Secrets to Selling Your Business
3 questions a buyer will ask before acquiring your company
Recently Google acquired DocVersefor $25 million. DocVerse allows a group of users to share and edit Microsoft Office (Word, PowerPoint and Excel) documents in real time without having to e-mail them back and forth. Google plans to integrate the DocVerse technology into its Google Docs application, accelerating its adoption.
But why did Google buy DocVerse instead of just creating its own technology to imitate what DocVerse had built?
The answer lies in the three questions large companies ask before they make the decision whether to build or buy. The first two questions they ask themselves; they ask the seller the third question. Preparing a bulletproof answer might be the key to sealing the deal.
No. 1: Can we build what they have created?
Maybe your company has a unique piece of technology or a patented product that can't be copied. Good for you. Most businesses don't enjoy such deep and wide protection, so a competitor willing to invest the time and money to replicate your business can provide you with stiff competition.
Google has access to some of the smartest engineering talent on the planet and more money than most countries, so it's safe to assume it could have built what DocVerse created. So why didn't Google just build its own DocVerse?
It comes down to the company's answer to the second question:
No. 2: How long would it take and how much money would it cost to build what they have created?
Assuming an acquirer wants what you have and the company can buy your business for less money than it would cost to build what you have created, then you are an attractive acquisition target.
In the case of DocVerse, for $25 million Google instantly got access to a piece of technology it wanted. Could Google have built it from scratch? Sure. Would it have taken more time and cost more money than simply buying DocVerse? Yes again. Therefore, the company got acquired.
DocVerse was founded in 2007 by Shan Sinha and Alex DeNeui, two Microsoft veterans. They didn't hold out for decades trying to build a billion-dollar enterprise. Instead, they deemed $25 million a nice return on three years' work and cashed the check.
The third question was undoubtedly asked of Sinha and DeNeui directly, and it will be asked of you when you are ready to sell your company:
No. 3: Why do you want to sell your business?
This is a trick question of sorts. Most sellers (if they answer this question truthfully) will say something like:
"I'm tired and burnt out."
"I want to do something else."
"I'm worried about the future of our company."
"I'm worried about the future of our industry."
"I think we've grown as quickly as we can, and we're starting to reach a point of market saturation."
Had DeNeui or Sinha answered with any of the responses above, I believe Google would have built its own version of DocVerse, despite the time and cost. Nobody wants to buy a business the founders no longer believe in. My guess--and I'm only guessing--is that the founders had a much better response to that question. You should, too, if you want to sell your company to a bigger fish.
An acquirer wants to hear that you are excited about the potential of your business and are keen to stay on and help capitalize on the opportunities the acquisition creates. A better answer would be something like:
"I'm at a stage where I'd like to create some liquidity for the value I've created so far and at the same time participate in some of the growth and potential a merger would offer."
This is merger-and-acquisition code for "I want to get paid upfront, but I'm willing to stay on for a transition period of sorts to help drive the integration."
Since the third question will be asked of you face-to-face, expect a potential acquirer to be looking into the whites of your eyes for any sign of weakness. A crisp response could make all the difference.
John Warrillow is the author of Built to Sell: Turn Your Business into One You Can Sell. He has started and exited four companies. In 2008 he was recognized by BtoB Magazine as one of America's most influential business-to-business marketers. Curious about whether you could sell your business (and for how much)? Take the 10-question Sellability Index Quiz at http://www.builttosell.com.
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