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Looking to Sell Your Business? Think About it Like This. Keep negotiations moving, employees productive and leaders focused while moving your company to the next phase.

By Omri Moran Edited by Dan Bova

Opinions expressed by Entrepreneur contributors are their own.

Every company engages in negotiations -- they're the nuts and bolts of business. But not every deal is built the same, and what's important to one company may be incidental to another.

When it comes to major deals in particular, they're usually "major" to the selling party only -- they'll lose out if the deal falls through. If, for example, Company A wants to buy Company B, Company B may be in real trouble if the deal doesn't close, whereas the odds are good that nothing will happen to Company A.

The same is true for an investment: A venture capital firm will likely continue to thrive if it refrains from funding a project, but the startup running that project may truly suffer.

By definition, every deal has any number of potential areas of conflict that require negotiation, even when both parties act in good faith toward closing. Major deals usually take between six to nine months to complete -- even up to as much as a year for more complicated acquisitions. In addition to the due diligence process, the negotiation of the deal terms and the definitive agreement take time to hammer out.

While the acquiring company usually has an M&A team that will handle this process, from the startup's side, the CEO, with input from the board, is the one who leads and conducts the negotiations.

Related: 9 Questions You Should Ask Before Hiring a Business Broker

Threats to the startup

From the perspective of a startup company, several elements of deal negotiation threaten its well-being:

  • CEOs' involvement in securing investments/selling the company may distract them from the usual work of running the company (management, strategic development, etc.)
  • Company slow-down, for any reason

The CEOs of startup companies usually play a dominant role in all facets of the business, and the fact that he or she is now focused on the negotiation process means defocusing on the usual work -- including operating the business, securing partnerships and strategic planning.

The next threat is something that all startups -- not just those going through a potential acquisition process -- are always concerned about: a slowdown in productivity for whatever reason. Startup companies usually have limited budgets, and if time goes by and they don't move forward, they can be in a situation where funds will dry up, or the fledgling venture will be forced to raise funds at a less-than-ideal point and compromise on their valuation to survive.

In my own experiences, maintaining company productivity was essential. A healthy KitLocate was more valuable and more attractive to our potential acquirers, making the negotiating process easier for me as well as providing the security that should the deal break down, I still had a functioning company that was continuing to ship code, update our product and build partnerships.

Related: A Glitter Bomb? 3 Critical Questions the Buyer of ShipYourEnemiesGlitter Should Have Asked.

Case in point

Several months ago, I received an offer to buy KitLocate, and I had to decide with the board under which terms we were willing to sell. I was afraid of the threats described above, so I insisted that we manage the process by the following rules:

  1. The CEO leads the deal and is the only one involved in the details -- updating the board when relevant and consulting when needed
  2. The company's co-founders (who take active management roles in the company, in addition to being board members) agree to keep their distance from the details of the sale, lest their involvement pressure and distract the CEO or unfocus them
  3. The company's co-founders agree to support their co-founder and CEO to the extent that they're able
  4. We should negotiate and come to agreement on all the major terms before signing the term-sheet (and not keep major parts to the definitive agreement)
  5. The deal is to be treated with secrecy, so that general employees remain ignorant of the deal and its terms, allowing them to more easily focus on their work
  6. Except for me, as CEO, everyone else in the company was to continue working as if the deal was not happening

The trust that my co-founders and the board placed in me to carry out the negotiations was integral -- and very unusual. As the nature of deal negotiation brews the potential for stress, having "peace at home" (where I was left to work without feeling additional pressure) was very important.

We managed to stick to all of the above and more importantly, we continued growing our customer base, hiring staff and building our technology and products. Business-as-usual may well have made the startup appealing to the buyer. It certainly facilitated the process when it came time to close the deal. We also completed the transaction as fast as was possible, so that if something had gone wrong, the company would have suffered minimal damage.

If you're in a position to sell your own company, consider this approach and see the benefits throughout the ongoing, day-to-day, constructive functioning of the company.

Related: Why You Should Sell Your Business to an MBA

Omri Moran

CEO of Yandex.IL

Omri Moran is the CEO of Yandex.IL. 

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