My First Million - Shaan's Masterclass: How To Sell A Business For Millions

Episode Date: June 19, 2023

Episode 466: In this episode, Shaan Puri (@ShaanVP) presents a masterclass on how to sell a business for the most money. Go to the MFM YouTube channel to watch the presentation. Want to see more MFM? Subscribe to the MFM YouTube channel here. Check Out Shaan's Stuff: * Power Writing Course * Daily Newsletter ----- Show Notes: (05:25) - Why would you sell? (07:40) - When should I sell? (08:10 - Who do you discuss with? (11:00) - Who might buy you? (17:20) - Nurture dependence (21:30) - Do the work for them (24:00) - Neglect Emotionally (25:30) - Sell entirely ----- Past guests on My First Million include Rob Dyrdek, Hasan Minhaj, Balaji Srinivasan, Jake Paul, Dr. Andrew Huberman, Gary Vee, Lance Armstrong, Sophia Amoruso, Ariel Helwani, Ramit Sethi, Stanley Druckenmiller, Peter Diamandis, Dharmesh Shah, Brian Halligan, Marc Lore, Jason Calacanis, Andrew Wilkinson, Julian Shapiro, Kat Cole, Codie Sanchez, Nader Al-Naji, Steph Smith, Trung Phan, Nick Huber, Anthony Pompliano, Ben Askren, Ramon Van Meer, Brianne Kimmel, Andrew Gazdecki, Scott Belsky, Moiz Ali, Dan Held, Elaine Zelby, Michael Saylor, Ryan Begelman, Jack Butcher, Reed Duchscher, Tai Lopez, Harley Finkelstein, Alexa von Tobel, Noah Kagan, Nick Bare, Greg Isenberg, James Altucher, Randy Hetrick and more. ----- Additional episodes you might enjoy: • #224 Rob Dyrdek - How Tracking Every Second of His Life Took Rob Drydek from 0 to $405M in Exits • #209 Gary Vaynerchuk - Why NFTS Are the Future • #178 Balaji Srinivasan - Balaji on How to Fix the Media, Cloud Cities & Crypto * #169 - How One Man Started 5, Billion Dollar Companies, Dan Gilbert's Empire, & Talking With Warren Buffett • ​​​​#218 - Why You Should Take a Think Week Like Bill Gates • Dave Portnoy vs The World, Extreme Body Monitoring, The Future of Apparel Retail, "How Much is Anthony Pompliano Worth?", and More • How Mr Beast Got 100M Views in Less Than 4 Days, The $25M Chrome Extension, and More

Okay, friends, family, people who like pink pop tarts. Welcome, this is another masterclass. My first masterclass was on raising money. It was about how to create a killer pitch deck. That's the start of your journey. If you're an entrepreneur, you're trying to go raise money from investors to fund the company. This is now at the end of the company. How do you sell a company?

Ben asked me to do a masterclass. He's like, hey, can you record a masterclass today? Your boy's lazy. So I'm repurposing a presentation I gave three, four years ago at HustleCon. I went on Google Drive. I found an old presentation. I actually didn't even look through it. I'm just going to do it live here,

sort of improv style. But I remember, I remember being on stage and giving this talk about how to sell a company because I just sold my first company. And I remember at the time being like, I wish there was some more content about this

because if you want to learn how to manage people, there's tons of books and you're going to get practice every day. If you want to learn how to grow revenue or sales, there's tons of books and you get practice every single day. When it comes to selling a company, there's very little content out there that I thought was any good. And you get very few reps.

You might sell a company once every four years, 10 years. It's not a common thing that you do. And so if you don't practice, you're not very good at anything. So I learned something, some things during the process of selling my companies. And I'm going to share them with you today. So let's see what I was thinking four years ago. The only thing I did was I removed the HustleCon banner at the bottom and I put a new logo there because it said Huston 2019. I thought that would not look so great.

So let's jump in. And hit the first slide. Here we go. I've sold two companies now, one to a big company. So when we sold a Twitch, Twitch owned by Amazon, so selling a company in Amazon was one way. And then Milk Road, we sold to two private buyers, just like two dudes who were independently wealthy

from their previous businesses, and it was a totally different transaction. So I'm going to share some lessons from each. When I made this presentation, I had only sold Bevo. So I added the Milk Road one just before I went live here. But the rest of the presentation, I didn't add any lessons.

So let's see if I've learned something the second time. I always start with this when I come to selling a company. This is a picture of a foot and a dog, and it is the first picture ever posted on Instagram. Kevin Sistram, the founder of Instagram, he posted this right when Instagram went live. And, you know, today it's this iconic picture of like, you know, this is how it all started. And, you know, here's the guy himself.

Kevin Sistram looks great, you know, power pose, got the white sneaks. And if you're Kevin Sistram, you know, you got a dozen. employees, you make a billion dollars, everybody loves you, right? Because you've built the hot thing and everybody comes knocking at your door. If you ask Kevin Sistram, how do you sell your company? He'd say, well, you got to create, you know, a sensational product. And then people will just come and offer you a billion dollars, right? Like, that would be his experience. My experience was very different. We had built a good, not great business. We had built a good, but early business. And we were trying to sell. And so here's what we experienced. So if you're reading this or if you're

watching this, you are not Instagram. And I think my talk will be maybe a little bit more applicable to you than what you might hear from the people that are on the Forbes list because they're, they were in a totally different position of leverage and bargaining power than most people are when they go to sell their business. This is you. You've tried, pivoted, you've hustled. It's not working or it's kind of working or it's working, but you're just tired. You're ready to move on. And this is a very common thing entrepreneurs get to. And when you're here, it's okay to think, you know, where should I go? I've been there. I felt it myself. And this advice I heard all the time was great companies are bought, not sold. That sounds pretty cool. It's a nice little fortune cookie.

But remember, you're not Instagram. And so great companies are bought, not sold. I think that's true. But most companies are sold, not bought. That's my attention, at least. And that was my experience. We sold the companies more so than we just immediately got bought because we were just crushing it beyond belief like you would like you see when you know whatever huge companies get acquired. Here's a headline from when we got bought. This number is incorrect, which just shows you don't read, don't believe everything you read in the media. I don't know where they got that exactly.

But yeah, we sold. We sold for, you know, eight figures, but not like that. And sales, it's weird when people come up with these numbers too because it's like you get cash up front. Then we got these signing bonus. You get stock. Then the stock price changes. There's all kinds of ways to sort of like manipulate sales numbers.

But let me go. back here. When you got started, you thought this is going to work. And this will be big if it works. And I can do this. And I want to do this more than anything else. That's typically the mindset of an entrepreneur when you start. And the reason I say this is because the first thing when it comes to selling your company is figure out, do you even want to sell? That's why I started here. Do you even want to sell? Because when you're in this state of mine, no way you would sell. Why would you sell? This is going to work. It's going to be huge. I can do this. And I want to do this more than anything else. That's how you should feel when you start a company.

And then you have to check in and say, all right, you're seven. And try not to check in on your most frustrated day, but you want to say, do I still believe this is going to work? Do I still believe this will be big if it works? Do I still believe I can do this? And do I still want to do this more than anything else? When we sold our first company, we had hit this, you know, all of them kind of are true except for this will be big if it works. I thought we might have a medium-sized exit the first time. And that's why I decided, well, let's sell now versus.

play this out for four more years and hit a medium-sized exit. Yeah, it'll be multiples more than what we're at today, but it still requires four more years and time is so precious. With Milk Road, it was more of the last one. I want to do this more than anything else. It was actually working, and I thought it could be big, but my brain was wandering to new ideas, new things, and I was loving doing the podcast so much.

I just, is this the one thing I want to wake up and do every day and focus on with laser focus? Yes or no. So these are the questions you've got to ask yourself, say, are these more true today, less true today, are at the same as when I started. And that gives you this, takes you this point, right? When should you sell? So if you get a great offer, cool, consider it. If you don't believe in the business anymore,

well, maybe sell the assets. Because if you don't believe, you're not going to really take massive action. You don't take massive action. You're not going to get any results. And then you'll just reinforce your belief. Like, see, I knew it. I knew it wouldn't work. Right. So belief is really, really key. And lastly, the, you know, common case is you just don't want to run the business anymore. You prefer to exit versus hire an operator and you're just, you're ready to move on and do other things. So three moments where you might sell.

Who do you discuss with? I just wanted to put this up here for a second. So, you know, talk about it with yourself and maybe some mentors, but then yourself and your partners, yourself and your co-founders. It's really a lot of conversations in your own head, which is why managing your own psychology

during a sales process is the number one most important thing. It's what helps you be good in negotiation. It's what helps you get people across the line. It's what helps you, you know, stand up and operate every day while you're also trying to sell the company. difficult to do that. So managing your own psychology is really important. And then there's a note about your investors and your team. There is a finesse you want to do with this. Some people believe

don't tell anybody until the deals are done. Some people say, well, no, I want to be transparent with my team. For me, I've always been on the be transparent with your team, but it does have drawbacks. People start to work a little bit differently when they realize, oh, we're going to try to sell this thing. What does that mean for me? Should I be looking for a job? Is this what happens if we don't sell? Well, I'd be rich. What's going to happen? And so I think discussing it with through investors or your team is something to be very careful about. I probably erred too much on the transparency side. If I were going to go play it back now, I would only discuss with my co-founders and I would not talk to the team until the deal is done. And so you want to create a little like

communication table. So your co-founders, you want to tell them ASAP, you know, hey, it's time to explore options. I'm going to do X. You can help me by doing Y. Investors, you want to tell them and say, hey, we're going to explore a sale. Here's what I think it would look like. Employees, you might say, hey, we've been approached, we're considering it, blah, blah, blah, here's the good news, is what it means for you. I wrote, you know, you can put ASAP, you can say this, we're going to do this when the deal closes, you can say that we're going to do this when the deal's getting close to closing. You know, you want to decide your timelines and create your communication table.

Okay, now to the fun parts. How do you actually sell the dang thing? So who might buy you? You want to break it up into buckets of potential buyers because you're really going to run a sales process. No matter who you are, you become a salesman when it comes time to do this. So I would say there's four potential buyers. There's the unicorns, so high-growth companies that might want to buy you to accelerate their growth.

There's dying dinosaurs, so incumbents that might need to get fresh blood, fresh tech, fresh energy, fresh cash flow, whatever it may be. There's your adjacent companies, so your adjacent alligators. This is like, what's the game of the Hidden Temple? So, you know, you got the adjacent alligators. They're next to you. They might be peers or competitors that you merge with. And the last one is talent farms. This is just go sell to Google, and they just want to be.

want talent. So they don't care about your company or your market, but they just want engineers. You have to also know the different roles. Who are you going to be talking to? So when you get bought, the other side is going to have an exact champion. So who's the one person that really wants this deal to happen? If you can't identify that person, ain't no deal going to happen. You should always know who is the person that is pounding the table on that side saying we got to do this deal. Or, hey, come on, let's figure out a solution to that problem. Or do, just let's bridge the gap. Let's come up a little bit, right? You need to know who is the champion on the other side, identify them, and you're going to nurture that relationship. You got to know who's the company router. Who's the person in the

middle that can get you to the different people that need buy-in? Usually in big companies, it'll be corp dev, but in smaller companies, you might know who else it is. Maybe there's an admin person or assistant. Who are you going to be able to reliably get information from and to, that's not necessarily the key decision maker? And then you got your deal dula. So this is using a childbirth metaphor. So if you're trying to birth this baby, you know, a dula who helps you know, remember to breathe, think about this, you know, let's move to this position. It's going to help. Hey, we need to get water here.

You know, your dula is the one helping you through this often, you know, painful but wonderful, you know, process. And so I like to find my deal dealers. These are one or two people who have done M&A before in my, you know, they're in my corner. I can trust them that they'll keep everything confidential. And I'm going to bug the hell out of them. I'm going to, you know, these are people that I've done. I was texting and saying, hey, I'm going to say this back.

Is that too desperate? No, no, okay. Let me, you know, wordsmithing it like I'm a, you know, seventh grade girl trying to figure out, do they like me? Do they like me? How do I phrase this in a way that demonstrates strength without pushing too far? Your deal deal list will help with that. For those who love one of the greatest shows on Earth, this is the dentist system.

So I'm going to take you through the dentist system of how to sell your company. So stage one, the D, demonstrate values. So why do companies buy companies? There are financial reasons, and then there are strategic reasons. So financial reason is obvious. You're crushing it. You're making tons of money. They want your EBIT or they want your revenue.

Pretty straightforward if you have it. Many people don't. So who buys companies when there's strategic reasons? Well, here's six strategic reasons. The CEO finds it interesting. That's the first one. That is surprising how far that goes. CEO's got a pet project.

CEO has got an itch to scratch. Awesome. If you're so lucky to have that, fantastic. Number two, there's a new executive or an executive gets a promotion, and they need to demonstrate big moves as a signal. So they're on the way out or they're on the way in, and they're looking for some kind of big move, some big thing to do as a signal.

That's good for you when that happens. Number three, they're trying to catch up to a surging competitor. This is Adobe using Figma to catch up. There are many examples of this along the way. Synergy, one plus one equals three. This is Uber merging with DDI in China so that they don't keep competing each other driving costs up.

They say, hey, why don't we merge it to one entity? And then we own a monopoly. we can cut cost actually, we can raise prices. So one plus one could equal three in this case. They're afraid of you. This is Facebook buying Instagram. You do what they do, but better. Instagram was better at sharing photos than Facebook.

And okay, you're going to get a strategic premium when that's the case. And the last one is you have unique talent. So you might have computer vision PhDs and they're having trouble finding that talent in mass. And it's actually cheaper to acquire you and get the talent as a bundle that's proven to work together versus going through a long, slow recruiting process. And so it's important to figure out for every potential. buyer, what might be the reasons that they will buy you. Next step, E, engage physically. So who do you actually reach out to? What do you say? And what's the goal? You know,

you can reach out to a number of folks. You can reach out to executives. Just go meet somebody who's at the company. Corp dev, their job is to meet companies that might be interesting to acquire. Investors might make introductions. When we were selling, we went to, I went to an investor who was an investor in Discord. And I said, hey, we got this thing. Discord might want to buy it. He said, Let me email the CEO. CEO gets an email from their biggest investor. They're going to take it seriously. And then all of a sudden, next day, I'm in a meeting with the CEO and I'm pitching why this,

why one plus one could equal three. There's also advisors. I mean, what do you say? You say, hey, I want to discuss a partnership on how we might be able to work together. Intent, right? Like, that's discuss a partnership is the best way to kind of open the door. The more aggressive way, which I've done also is, hey, we got an offer. We're considering our next steps.

Maybe we're going to raise money or we have an acquisition offer. I would love to talk to you before we just go and make a decision. And they say, oh, yeah, yeah, come talk to us first. Don't just do it without, you know, we want to take a peek under the hood. We want to know our options before we get in. Your goal here is just to get an in-person meeting. And so, you know, use these two frames in order to get an in-person meeting. Now, what do you do if you don't know them?

Well, you got to reach out. You got to reach out cold. Ideally, you've been building a relationship over time. This is the smart way to do it is you meet people in the company. You keep them posted with light updates. They see you. They know you. They see you at an industry.

event so that when the time comes, you can do this. You're not an absolute stranger approaching them. But I've done it as a stranger too. Usually when I'm a stranger, corp dev is the easiest way to go. Next, N, nurture dependence. I'm covering some of the words here, but you want lust, not love.

Lust is a high burst immediate, like, oh, I see it's like greed. It's like, oh, I want something out of this. Your goal is to tap into emotions. And when I say this, it's about clarity, not trickery. You're not going to manipulate anybody into buying your company. What you can do is frame what you're doing in a way that is maximally appealing to them, something that taps into their desires, their dreams, their emotions, their pain points,

and you need to trim the fat of your story so that you are the answer to that problem. I'll give you an example. When we sold to Twitch, I had met in terms of engaged physically, I'd gone through CorpDev. CorpDev got me a meeting with the CEO the next day. And I said, all right, well, I don't know how to frame what we're doing to the CEO. But I had met a guy on a boat in Australia of all places who worked at Twitch. He was an exec.

I said, I got to hit that guy up. So I hit him up. I said, hey, can I get a beer with you today? I said, yeah, yeah, sure, let's do it. I said, I got a meeting with the CEO tomorrow. I don't know how to navigate it. You know the guy. Can I just get a beer with you just to get you download?

So I go get a beer with him. And I say, you know, what's he like? What should I expect? Blah, blah, blah. and then I said, tell me, what are the top, like, three, when you're in these exec meetings, you know, you're at the highest level, I'm stroking the ego. You're, I know you're in the room when they're making the big decision. So what are the top three priorities?

Like, what do you all really care about? Is it profitability? Is it revenue? Is it growth? What are the top of your priorities? And they'll say them. I said, okay. I said, which one of those is like stuck?

Which one of those needs a solution? Because, like, sometimes you already have a solution in mind. You love that solution. You don't want to interrupt it. But which one is still, you don't really. really love our plan here, feels the weakest and needs some bolstering. And then he told me, hey, we have this thing. And actually, everybody's pretty bullish on it, but we don't have the right team and we don't have the tech to do it. And the guy we have, he's not good with tech.

So it's going to be a problem. I said, oh, say less. So then when I go into the meeting the next day, I say, we're great at doing this one thing. And I'm a great leader and I know tech. And we have the team that, we have the tech already built. And I have the team that that built it. And so now I I packaged my story as how I am the solution to their problem versus what most people do is they come in as a startup and say, here's what we do. Here's why we're great. You know, here's this other feature we have. Here's this feature we have. Oh, this guy says this. They're all over the place. And it's like, all right, good for you. But that doesn't tell me why I want you. So it's a sales, but you got to package yourself as the solution to their problem. Another way to say this, you need to find their pain, offer a cure, you know, other questions that might be helpful. What initiative has the most juice or momentum? or buy-in right now. You want to buy-in is like the best word with corporations. What has all the exact buy-in right now? Oh, they're all bought into this idea.

What are the fires that need putting out? Who's on the chopping block? What company are you guys most afraid of? If I only had 20 minutes in front of your CEO, what part of what we're doing do you think he'd be most interested in talking about? And then you also want to suss out, who's the decision-maker? So, hey, right now we're talking to this guy. Is he the decision-maker?

Who should we be talking to? Oh, no, no, no. His boss is the guy. Then you want to talk down, this is a little pro tip. Talk to founders who have been acquired by the same company before. So go to them, say, hey, you acquired three years ago, four years ago, whatever. What was it like? How did the process go?

Were the timelines that they told you real or fake? When they said this is the most we could do, was that real or fake? Did they try to retrade the deal later or not? What was your experience with the CEO? Was he really into it? Was he, is he more reserved? What did that mean? You're trying to get a bunch of intel.

And, hey, this is founder to founder from somebody who, you know, has done it before. Ideally, who's left the company now, I got a ton of great intel on this. Okay, here's another. This is just a classic move when we did it. You want to do the work for them. So what a lot of people do is they say, here's what we do. Then they sit there and they pray. I hope they understand it.

I hope they get it. I hope they like it. No, true that. You take matters into your own hand. So you basically say, hey, I wrote up a one pager that explains where I think this makes a lot of sense strategically for you guys. Because if we're going to do this, then I want to make sure, you know, I thought about this from your perspective and what, what this would look like once we join.

You know, I did some crazy things. So basically, on the technical side, I had our team, right, a technical one page rule. Here's all the stuff we built. How long it would take for anybody to build it? What's our special sauce so that they could just see, man, buying this is going to save us so much time. Look at all these assets they already have. Who's the talent?

Here's my, I made our team a present, like, into a presentation of like, here's all the talent we have, what they've done before, make it really easy for them. It's a dating profile. Do I want to swipe right or left on these people? And then I did this thing. I wrote a letter from the CEO, I said, I said, I think this deal makes a lot of sense. And I wanted to write that out into a memo. I know you guys have this memo writing culture. Like Amazon has this thing, like you write six-page memos for all your strategies. So I took a stab. I wrote one. You know, obviously I don't know some of the internal things. So I, you know, I took guesses. They're in blue. You can see the guesses. But yeah, I wanted to put my logic on paper, because I don't

want to do this if this doesn't make sense, right? You're not saying, please, please, please, buy me. You're saying, I'm trying to figure out, does this make sense for both of us? It's a two-way street. And so in order to do that, I wrote something to give myself clarity. I thought you'd like to see it. And so I actually wrote for one of the acquisitions, I said, this is how I would announce this deal to the company, to the team, to your exec team and the rest of the employees. And I just wrote a really persuasive argument of like, we bought this company. Here's why. Here's why this was a good idea. here's how best, here awesome this is going to be.

Here's how this solves one of our problems. I'm so excited about this acquisition. And like in doing so, again, I made it easy. Somebody told me this, one of my deal dole as he goes, you need to turn your company into a giant buy button.

Like a like Amazon one click checkout. So that means make it easy to understand what you do, make it easy for them to understand your team, your technicals, your, your strat, how you strategically align. And last thing,

you get your, get all your financials in like very clean, proper, you know, data room so that, there's no friction in trying to buy your company. Last one, neglect emotionally. The Dennis Reynolds special. So you need to find another partner.

You need to go cold. You don't want to be all in hot on one partner. That is not how you get the best deal. So you need to find multiple partners at the same time. You need to be negotiating these in parallel. You don't do one at a time. You start the process. You know, you're starting conversations with 10 folks at once, 20 folks at once.

You're narrowing it down. You're trying to get multiple offers in the same week so that you can tell them, hey, we got another offer. sometimes you go cold a little bit make them sweat not too long don't push it but it's not a bad thing i also wrote leave breadcrumbs i don't know if this made a difference or not but i would like check in on my instagram story like i'm in seattle oh cool i've never been to the office to this cool office before and like they know they're like oh he's at microsoft he's at facebook he's where is he he's talking to our competitors so you know i don't know if that show works but

it amused me at the least it made me feel like i was doing some some james bond shit Right. Last one, inspire hope. This is where you go back to me, say, look, we got other options, but we want you. Can you make that happen? Can you get your deal? Can you get your offer a little stronger here, here and here? And it's time sensitive. Look, like we have this other offer on the table. They're not going to sit around and wait. So if you can get us something, we can, we would like to work with you. We think you are the best fit. But obviously, you know, burden in hand, this is a really good offer. And, you know, I don't want to blow it for my team by by sitting here hoping you guys come around. You know, you need to use the leverage from one deal to get a better deal. and then you sell entirely. So you need to do the, you have your due diligence stuff ready. You need to make sure that the closing terms are clean. You need to get a good lawyer and a good accountant. And don't burn bridges because deals fall through and you may need to go back.

So make sure you communicate properly even when you say no to people and do everything with sort of integrity and grace because many times deals have fallen through. We need to go back. When we sold the Milk Road, it was somebody we had rejected the last minute, but we didn't burn the bridge and they didn't burn the bridge. And we came back, you know, later. And we said, hey, still interested and they sure were. And there you go. The advice I got here, my deal dula was this is when you need to sprint the hardest. So normally an entrepreneur gets a term sheet. It's like they want to relax.

Finally, look at this. The big number. I'm going to be rich. This is awesome. And they take a moment to relax. You can't relax here. This is where you sprint the hardest to close. You cancel everything else. You just spend all day following up with lawyers, data room, your account. and making sure that all your ducks are in a row, solving any problems along the way. Lastly, celebrate. Make sure you celebrate very often. The whole process is so stressful

that the main feeling is just relief. I think that's common, but you want to let that relief subside and then have the joy and the pride that you did something kind of amazing. Okay, remember some tips here. The great advice I got, birds fly, fish swim,

and deals fall through. That's what they do. Just remember, deals fall through that is completely normal for them. you can't get emotionally too high, too low. The second, deal momentum is everything. If you have a conversation going, the speed with which you follow up

and you get them the materials and you move forward is everything. Momentum is everything when it comes to deal making. And last thing, one choice is no choice. If you only have one person that could buy you, one company that's going to buy you, you have essentially zero people that will buy. You have zero leverage.

So you need to have multiple choices. One choice is no choice. All right, that's it. That's the master class. Let me know what you thought. about that one, drop comments on YouTube. So that's where I read them. So go to go to YouTube, my first million, hit the thumbs up if you like this, subscribe to the channel. We're over 200,000 subscribers now. That's amazing. If you guys like these, I'll do more of these. They're not easy

to do these masterclasses, right? Like, it ain't easy to drop these kinds of bombs. But if you guys like it, I'll make an effort and I'll try to do more of these until I'm all out of knowledge. And then I'll stop and just go retire. So let me know if these are worth doing and your compliments fuel me to do more. All right. I'm out of here. I feel like I can rule the world. I know I could be what I want to. I put my all in it like no days off. On a road, let's travel, never looking back.