obvious that it is a family name. Bomgar sounds like a funky piece of technology and it is a little fun to say. Kind of like “Toyota” rolls off the tongue with a sense of playfulness which is why I think it worked for Kiichiro Toyoda.

Thanks to Donna, I would also now draw the distinction between naming a service and product business. Bloomberg as a company name works because the Bloomberg terminal is a thing that separates the business from Michael Bloomberg the person.

If you’re stuck with your surname in your company name, my suggestion is to focus on building product brands that eventually surpass the prominence of your company name.  The brothers Johnson & Johnson started the business but we have become even more familiar with their products like Tylenol and Band-Aid.

If you have a service business and a traditional surname like “Robertson” or “Smith” in your company name, I think it can be more difficult to separate yourself personally when it is time to sell your business. What do you think?

I got slammed in the comments section of an article I wrote yesterday with the title “Do You Love Your Business As Much As Hugh Hefner does”. Last year Hefner told The New York Times that “If I sold it (Playboy Enterprises), my life would be over” and I used Hefner’s quote as a hook to write a piece about how much my business had become part of my identity until I almost lost both in 2004.

The comments mostly accused me of being an egomaniac. Here’s a little sampler:

“The writer must get paid by the number of clicks on the link. based on the pic, I thought it would be a good story about Hef and the challenges of the Playboy brand today. Instead, and very boring story about the writer himself. No wonder the key employee left.”

“A clue to this man’s ego is that he the company after himself. That he writes about himself as “news” demonstrates further this egoist does not deserve the title of journalist.”

When I write, I try to remember the suggestion I got from Entrepreneurs Organization (EO) about 10 years ago, which was to share experiences instead of providing advice. That’s why you’ll notice most of the articles below feature me as the protagonist. I understand why some people see that as narcissistic.

I still don’t like criticism but I have become used to it through the process of building a business to sell. First, my employees criticized my obsession with standardizing our offering and agreements. Later on, in the management presentations I conducted with potential acquirers, the MBAs poked holes in my business model. Eight of the toughest questions I got from prospective acquirers are featured in the first of the three new articles I have selected for you below:

Eight questions you’ll get when you’re ready to sell your business

~ published August 3, 2010 the Globe and Mail

One of the most intimidating parts of selling my last business was facing the barrage of questions during the various management presentations I did for companies interested in buying it. Each meeting had a different vibe, with each potential acquirer keen to dig into various aspects of the business.

Based on my experience in the hot seat, I’ve prepared a summary of some of the questions you’re likely to get when you’re ready to sell your business.  »more

Re-energize your business by preparing to sell

~ published August 4, 2010 the Globe and Mail

Recently a reader wrote the following comment about one of my articles:

“If you are running your business with one eye looking at selling it to someone else, how much passion and dedication are you putting into it?”

Respectfully, I have to disagree with what the reader is suggesting. »more

3 Reasons Why Your Name Isn’t a Good Company Name

~ published July 30, 2010 BNET

Be careful what you name your company, it could come back to haunt you later.

The first time I was threatened with a lawsuit, I had been in the business for only three months. I had hastily chosen the name “Brass Tacks Communications” for my market research business without doing my homework to see if somebody already had that name. Sure enough, there was another Brass Tacks Communications offering marketing services in my city. »more

(photo courtesy of Hugh Hefner Pictures)