Selling a company is a great way to build wealth but if you want to maximize the selling price, you need to put in some work. In this episode, my guest talks about what buyers are looking for, common mistakes that are made, and how to make the sale a win-win for the buyer and the seller. Please welcome Kison Patel.
[00:00:03.230] – Intro
Payback Time is a podcast about building businesses, wealth and financial freedom. We try to uncover the challenges our guests faced, the mistakes they made, and the steps they took to achieve their goals. The overall objective is to provide you with a roadmap that leads to your own success. Sean Tepper is your host. Are you ready? It’s Payback Time.
[00:00:33.030] – Sean
Selling a company is a great way to build wealth, but if you want to maximize the sale price, you need to put in some work. In this episode, my guest talks about what buyers are looking for, common mistakes that are made, and how to make the sale a win win for the buyer and the seller. Please welcome Keysan Patel Kesson. Welcome to the show.
[00:00:53.060] – Kison
Thanks for having me, Sean.
[00:00:54.340] – Sean
Well, why don’t you kick us off here and tell us a little bit about your background?
[00:00:57.470] – Kison
Sure. Pretty typical founder story in terms of working industry. I spent ten years as an M and adviser, got very familiar with the pain points and challenges aspire to get into the technology space, joined a startup and then pan out, but allowed me to be responsible for managing software engineers. And I was extremely intrigued by the way they were using project management tools to manage developing software. I kept reflecting on my previous experience about wine after revenue. So in 2012 I set out started a company called Deal Room as a project management software product for M and A. And that had a rough beginning. To be honest with you, the first five years were brutally hard. Probably every founder mistake I could make, I endured it and had to learn it the hard way. But it was a good journey. It got us to the right track. We started making traction and when we started working with these corporates the one thing I noticed every time we worked with the new Corporation, they had a very different way of thinking of M and A. It led me to realize that the industry itself had a bigger problem and that it was very isolated siloed that all these there is a lack of standardization and best practices.
[00:02:05.140] – Kison
So when we started podcast in 2017, the goal of it was to enable practitioners to be able to share lessons learned so we can in turn identify what are the proven techniques in the industry. And Lo and behold, they turned into a whole digital media business for us. We had no idea. I thought we were starting a podcast as half hobby and half getting some content marketing going. But since then we’ve been ready to publish a third book this summer on standing up at Mafunction and just about 1500 pages of publicly available content on M and a nice well.
[00:02:37.340] – Sean
Thanks for sharing your background. This podcast, of course, is highly focused on the retail investor in the same community. We’ve got a lot of entrepreneurs, so the entrepreneur is listening. We’re going to talk a little bit about M and A. If you want to build a business, sell the business. What are people looking for? Best practices. This is the episode for you. But first, I do have a few questions about your business. I was looking on your site and it looks like kind of like a B to B sass business. Is that correct?
[00:03:05.530] – Kison
That is correct. Our main target market, they’re large corporations, are typically a billion plus market cap. They’re doing three or more acquisitions a year. And that’s where a lot of inefficiencies come in play. And we provide them a series of training materials so they can adopt best practices and then also software platform. Our flagship solution, Deal Room, that allows them to standardize those best practices. Nice.
[00:03:32.600] – Sean
[00:03:33.080] – Kison
And when did you found this business dealer started in 2012 and then M and A Science 2017 and all rolled up together.
[00:03:39.940] – Sean
Got you. So you’ve been added almost ten years with Dealroom. Nice. How long did it take to find product market fit?
[00:03:46.840] – Kison
That’s a good question. I want to say three to four years. Somewhere in that window.
[00:03:52.830] – Sean
It’s not overnight.
[00:03:54.220] – Kison
There’s like false product market fit. I don’t know if you’ve talked through that, but there are things where you think you have product market fit, and then you come to realization that you really don’t and you keep iterating on it.
[00:04:04.760] – Sean
To dive into that a little bit, why don’t you share your context there?
[00:04:09.430] – Kison
Well, for us, we came out and it started with the first dilemma that feature creep, right? You create an outline of what you’re trying to build and next thing you got 100 different functionality. You’re trying to get features to try and get this software product to do. You’re really trying to build every functionality for everybody. And then when we did that, we said, okay, let’s start at the beginning and we were building a marketplace to source deals, which wasn’t really the core inspiration for starting the company to begin with. We started building it and it was getting traction, but it wasn’t the right stuff and we knew that. So essentially a friend in the industry said, hey, you need to go back and reboot and start from scratch. And this is where we learn to create that feedback loop where you can try to eliminate your biases, go back to the fundamentals, identify the cohorts of customers you’re trying to serve and interview them. Do these discovery interviews to make sure you’re validating the problems you’re trying to solve and you go through that. And then that’s what we did. And we came back to what we’re trying to do originally was build a better solution for managing MMA itself.
[00:05:14.540] – Kison
The core part, due diligence integration. We got to Mark we thought we had market fit when we started getting customers and they were investment banks. But as we progressed, we kept identifying these challenges. When it came to really scaling our competitors had deeper pockets. They would deploy their sales reps with expense cards and they could go out. They could take the clients out, wine, dine them in that industry. The senior leadership weren’t incentivized to optimize the process. They got a Commission based on just like a salesperson or whatever they sold their services for. And then once that’s done, they pass it on to the junior level folks. So then of the day, they were the ones that had the influence to tell our clients which solution to tell their clients which solution to use. So when we ultimately have to sell them, they didn’t really care. They didn’t care what product was better. They just want to know what perks they were getting from the vendor. Sure. And that’s what we realized. It was a tough thing. We didn’t realize that we didn’t validate or go to market. When we’re validating the product and solution we’re building, we stumbled upon it by accident.
[00:06:20.610] – Kison
We had a client and we realized they weren’t even selling a business. We thought we were working with a Corporation on selling an asset. They weren’t. They were actually buying businesses and we found understood their use case better and shifted to focus more on corporations that were doing acquisitions. And today we service both the ones that are divesting and acquiring. But that became sort of a redirection for us and that ended up being where we found our home.
[00:06:47.850] – Sean
We have a similar path with Tykr, our platform, which is BTC, has all these features. What do you focus on most? So how did you kind of narrow in and get a laser focus on what really is the best tools to focus on? And how did you separate yourself from the things that they’re not going to provide the value you need or your customers are looking for?
[00:07:10.500] – Kison
Got to wait. It I think doing a whole series of those interviews, I see it so often with entrepreneurs where they want to rush to go build a solution. If I were to go back and do one thing different, that would be it. That would be taking the time to talk to the people that you’re trying to sell to and really understanding because you would get their perspective, you would get their language and understand how they talk about that problem, which is incredibly valuable when you got to actually build out the sales and marketing around it. But then you want to validate that problem in a weighted fashion because what are your top three challenges you’re dealing with? Where does this one we’re talking about actually sit in that top three? You know, how much weight and emphasis do you put on it? I think knowing that we would have focused in different areas a lot earlier. If you look at M and A, there’s all these stages that happen from defining your strategy, sourcing the deal, valuing companies, doing your diligence, doing confirmatory diligence, planning, the integration, closing the deal in the negotiations around it and then executing your integration.
[00:08:12.870] – Kison
Right. And they all have different challenges, but there’s some real meaty stuff in different phases of that deal. And that’s where we wanted to Hone in on that. And we did. We started with the diligence part of it because that was a big challenge nobody was really solving for. Typically it’s done an Excel tracker and it gets really cumbersome to float around Excel tracker internally within your company, then to the counterparty, then for it to bring back. And it just takes a long time and a lot of work. And once we solve for that, then the natural progression for us was to solve for the integration because we saw really common challenges there. You got to repurpose a lot of the things that we built for solving the diligence part into integration. And we found a nice way to put the two together so you can do both your diligence and integration planning at the same time. And then the pipeline front end part we did later on. So I think that was it was understanding where the clear problems that do have that strong emphasis, then over time you can tag in the adjacencies and you’ll get sharper about it because if you build it one at a time.
[00:09:15.420] – Kison
So all at once you can get that feedback, really put a product out there people are actually using sure, yeah.
[00:09:21.060] – Sean
Great advice on the beginning stages. I know a lot of entrepreneurs listening to this are in that phase, but let’s fast forward and let’s say you’ve got a business with great product market fit, you’ve got a sizable audience. And now we want to look at either merging with somebody, either being acquired. I’ve got a bunch of M and A questions teed up beforehand, and let’s just dive in. So why don’t you give us a little idea. How is M and A changing today?
[00:09:48.690] – Kison
The focus is changing. Traditionally M and it’s been a very much of a finance focused activity. And today we see it shifting to become more of a people focused. And when we think of people, we’re thinking of not only the employees, but also the customers that you’re serving and really bringing that front and center. So that way when you work on putting the deal together that you can take this vision of what you’re trying to achieve, what’s this end state and bring it to that front end of your process and socialize it from executive to executive doing the deal and say, this is what we’re trying to do. And if you bring in the other leader that’s going to be responsible for integrating the companies, you want them involved early as possible so they can help outline what that go to market is going to look like when both companies combined. And that gives understanding what it’s going to take to get there, and especially for the selling side, for the inquiry. That executive oftentimes gets a little fixated on the financials and what kind of bit of a check they’re getting when the deal closes.
[00:10:54.810] – Kison
But there’s more afterwards. There’s usually a transition period. There are some plans. They want to retain that leader in a lot of cases, unless they’re just absolutely trying to exit and how helping them understand what’s going to be involved with their go forward role. What is that going to look like? What’s it going to take to make this successful, especially for a large Corporation that’s going to be paying the size and the amount that they are? They got to have clear value drivers of how they’re going to create that value after. And the more ability they have to create value, the more they’re going to pay for that business. But then that’s where it’s got to come in, and they’re likely going to need that executive to help execute on that. I think with the employees, it’s giving more of a transparency into what the other companies like. What are their businesses that they have? Where is their company going to fit into it and allowing them to really understand that strategy. So they’re part of that change. You don’t want to do this deal and be like, hey, guess what? Today we’re announcing we just got acquired, and there are some circumstances, depending on the nature of the deal and how much you can disclose when then you want to be able to really explain it, that there is a clear reason for us doing this, and we set out for this mission to take our product and solve this problem.
[00:12:17.520] – Kison
Well, now we’re going to be able to do that on a much greater scale. We’re going to be able to reach more customers and create more value for a bigger audience, a bigger customer base. When people understand that and they can get a line behind that, that’s when you can get that good motion to be able to integrate those companies and create that intended value from the acquisition.
[00:12:39.420] – Sean
Sure. Knowing that there’s a shift from financials to people, what are some common character assets to these individuals that corporations are looking for? What kind of people or does it vary per company?
[00:12:53.020] – Kison
Yeah, it really depends on the strategy. What are you trying to achieve if a company is purely going after market share and is that what they’re looking for is a solid business that allows them to enter a market and then they can figure out what the changes would add value. A lot of deals we’re seeing right now are around capabilities. Can they buy a technology or a solution and be able to bring into their portfolio so that they can enhance their capabilities and provide more value to their existing customers? So you may have really different views on how are you going to work with other executives on that. Go for it. Based on what’s that strategy that’s driving the deal right on.
[00:13:37.060] – Sean
And what kind of timelines do you typically see from the moment? Let’s say a large Corporation is interested in your tech startup from that first introduction to when the sale is completed, what kind of timelines are we talking about here?
[00:13:51.400] – Kison
I’m not giving you a clear cookie cutter answers here, but it’s another variable. The courting is an interesting process in M and A because you could sell your business and work with an investment bank and run an auction process that can get done incredibly fast. I mean, they’re going to spend more time preparing your business and financials than it’s going to take to actually run the sale process. That’s how competitive this market has been. You have that, but then if you are in long game, you have different priorities. Maybe for you. Is sticking to your mission, really taking care of your people? You may end up getting courted by a larger Corporation for a big variable period of time. They may want to get to know you over a year or even longer. You may even work on doing a partnership together and see how their relationship unfolds. And then over time, they may say, hey, this partnership works good. Why don’t we just bring our businesses together and talk about what those terms would look like? I’ve talked to executives where they’ve been working on a deal, getting to know the founder, and ten years later they finally got something done.
[00:14:56.320] – Kison
Wow. Yeah, it does. Because I think that’s where you got to spend the time to understand if you’re looking to buy a business from another founder, it’s like a sale process, right? You got to stay on top of it because I’ve lost deals where I just didn’t keep up. I got a full year without talking to founder next, you know, he sold it to another business entity, and I was a little salty, like, I missed that one. That was a great opportunity, something I would have been very competitive on just because I knew it’s, something that’s right in our market map. So there’s that. And then from understanding their founder what their goals are, because the more you understand it, the better sense you get of when timing may be right. If they’re at this stage, they may have some personal things. They may be just interested in another idea that they have. And the entrepreneurs have that dilemma. They got the next shiny thing, and they feel they carried their business as far as they could. Or maybe they are really gung Ho about the future and that they’re really motivated to get to 20 million target revenue.
[00:15:57.810] – Kison
And then at that point, they may start shifting their minds or think a little different. Sure. But understanding what that entrepreneur’s goal is is really important. I think that’s if I look back, if I were to spend more time aligning on that and taking notes on that and saying, okay, this is exactly what we’re trying to do. I think it would have helped because then you would have known, hey, 20 million wasn’t there, but what kept you from going there? And then they start opening up to a conversation and they say, hey, maybe work together, we can help produce that kind of revenue. Here are some of the things that we can bring to the table to help achieve those goals.
[00:16:31.410] – Sean
And this is good. I’m totally okay if these are not Pinpoint specific, because I know every business, whether you’re the tech startup or the smaller entity being acquired by the larger entity, these numbers all vary. I’ve got another one of these related questions. So let’s say the transaction happens. And as a founder, let’s say you and your executive team are required to stay on this new company. The large company acquires you. What kind of timelines are we talking about? Like, hey, we’d like you to stay with this new entity for six months, a year, three years. What kind of numbers are you seeing?
[00:17:08.600] – Kison
Yeah. So there’s usually going to be HR team involved, and they’re going to be assessing that. They’re going to be looking at a company, and they’re going to first try to figure out who are the key people in the company. And then once they identify that, they want to understand what their flight risk is, because if we do this deal, this key person bails, that’s going to be a serious impact on what we’re trying to put together, the value of trying to create. So when they go through that analysis, then that’s when they’ll start looking at building a retention plan. So they do want to incentivize you to stay. They can identify you as a key person. They’re going to do that. And it really fluctuates business to business because again, it goes back to, are we just buying the technology and that’s what we care about? Well, maybe there’s a couple of key engineers that we really want, but they go to market flow. We really don’t care about it. Our distribution is 100 times bigger. That’s not a big deal. That’s not a main driver for us. If they stay, they stay. If they don’t, not a big deal.
[00:18:00.370] – Kison
But we really want to keep those engineers. So we’re going to stay focused on how we can retain those folks. We may come across others where different industries say we’re more service based, and at the end of the day, it’s all people, right? We’re not even selling a product. Then you start seeing longer retention models. And there’s different tools that they’ll use to bridge valuation gaps, earn outs being one of them. And you may even see in those kinds of businesses where they’ll actually, instead of doing outs over like a one or two year period, they may even do a longer earn out for three, four years. So you definitely see a big change in terms depending on that strategy nature of the business.
[00:18:38.660] – Sean
And I’m sure some of it is cash. And if it’s a public business, some of it’s stock in this larger entity, correct?
[00:18:44.950] – Kison
[00:18:45.590] – Sean
Right on. Okay. What kind of minimum revenue should entrepreneurs be aiming for if they want to be acquired? I assume that varies per industry, but are you seeing any round numbers that are jumping out?
[00:18:58.160] – Kison
No. I mean, if you’re trying to sell, I guess it all goes back to the buyer, because if it’s a large Corporation and you’re trying to sell based on revenue, they may have a minimum threshold. We’re not going to look at things under 10 million. But now if their company doing 10 million revenue. Right much smaller entity like us, then we would look at the $1 million company and say, hey, that revenue actually counts towards us. It’s meaningful. And then it goes back to the technology piece, which I think that’s where it gets kind of a little more fuzzier, because some entrepreneurs, they built the tech and they think it’s worth $100 million or something of that sort. But it’s like, okay, to who? That’s where this all boils down to the value of a business isn’t what you think it’s worth, isn’t what this third party tells you. It’s the perception of that buyer, which is unique to that buyer. So you go to different buyers, they’re all going to have a different perception of the value of your business. Can you identify that? Can you look at your company from that third party view and start thinking of who would some likely buyers be?
[00:19:59.090] – Kison
For what reason? If it’s the revenue, if it’s the market share, if it’s some unique IP you created, then start engaging with them, start opening up that dialog, get on the radar. A lot of these large corporations, they have a corporate development Department that’s responsible for inorganic growth, which primarily entails acquisitions, that’s their job is to know the market. They usually map this stuff out pretty well, and they’ll create a market map that outlines the segments that they’re focused on, and this aligns with their broader corporate strategy. And then they’ll identify what companies within those segments would be potential companies to fit in for them to help achieve their corporate strategy. And for them, that’s their job to know about your company when there’s an opportunity and for you to just reach out, raise your hand, introduce yourself, see if you fit in there or not, get an understanding. Usually they’re pretty friendly folks that will talk to you about where the company sits and what they’re trying to do.
[00:20:57.860] – Sean
It’s awesome. Great advice. What are some of the common mistakes you see in M and A from buy side or sell side? Let’s start on the sell side first.
[00:21:08.610] – Kison
Sell side is thinking through, and both of them have a common theme, too. But the strategy really thinking through what you’re trying to do. A lot of times we decide to sell a company, we want to sell it so we get some money out of it. But there’s more to think about there than that. The biggest remorse you see is the founder sells his business and then watches it get completely dismantled and the whole strategy gets shifted. The employees are in a different environment. A lot of them are quitting. They change the business model. And for him, it feels like watching the ship on fire sinking. And there’s a lot of remorse and regret from doing that transaction because his baby is just getting destroyed. So that’s where spending that time upfront to think through. What’s the strategy? Yes, we want to get a check from selling the business, but what about the people? Where do we want to see the business go? What kind of home do we want to keep as a standalone independent? Do we want to see it get merged into a larger outfit? If so, what kind of outfit are there other organizations where the culture would be aligned?
[00:22:14.470] – Kison
I might be an organization that would love to sell to Google because it’s a company I’ve always looked up to. We use a bunch of Google technologies in our company, but then we ended up bankrolling the process, sell to Oracle. It’s like we always had Oracle culture. We don’t want to use any of their database products and things like that. So those are some of the things to really think through. What’s important when you think about your company, your people, how important that is for their continued success and growth. And then you can start thinking about if that were to merge with a larger Corporation, what are your considerations around that? What are the things you’d like to see with that potential acquire and even just your goals of the business on a go forward basis? There’s opportunities. A lot of entrepreneurs don’t think about where you could do a partial sale. A lot of the private equity models are built around providing either a minority or majority investment, but allowing you to still retain ownership so you can take some chips off the table, buy a nice house, buy a nice car and boat, but then still be around for another exit that could even be bigger than that first exit because the PFA is now going to dump a substantial amount of capital, really drive and grow that business.
[00:23:27.520] – Kison
If they believe you’re the leadership that could help them get there, they’d be more than happy to retain you. And that allows you to set you up for the other exit. I’ve seen executives do that where they’ve gone through a whole series with even different private equity owners. So yes, the strategy is a big thing.
[00:23:43.430] – Sean
Yeah, great points there. Love that. Let’s flip that to the buyer side. Some of the mistakes you see there.
[00:23:49.130] – Kison
We always talk people, if you ask me, a lot of people in the talk in the industry now it’s always culture. I would back that up and say, yes, the culture part is important, but it’s just getting the early thinking. What we talked about in terms of what the vision is, what’s the end state going to look like and outlining that go to market. Sometimes that gets skipped over. We just get fixated in the financial terms and say, okay, we’re going to buy this. This is our synergy model we’re creating, but not as much as like, what are the key things we need to do to actually achieve that result? What this model is laying out, let’s make that a more of a visual changeable thing of what’s going to be involved, how our marketing departments are going to come together, and what are the strengths and weaknesses that are going to blend together nicely in terms of going back to the culture piece for executives to sit down and have that soft conversation about values. Because every organization, especially when you go to a certain point, you start emphasizing values and you hire based on values and that you grow that as part of your culture.
[00:24:48.160] – Kison
But if you can, as respected organizations, talk about what that means, it allows you to understand each company’s culture and leadership approach. You may realize that our company is very top down, traditional management, but this other little startup is very much bottoms up. And then how is that going to it’s going to be really difficult to fully integrate the company. And all of a sudden, these people have to change the very way of working into the top down approach, which might not be what they signed up for, being very mindful when acquisition happens. It’s a big disruptive change. It’s the largest magnitude of change management for that company. And all of a sudden they have a new employer that they may have not they didn’t necessarily want to work for, and they didn’t choose to work for them. So now if all of sudden a you’re changing these management and making these kind of dramatic changes, you might piss off a lot of folks. And now you’re putting that risk to leave and find another job. You’re destroying the very thing that you went to, by the way, the people doing the work and creating value, creating innovation.
[00:25:48.450] – Kison
I think that part gets overlooked as well, because if you can understand the company and the culture of pieces, then you can get a sense of how they work together and think through of how that’s going to actually come together nicely or not.
[00:26:01.480] – Sean
Right. I can see that being a really disheartening step in the process. If you’ve really got a great like, okay, this business model is a great fit for ours, but you get to know the people and you soon realize, oh, wow, there’s not a fit here. These people are totally different than us. It’s like going head to head. So you lose a lot of folks that way.
[00:26:20.800] – Kison
I’ll tell you, the more experienced acquirers I’ve talked to, the more they’ve done it, the more they emphasize that they have interesting things that they do to identify that early, whether it’s their site visit and kind of get a feel of what the office culture is like or some little things like that. Some do the deep interview with the leadership and talk to them about their approach to styles.
[00:26:42.930] – Sean
What about interviewing the employees to see what they say about the leadership?
[00:26:47.970] – Kison
There are approaches. The HR folks tend to get pretty sophisticated about it. You tend to have limited access in the early beginnings. You may start off by some passive stuff like looking at class door reviews and start using that some of your early indicators. But then over time, as you progress, you’ll start off with some management presentations to meet the executive team. And then as you move through diligence, you may get some access to it. Or there may be some different angles there to be able to get that feedback from employees. Maybe you can sort of push to get a certain type of survey out. But yeah, it’s a little bit of a progressive process. It’s hard to do that upfront. I would say use your own means. Where I do that, I’ll go through LinkedIn and start figuring out, hey, I got some common contacts with some folks that work at the company and maybe I can get an introduction and just be respectful through our confidentialities. Because a lot of times you’re going to engage with some pretty strict confidentialities early in the process, but at least be able to if I’m not comply there.
[00:27:51.980] – Kison
But get some more information, learn about the culture that way.
[00:27:54.250] – Sean
Sure. Let’s take a quick commercial break.
[00:28:00.250] – Sean
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[00:28:58.580] – Sean
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[00:29:01.530] – Sean
[00:29:07.610] – Sean
I got a fun question here. This is great for entrepreneurs. So how do they maximize the value of their business if they’re trying to sell it?
[00:29:15.900] – Kison
If you can prep ahead of time, that’s the biggest thing. It’s just like selling your house you can sort of fix the little odds and ends thing. You got a little leak in the ceiling and there’s still that mold residue up there, like paint that thing make this thing look brand new. Your business is the same way. There is definitely some operational clean up. Usually financial is the biggest thing given the site, given the size you’re firm, but I think any size you could find somebody that’s got experience prepping a company for sale and really cleaning up the books because it’s important. If a buyer comes in and they see a shit show like a mess, then for them it’s a turn off. They know they got work to do. It’s a lot of concerns. The better you have your stuff in order. Any buyer is going to come in with an intensive diligence process. They’re going to come in with a whole myriad of questions, a whole bunch of things to review. The better you have that stuff prepared, the much easier the high level of confidence you would provide buyers. If you work with an investment bank, they’ll obviously help you prepare some of this stuff.
[00:30:17.700] – Kison
But even if you did it ahead of time, it makes it easier for them so they can focus more on the things that really build a story and where the elements to make your company shine instead of them just trying to help you get cleaned up there. And then that’s what allows them to really showcase your business nicely, to produce the highest value for it. I think a lot of it’s really preparation, preparation. And I keep thinking about that selling to the wrong buyer because you could go objectively to the highest price and still not feel. And that’s the biggest thing that I’m probably most concerned about is if I talk to founders that have sold their businesses, is that they’ve had some remorse around it, that maybe they didn’t pick the right or they had one, but they picked one for more money, but maybe the other one would have been a better fit. So with that, just questions. I think the number one thing that was overlooked was really digging in and asking a lot of questions out of curiosity. And this is from both sides of business. Buyers are going to be more wired to do this, especially if they’ve done multiple deals before.
[00:31:16.770] – Kison
They’re going to come in asking a lot of specific questions. But as a seller, can you do the same thing? Can you spend the time to understand their strategy? Why is this company worth $50 million to them about it? What are they really looking for? Is it the technology? Is it the customers? What’s so special that makes them interested in your company? What are they going to do with your company? What is their integration plan look like? What is your role going to be look like? Is your title going to get changed? What’s it going to get changed? To get into those details, just unleash that curiosity to this extreme level that you can try to get a comprehensive picture and understanding of what it’s really going to be like working with this buyer, because it’s usually not over. Once you get that check, you’re on the hook for a while because there’s value that needs to be delivered and they want to hold you accountable to it. They want to know that you didn’t sell them. You just got a check and ran off and left a bunch of mess to deal with. They want to keep you on the hook for it.
[00:32:10.300] – Kison
So I think that’s the biggest thing I would add in there is while you’re going through these buyers is making sure you have the value, but making sure you’re not putting in a bad position and just be as curious as possible and try to understand each buyer intently into what they’re doing. Is it the first time doing this kind of acquisition? Have they done other ones? How did those work out? What was the bad? Can they talk about the bad? What happened to those other founders? Are they still around? Can I go talk to them?
[00:32:36.190] – Sean
Can I talk to them? Yeah, right.
[00:32:37.750] – Kison
Let me get some reference here. Just time after time, if I go back, anybody that’s got the sappy story, it’s like, well, no, I didn’t do that. I didn’t do that. They’re excited about getting this check, and they were just busy responding to the never ending myriad of diligence request. Because that’s what happens when you sell your company. The buyer is going to keep asking because every little Department wants to come in. They want to review things. They want to make sure. They want to look for risk, make sure what’s represented is true and accurate. And they’re trying to figure out how they’re going to integrate the company. So they’re going to constantly be asking for stuff over and over and over and give you so distracted from that alone that you’re not asking those kind of Proactive questions to really understand what’s going on and how it’s going to impact you and what the outcome is going to look like, what’s their competency around doing what they’re doing right.
[00:33:21.950] – Sean
Here’s a fun one for you. So do you have any examples, like from the buyer’s side, looking at the seller like any red flags they’ve seen with financials and non financials? I’d love to hear your thoughts on this financials.
[00:33:38.630] – Kison
It’s funny, in our business to give examples, we always find all these NDAs. So you basically got to tell the story.
[00:33:43.330] – Sean
I know you got to keep it really high level, keep it broad.
[00:33:46.050] – Kison
Yeah. Because you do enough. You forget who signed. Some are stricter than others. I would paraphrase on the financial one. It’s usually upfront. You have presented financials. If there’s ever you’ll decide then and there if it makes sense or not, if there’s a reason to Pivot or change it’s normally because you’ve done another financial analysis and the markets really evolved where sellers are pretty sophisticated. Usually investment bank will recommend doing a Q of e quality of earnings report. That really put a good view of the financials and help interpret it where the health and state of it is. But the buyers will in turn will do the same thing. Now if there’s things that they find there that hey, here are some expenses or income that was misallocated and people can do that. You sort of move things around year by year to balance your taxes out and that’s commonly done. So that’s like one thing that may require an adjustment and usually you build a case for it. You say, hey, here’s the reason. Based on our financial understanding, we want to make this adjustment in the diligence side, that’s when you can have a lot more things because now you have all your different departments in their reviewing things.
[00:35:00.250] – Kison
You may say, hey, we’re going to do this deal. We plan on integrating these products and it guy, they’re in a totally different tech stack. Like we’re not going to be able to integrate this the way you think. We’re going to be able to integrate this. Sure. There’s things like that. And ideally wanting to catch the stuff early as possible, the HR could find out some things there and say, hey, this company, by the way, has three quarters of their engineering team on H one visas. And if we acquire them as an asset sale, we’re not going to be able to sponsor all those visas and they’re all going to have to go home right now. That’s a big thing too. So there’s a lot of those things where you identify risk and you need to come up with a mitigation plan. Sometimes it’s pretty simple. Like hey, we need to update a corporate filing. We could do that after close. Sometimes it’s going to be a show stopper and it’s going to be a big thing that you have to come back with. Some of the stuff may require you to go back and actually renegotiate terms.
[00:35:51.780] – Kison
You may come across a finding that changes your view on the value of the business as long as you can present it in a way that’s really clear. This is changing our perception of the value of the business because it’s a material finding here. We just found out your biggest clients done, they’re not going to renew after this year. You’re going to lose them. Well, that’s going to impact your revenue by 40%. So this requires us to change our perception of the value. There’s like some examples, but there’s definitely a lot. It’s the love and hate about M and A. It’s like nerve wracking because you have a deal sailing along. Just one thing will just throw it all up deal is dead and you figure out a way to bring it back to life again, something else comes up and it’s definitely a little different.
[00:36:36.200] – Sean
Here’s a scenario for you, and this kind of relates to the movie you ever seen. Horrible Bosses.
[00:36:40.100] – Kison
[00:36:42.170] – Sean
Colin Farrell was the son of Donald Sutherland, and he was just a disaster. The guy did drugs and he used the company as an ATM. That’s all I wanted to use it for. He didn’t care about the customers. He told jerk to the employees. I ran into a situation within the last ten years where it was similar. It was the sun. It was a second generation. The son wanted a Lamborghini, had the company pay for it. Not he paid for it. The company paid for it. And he couldn’t sell the business because when the due diligence phase came in, they saw that one of the expense items was a Lamborghini on the business, not somebody’s own personal payroll paying for it. And that was the immediate red flag that if they’re spending that and trying to write such a thing off, what else are we running into? Deals gone. I know that’s probably an extreme situation, but do you ever run into scenarios like that, like buying stupid things with the business that totally turned the deal off?
[00:37:43.220] – Kison
I mean, private companies all the time. Whether it turns the deal off is another question that depends on the buyer because you have different types of buyer. You may have a like, buyer that’s doing the same thing. And he’s like, I get it not a big deal. We can make the adjustments, figure this out, do the math and get the deal done, and then they’ll get it done. But then you have a public company, which is like, no, this is a liability here already. And if we’ve already done this just scratching the surface, there’s probably a bunch more and we’re not going to move forward with it. Sure. So I think that really falls back on the buyer. You got different buyers, and for sure, the public company for sure is a lot pretty restrictive in terms of things like that.
[00:38:28.940] – Sean
Yeah, you’re right. This was most definitely think like 100 employees, small business, manufacturing company doing less than 10 million a year or something like that. Okay, good stuff here. Before we jump into the rapid fire round, is there any other question I should have asked?
[00:38:47.900] – Kison
But I did not ask you some good fun questions. We got pretty good touch base on what’s going on in the industry, some general little things for buyers and sellers. I think you covered most of it.
[00:39:00.130] – Sean
All right. Yeah, let’s dive into the rapid fire around here. I’ve got a series of questions. If you can try to answer each in about 15 seconds or less if you go over that’s.
[00:39:11.930] – Kison
[00:39:12.150] – Sean
But we keep them pretty short. First question. You ready?
[00:39:15.220] – Kison
Let’s do it. All right.
[00:39:16.400] – Sean
What’s your favorite podcast that you listen to?
[00:39:19.610] – Kison
That’s a good question. I like Hard Talk. I’ve never heard of it one of the BBC podcasts.
[00:39:27.930] – Sean
[00:39:28.280] – Kison
It’s just what’s the guy’s name? Charles. I’m drawing a blank on the host name. It’s been a while since I listened to it, but it’s just a style. I love his podcasting style, where it’s all about asking the tough questions. And it’s just one I remember that gave me more comfortability to disagree or be able to be more inquisitive when you don’t agree with an opinion from your guests. It’s a fun one. Other than that, I’ve been listening a lot of sales podcasts.
[00:39:56.370] – Sean
It’s called Hard Talk. I’m Googling it right now. Good one. Okay, next up, what is a recent book you read and would recommend?
[00:40:06.050] – Kison
Boy, a recent book, actually, I got this one. I got a qualified sales leader. I just read through this one.
[00:40:11.410] – Sean
[00:40:12.250] – Kison
That’s the biggest thing on my plate right now is building out our sales function or building enterprise sales team. So this is a really good book for anybody in software sales. But yeah, it just covers a lot of leadership concepts about sales and different ways of working with large, complex sale process. Sure.
[00:40:31.450] – Sean
Like it. All right, next question. What is the best business advice you ever received?
[00:40:37.110] – Kison
The best business advice I’ve ever received. For me, I think a lot of our listening when we talk about that as a generic theme, I think it just took a lot of time on my own when I’ve heard it as advice. But to really understand what it means and it means more than listening, it lends to being empathetic where I can enter a conversation and even though a lot of times we have an agenda about what we’re trying to get out of this conversation or meeting, but to be able to put all that to the side and get to this mind state of zero or nothing so that you can really intently listen to the other person, understand how they think about things, how they feel, why they feel that way, it will lead you to understanding their goals and challenges. Then you can figure out how you can align yourself to help them achieve those goals and challenges. And that’s by far helped me progress a lot further than what you tend to do, by nature, is try to get your points across and everybody’s sort of talking at each other than each other.
[00:41:38.490] – Sean
[00:41:38.950] – Kison
[00:41:39.160] – Sean
Good listening. Great advice. That’s awesome. Let’s flip that equation. What is the worst business advice you ever received?
[00:41:47.280] – Kison
I think he had a lot of bad advice. I think the key is it’s just knowing, like, what to listen to, what not to listen to. I think that’s the thing. If you sort of run off on any vice and take it for what it is and then run off with it, that could get you in the wrong direction, where you’re sort of not sticking to something long enough to really know if you’re going the right way or wrong way. It wasn’t necessarily the specific bad advice. It’s just that the frequency of the vice or how serious likeliness for you to take it. I think if you start taking advice impulsively, whether it’s good or bad, that’s what leads to the best advice is your response to it.
[00:42:28.610] – Sean
Love that. And the last question here, this is the time machine question. If you could go back in time to give your younger self advice, what age would you visit and what would you say?
[00:42:38.390] – Kison
It’s probably about 13, I think for 13. I mean, it’s pretty hard headed kid back then. So let’s be honest here. There’s some things that would push on discipline, but for the most part, I put the effort in. I think a lot of times was just broadening the scope of being open minded. When I look at it today, I talk to my team about continuous learning, that you have this learning pattern and that you may have specific channels that you get your information on, whether it’s reading blog posts or reading long form books. But then oftentimes right now, leaders I’m working with on developing their skills, their network of subject matter experts tend to be the area that they’ve been lacking. And sometimes it’s something else. You might have a big network of subject matter experts, but then you don’t really read books or look at that short form. So look at your learning ability as a pattern, because for you to problem solve and make decisions, it’s all about learning as quickly as you can to get enough information to make an appropriate decision or approach to problem solve. So being conscious of that one of those different ways that you’re learning.
[00:43:45.140] – Kison
And then if you’re lacking one area, like the subject matter experts, for example, can you emphasize that? Can you challenge yourself to be able to find peers that you can network with and learn from them and how they’ve been approaching similar problems or decisions?
[00:43:59.430] – Sean
Right on. And last question here. Where can the audience reach you?
[00:44:03.900] – Kison
Sure. If you want to learn anything about Ma, we have tons of content on Mascience.com and myself. I’m on LinkedIn. Just kissing K-I-S-O-N-T-O.
[00:44:12.450] – Sean
Easy. Well, thanks a lot for your time here. I love the advice you gave at M and A. I think there’s a lot of entrepreneurs that can get a lot of value from this episode.
[00:44:19.830] – Kison
Thanks, John. Enjoy the conversation.
[00:44:21.690] – Sean
[00:44:22.210] – Kison
We’ll see you. Thank you.
[00:44:30.030] – Sean
Hey, I just want to say thanks for checking out this podcast.
[00:44:32.870] – Sean
I know your time is valuable.
[00:44:34.680] – Sean
And there’s a lot of other podcasts out there you could be listening to. So thanks for taking the time to listen to my guest story.
[00:44:41.010] – Sean
If you did enjoy this podcast episode.
[00:44:42.910] – Sean
Could you head over to itunes and leave a five star review?
[00:44:45.500] – Sean
That would be much appreciated. Thank you.
[00:44:47.620] – Sean
And last but not least on this podcast some episodes we do talk about stocks and please keep in mind this podcast is for entertainment purposes only.
[00:44:57.170] – Sean
So if you did hear any buy or sell recommendations, please don’t make those decisions based solely on what you hear. All right, thanks a lot. See ya.