If you have ever pried open something by jamming a piece of wood in one end and applying pressure to the other, you know that leverage can give you more power than usual.

When you’re preparing your business to be sold, assuming you have an attractive asset, you have lots of negotiating leverage. You’ll be courted and discussions will build to a crescendo punctuated by a Letter Of Intent (LOI) presented by a buyer(s).

Your LOI(s) will likely have a “no shop clause” which means, provided you accept it, you must stop negotiating with other buyers. This exclusivity arrangement is the M&A equivalent of getting engaged — you’re not married yet, but you need to act like it.

The moment you sign an LOI, the stick slips out of the crack. The buyer knows you’re committed, but weaker than before and they may use that to their advantage. This would be ok if your fiancée were acting in good faith. Some do, but others don’t. I spoke to a corporate lawyer a while ago and asked him what percentage of the time a deal gets discounted between LOI and closing day. His response: “is there a number higher than 100%?”

The problem is that some professional buyers (strategic acquirers, sophisticated financial buyers) use an LOI to kick your stick out of the crack on purpose. Knowing you’re weakened, they start to change the terms of the deal in their favor: a longer earn out, a bigger escrow, less attractive employment agreement, lower upfront payment — I’ve heard them all.

Last week I spoke to Peter Lehrman, the CEO of AxialMarket which is an online marketplace for businesses for sale. Lehrman offered seven strategies for keeping your stick wedged in the crack after you sign an LOI. You can read his advice in the first two articles I wrote on selling a business below.

(photo courtesy of Flickr/ Neilwill)

Protecting your company’s value during a sale

~ published November 9, 2010 Globe and Mail

If you have ever promised your child a treat in return for good behaviour, you know all about negotiating leverage.

When selling an attractive business, you also have leverage—up to the point that you sign a letter of intent (LOI), which almost always includes a “no shop” clause, forcing you to terminate discussions with other potential buyers while your newfound “fiancé” does due diligence before handing over the cheque. »more

Don’t let lengthy negotiations depreciate your business

~ published November 10, 2010 Globe and Mail

I once asked a corporate lawyer – a veteran of hundreds of company sales – what percentage of the time the sale price of a company gets discounted between when the buyer and seller sign a letter of intent (LOI), and when the deal actually closes .

The lawyer looked at me thoughtfully and, after a moment of reflection, asked, “Is there a number higher than 100 per cent?” »more

The suit who thinks your baby is ugly

~ published November 11, 2010 Globe and Mail

Corporate development executives – the big-company suits responsible for buying businesses on behalf of their CEOs – often resemble heart surgeons: you know they’re smart, but their bedside manner leaves something to be desired.

This, of course, becomes a problem when you’re trying to sell your company and the guy or gal on the other side of the table is getting under your skin. Your business is your baby. You gave birth to it, you cared for it when it was young and fragile, and now that it is all grown up, you love it – warts and all. »more

9 Ways to Make Your Company More Valuable in 2011

~ published November 11, 2010 BNET

As you plan for next year, I’m sure you have a set of goals for your revenue and profit in 2011. Have you also got a list of projects that will drive up the value of your company?

Most businesses are valued on a multiple of earnings, so your profits are one key factor in driving up the value of your company, but the other number in the equation is the multiple of your earnings used to arrive at a price.  The more predictable and exciting your business, the higher a multiple you’ll get. »more

The other day I interviewed Pamela Slim, the author of Escape Cubicle Nation, about how to build a company you can sell. One of Pam’s recommendations was to write a “life plan”. I know it sounds cheesy but the more she described the process, the more curious I became.

After my call with Pam, she emailed and said “Have you written your life plan yet?”  Her email really made me think. I dropped out of The Strategic Coach when we moved to France earlier this year, so it has been about six months since I had thought about the “why” in what I do.

I cracked open my MacBook and starting a stream of consciousness memo on how I wanted to see my life unfold over the next few years. Now I look at the plan most mornings and it helps me prioritize my day.

Since writing my plan, I’ve signed up for the Aix-en-Provence 70.3 Half Ironman race coming here September 2011, carved out more time for writing and turned down two advisory roles which could have been lucrative but “off plan”. I’ve enrolled in twice weekly French lessons and have organized a babysitter for a regular Tuesday night date with my wife.

If you’re considering selling your business one day, I think writing a life plan would be a worthwhile exercise to figure out when and how to go about it.

You can read more about Pam’s life plan ingredients in the first of the four articles below on building a sellable company.

(photo courtesy of Escape from Cubicle Nation)

Pamela Slim’s checklist for a fulfilling life

~ published November 2, 2010 Globe and Mail

Fed up with their corporate jobs, a lot of people start businesses for the promise of a better quality of life. But many new owners find themselves trading time for money as self-employed consultants beholden to customers instead of bosses, with no more control over their time.

If you feel stuck in a rut, it could be because your life as an entrepreneur is not measuring up to what you’d hoped it would be. »more

‘Mr. Fix-It’ revives Buffett’s weak firms

~ published November 3, 2010 Globe and Mail

For many business owners, it is annual planning time. A lot of us are in the midst of developing a set of revenue and profit goals for 2011, but, at least according to one executive, you may be better off de-emphasizing annual goals in favour of a 90-day action list and a 10-year business plan, and just ignoring what’s in the middle.

David Sokol has been described as Warren Buffett’s “Mr. Fix-It” because he is often brought in to help revive struggling businesses Berkshire Hathaway has acquired. Mr. Sokol used a 90-day action list coupled with »more

Are you offering your customers the whole egg?

~ published November 3, 2010 Globe and Mail

With sky-high cholesterol, I have taken to eating egg-white omelettes. I long for the days of tender yellow omelettes made with both the yolk and the egg white, but for now, I’m relegated to just the soggy whites.

As business owners, we may choose to sell a service or a product, but I think the most valuable businesses »more

What Would Warren Buffett Find If He Bought Your Company?

~ published November 4, 2010 BNET

When Warren Buffett asked David Sokol to take over NetJets from founder Richard Santulli, Sokol discovered Santulli had built a bloated, dysfunctional management team.

“When [Santulli] started to disagree with his chief financial officer, instead of dealing with it head on, he hired a chief financial adviser — they hated each other,” Sokol said describing the dynamic between NetJets’ competing »more

Last week I did a talk where the emcee introduced me by saying every service business needs to productize to scale up whereas every product company needs to ad service to avoid commoditization. Having run service businesses, I have given a lot of thought to “productizing” a service business but not as much to “servicizing” a product company.

But it makes sense. One of the reasons we’re willing to pay more for an Apple lap top (compared with something comparable from Dell) is the warm and fuzzy experience of shopping at an Apple store.

In terms of “productizing” a service, Jason Fried, the founder of 37signals and the author of “Rework”, had an amazing journey which he describes in the third — and my favorite —  of the four new articles on selling a business below.

How to sell a firm that depends on you

~published October 18, 2010 Globe and Mail

I thought you might be interested in the exchange I had with a reader recently.

Question: “I started a research company 13 years ago after working as an account planner and research director at advertising agencies for more than 15 years. (It was a) one-woman show . . . (and) later my husband joined me. We have worked together for the past decade or so, but kept it a small mom ’n’ pop outfit with the use of fieldwork agencies for support.

“Now my husband has been offered a job overseas, which he is planning to accept. I don’t have the energy to continue… »more

The secret formula used by buyers

~ published October 20, 2010 Globe and Mail

A funny thing happened when I was first approached by someone who wanted to buy my marketing agency: I forgot everything I know about sales.

Instead of listening to the customer and understanding his or her needs, I went into negotiations with potential buyers focused on my needs. I decided I wanted to get a certain multiple for my business but failed to put myself in the shoes of a buyer to figure out what he or she would be willing to pay.

It was a rookie mistake. Any first-year salesperson knows the first step when selling is to… »more

Jason Fried: the service-to-product switch

~ published October 20, 2010 Globe and Mail

37signals started out in Chicago as a three-person web design shop. Co-founder Jason Fried made a decent living but hated the feeling of being beholden to clients: “I found project-based consulting frustrating because we would work on a site for months and hand it over to the client, who would inevitably make changes and drag us through their politics. It was rare that what we actually built saw the light of day.”

Fried and co-founder, David Heinemeier Hansson, continued to serve their clients, but as their projects grew larger and more complex, they found themselves looking for a piece of software that could help them better… »more

Your Business, Your Rules

~ published October 21, 2010 BNET

I had dinner the other night with a business owner who was having trouble getting paid for his work. His company provides a service to other businesses and issues hundreds of small invoices of less than $200 each a month. The problem: At the end of each month, he looks down his list of receivables and typically sees 20 or more deadbeat customers that are more than 90 days late in paying. He then has to dispatch his bookkeeper to chase down his money.

I suggested he start processing customers’ payments on a credit card instead, reasoning that the 2 percent merchant fee would be worth it given the time and energy… »more

Are you using Facebook and Twitter to promote your business?  If so, one of the questions you’ve already, or will face is whether to promote yourself personally or your company. For example, should your Twitter address be @JoeBlow or @JoesLawnCare? Likewise, should you use a personal Facebook profile to promote your business or create a Facebook “fan page”?

As trivial as the question may seem at first, I think the brand yourself-vs-your-company decision has real economic implications. According to Forbes Magazine, Oprah has a net worth of $2.4 billion largely because of the personal platform she has built.  The Oprah Winfrey Show has 75,000 followers on Twitter, O magazine has 106,000 followers, Oprah Radio has 25,000 followers. Oprah herself has more than four million followers.  I wonder how the Forbes researchers valued the power of her personal brand? Is Harpo (her holding company) worth much without Oprah as its chief pitch person?

Tim Ferriss on why you should stop wasting time on branding yourself

For answers I spoke with Tim Ferriss this week who, as the author of The Four Hour Work Week, has a six figure Twitter following and one of the best-read blogs on the internet. I asked Ferriss whose new book The Four Hour Body comes out later this year, why he never used his personal brand to promote his business BrainQUICKEN, which he sold last year:

WARRILLOW: You have one of the best-read blogs in business with hundreds of thousands of followers yet you rarely used your personal platform to promote your business.  Why not?

FERRISS: Unless you’re in one of a handful of businesses like public speaking, I think managing and growing a personal brand can be a huge distraction for company founders. I see all of these entrepreneurs trying to collect Twitter followers and it reminds me of a matador waving a red flag in front of a bull.  In this case, the founders are the bull. The bull fighter moves away the flag and the bull comes up with nothing but air.

Steve Jobs has a personal brand but it is Apple’s product design that makes it such a valuable company.  He isn’t jumping on FourSquare to develop his “personal brand”.

I’ll use my Twitter feed (@JohnWarrillow) to let you know when the full article with Tim comes out but in the mean time, it’s interesting to see how Gary Vaynerchuk approaches personal vs. business branding differently.

Could Oprah and Gary Vaynerchuk both be wrong?

Vaynerchuk is the guy who wrote Crush It! Which chronicles how he took his father’s corner liquor store and transformed it into a global wine retailing business leveraging tools like Twitter and Facebook.  In our interview, Vaynerchuk explained how he took the opposite approach from Ferriss and branded himself ahead of his company:

WARRILLOW: You’ve built an amazing personal brand, but was it a mistake to promote yourself over your company?

VAYNERCHUK: I know if I stopped hosting Wine Library TV, we’d probably lose 75 per cent of our audience, but the remaining 25 per cent is still a big number.

WARRILLOW: I think business owners reading this would be horrified at the thought of losing 75 per cent of their customers.

VAYNERCHUK: I understand, but look at the numbers. The average liquor retailer in the United States sells for 30 cents for every dollar in revenue, so a $10-million liquor retailer is worth around $3.5-million. I’ve been offered $2 per dollar of revenue for my business, so I’m confident the value of my personal brand is accruing to my business as well.

If people are worried about undermining their business value by promoting their personal brand, they are not thinking big enough. Look at Oprah or Martha Stewart or even Martha Stewart’s chef, Emeril Lagasse, whose business interests she (Martha Stewart Living Omnimedia) just acquired for $70-million.

My Opinion: decide how you want to spend the next 20 years

Vaynerchuk and Ferriss are two wildly successful guys with two very different approaches to marketing themselves personally vs. their business interests.  So what’s the right answer?

I think it comes down to how you want to spend your time in the next chapter of your life. If, like Vaynerchuk and Oprah, you like bringing your personal brand to a variety of different businesses projects and philanthropic causes, then cultivating a personal brand ahead of any one business gives each new project you undertake a head start.

In contrast, if your goal is to sell your business and ride off into the sunset or do some anonymous angel investing where your contribution is your brain not your brand, then pouring your marketing resources into promoting your company will likely get you a higher price for your business.

What do you think? If your goal is to sell your business one day, should you brand yourself or your company?

As you ponder that, here are two new article I wrote this week on selling a business…

Don’t be boring, follow Jeremy Gutsche’s advice

~ published September 28, 2010 the Globe and Mail

Predictability is one of the most important attributes of any business. Owners, investors and acquirers all want a reliable stream of profits well into the future.

But almost by definition, predictability can be boring, and those same owners, investors and acquirers want to see growth, which usually comes from selling new products and services, and winning new customers. »more

Why You Need to Sell Less Stuff to More People

~ published September 23, 2010 BNET

Are you trying to grow by selling a lot of stuff to a few people or one thing to a lot of people?

If you want to sell your business one day, I’d encourage you to consider selling one thing to lots of people. In fact, if any one of your customers represents more than 15 percent of your revenue, it may be time to diversify.  Being overly reliant on one customer is not just risky now, but it will also discount the value of your business when you’re ready to sell it down the road. »more

(photo of Timothy Ferriss courtesy of UK Telegraph)

(photo of Gary courtesy of Gary’s Facebook page)

One of the things I like best about writing is the chance to interview interesting entrepreneurs. This week was exceptional as I chatted with Seth Godin, the author of 12 bestsellers and Gary Vaynerchuk of “Crush It!” fame.  Below are some of the highlights of our conversations on building a valuable company.

Seth Says….

I asked Seth about his book The Dip which describes the loss of energy entrepreneurs feel as the honeymoon period of starting a business gives way to the long slog of actually building a company someone would buy.

Seth shared a little known story of a business he quit just before it would have been sellable. He used to publish a directory of law firms and he got tired of the business when things got tough and punted which he describes as a “big mistake”.

After the directory business, Seth went on to create Yoyodyne, which was ultimately acquired by Yahoo! in 1998. Seth lasted a year at Yahoo! before leaving to write books and start Squidoo.

I asked Seth for his thoughts on differentiating between being in a hopeless business and a natural dip. His advice was to find other milestones that suggest you’re not just riding a dead horse. For example, despite almost missing payroll a few times, Seth knew he was on to something with Yoyodyne because his contract value kept going up; from ten thousand dollar projects to hundred thousand dollar projects to finally landing some seven figure deals. So despite troubles in other areas of the business, his average contract value was a solid indicator that things would improve at Yoyodyne.

I’ll let you know when the full article with the working title “Seth Godin: building a valuable business without losing your soul” comes out in the next few weeks.

Gary V…

As if chatting with Seth wasn’t enough, I also got a chance to talk one-on-one with Gary Vaynerchuk for a story I’m writing on the perils of building a personal brand that eclipses your business’ brand.

By way of some background, “Gary V” —  as he is known by his fans — started in business working for his Dad’s liquor store. He noticed an opportunity to sell wine to novices and among other things created a video blog called Wine Library TV. Gary promoted his new show through Facebook and Twitter and ultimately became one of the first entrepreneurs to capitalize on the economic potential of social media.  He then wrote the book Crush It! to reveal some of his social media wisdom and it became a New York Times Bestseller.

I still have to finish the article, but one factoid I thought you’d like was about the value of Gary’s wine business.  According to Gary, the typical alcohol retailer sells for thirty five cents per dollar of revenue (in other words, a store generating $10 million in annual sales would be worth around $3.5 million). In contrast, and as a testament to his marketing savvy, Gary has been offered two dollars per dollar of revenue for his company. It just goes to show what hype and savvy marketing can do for your valuation.

I’d like to include some quotes from other entrepreneurs who have grappled with the same issue in the story so if you have an opinion on how building a personal brand at the expense of your company’s brand effects your valuation, please use the comments section below.

I’ll post the Seth and Gary V interviews to my Twitter feed @JohnWarrillow in the next week or so. In the mean time, here are a couple of fresh articles from this week on creating a business you can sell:

Ready to sell a business? Don’t make this mistake

~ published September 7, 2010 The Globe and Mail

Recently I wrote that the private equity company Riverside Group closed only 15 of the 4,228 acquisitions it considered last year.

Why such a high failure rate?

“The number one reason deals fall apart is missing your numbers,” says the chairman of Beringer Capital, Perry Miele, who makes his living buying, selling and occasionally investing in companies in the marketing, communications and media industry.   »more

Why this profitable company failed to sell

~ published September 8, 2010 The Globe and Mail

A top-line growth rate will garner interest in your company from potential buyers, but if you buy that growth with lower margins, you may end up sabotaging your deal.

The first part of this two-part series looked at why so many acquisitions fall apart. As an example, private equity giant Riverside Group closed just 15 of the 4,228 deals it worked on last year. »more

How an Inc. 500 winner lost everything

~ published September 9, 2010 The Globe and Mail

Jere Thompson Jr. sells electricity. A lot of it.

With the help of 70,000 independent agents, Mr. Thompson has built Ambit Energy into the fastest-growing private company in the United States, according to Inc. magazine’s 2010 rankings.  »more

Decoding the Secret Language of Angels, VCs, and Eric Schmidt

~ published September 9, 2010 BNET

Whether you’re a start-up looking for Uncle Oliver to give you some love money, a technology company seeking a venture round, or a growth business hoping to get noticed by Google CEO, Eric Schmidt, you need to know the language deal makers use when making investments and buying companies.  »more