What is the best way to ruin your chance to sell your small business?
Bad advice about how to sell a business is everywhere. But as a business owner you need to understand the incredibly destructive impact of tools and techniques that are technically accurate, but have nothing to do with the sale of your business.
When I see these bad, "good" tools, I think about a scene from Apollo 13.
During most of the movie, the Apollo 13 astronauts are speeding through space to certain doom, and the ground crew is frantically trying to come up with a solution that will allow the travelers to use their broken ship to come home.
There’s a well-known scene where a NASA official proclaims dramatically “failure is not an option”, but that’s not the scene I keep thinking about.
No, I keep echoing the lesser known scene where Gary Sinese’s character has joined the effort to find a solution. He’s going to be working with all these crazy smart people to help figure out how to bring the space travelers home. As he climbs into the ground-based simulator at NASA a well-intentioned helper hands him a flashlight.
He quickly hands it back, along with a slight reprimand.
That’s not what they have up there. Don’t give me anything they don’t have on board.
(You can see the scene at the 3:00 minute mark. Watch from the beginning of the clip to get the “Failure is not an option” build-up.)
Don’t Give me Anything They Don’t Have on Board
It’s certainly not a groundbreaking scene, or a famous quote, but as always I’m attracted to the pragmatism of the comment, and the real-world context for success it creates.
- We have a problem.
- We need to solve it.
- The guys up in space can only use certain tools.
- Let’s not confuse the issue by working the problem with tools they don’t have available.
Don’t give me anything they don’t have on board.
Yeah, I know it’s just a movie, but I always felt the scene captures a simple but profound truth: it’s easy to unintentionally complicate the already difficult problems we face in the world around us.
Time is wasted working with tools, resources and information that can’t be applied to the problem at hand. I know this runs counter to the “keep learning” approach, but in a world of unending information, where we always have newer, better tools available the real challenge is figuring out what we put in front of ourselves. We must control the solutions we consider for our problem, or we will always be solving, and never be solved.
Don’t give me anything they don’t have on board.
It means work the problem, but do it without elements that can’t be part of the solution. In other words: stop giving me tools that I can’t use to solve my problem.
It’s the simple lesson from a little scene in a big movie.
Now, Picture a Different Scene
You’re the average small business owner, speeding towards almost certain “sell a business” doom. (At least that’s what the odds say).
Failure is the most likely option. You might say it’s a “moon shot” or at least a long-shot for the average small business owner to sell their business. So, you have a problem. You need a solution. Let’s see what sort of tools you’re handed.
(FYI, I picked this entrepreneur.com article at random after it showed up in my LinkedIn feed. It's a simple example of standard "sell your business" content. I could literally have picked one of a thousand others like it. I don’t know the author, and I’m sure this article was written with the best of intentions. That doesn’t change the problem.)
Here’s an article that proposes to tell you that
There are six common buyers you will likely encounter as you market a business for sale.
According to the article those likely buyers are:
- Strategic Buyers
- Private Equity
- Family Office
- Holding Company
- Search Fund
- Your Employees (ESOP)
What’s the problem? Let’s take a quick look at a few of the solutions to see if these are tools you can use.
Your Employees (ESOP)
How Many of You have Heard of an ESOP?
ESOP = Employee Stock Option Program. An ESOP is a . . . wait. Why do you care? Is this a tool the average business owner should spend any time exploring? Do you know how many ESOP’s there are in the US?
6,669 according to the National Center for Employee Ownership.
Don’t be confused. That’s not 6,669 in 2018, or 6,669 per year. That’s 6,669 total!
So, with around 30 million companies in the US, that means that .022% of companies are ESOP companies. Not 2%. .022%. Total.
If you meet a business owner, feel comfortable telling them with confidence “You will never sell your business through an ESOP”. You’ll only be wrong .022% of the time.
Why do business owners need to know what an ESOP is?
From the Entrepreneur.com article:
PE executives bring the financial resources and the corporate acumen to take your operations to the next level, and in many cases they will retain company owners and operators for on-the-ground expertise, making them a great option if you’d prefer to retain a piece of your equity stake. Selling to a PE firm is a great way to help your business realize its full potential.
Fabulous. Why wouldn’t I want to sell to a PE firm? I want my business to reach its full potential. It sounds great. Maybe that’s why it was included in this list.
It sure wasn’t included in the list because it’s a likely way for you to sell your business. How many PE deals get done per year in the US? Around 4,500 according to pitchbook.com.
There you go, that’s another opportunity for .015% of U.S. business owners. Oh, and what type of companies are getting deals through PE? According to Pitchbook, 70% of the deals are over $100,000,000 in size.
PE is not a tool you can use. Yet that doesn’t keep it from being pitched – like this email promotion that just showed up in my in box:
If you’re looking to sell a small to mid-sized business these days, one of your bidders is likely to be a Private Equity Group.
“One of your bidders is likely to be . . .”? In what universe?
Again, feel free to tell any business owner you meet, “you will never sell your business to private equity”. You’ll almost certainly be right.
This one hardly seems worth the effort.
The Family Office Exchange estimates around 6,000 family offices exist in the US. How many buy small companies? Who knows? How many small businesses were bought by these family offices? No idea, but it’s got to be a ridiculously low number.
Enough bashing. You get the point. For the average business owner reading the “6 Buyers” article is a waste of time. And worse than the wasted time, what if a sincere reader steps away from the article with the belief that they now understand the six types of buyers for a business?
- Nowhere does the article say, “for businesses with $100,000,000 in revenue and EBIDTA of $10,000,000+”.
- Nowhere does the article (or the email pitch) say anything to recognize the minuscule market for the opportunity being represented by these solutions.
According to them, it’s “likely” these are the buyers for your business!
The Right Tool
What doesn’t the article linked above include?
For one, the article doesn't say, “the most likely buyer for a business is an individual.”
Relevance? The information in the article linked above is completely unnecessary for the majority of business owners. For most, these tools will never, and could never, be utilized. It’s almost as if articles like this are designed to confuse and complicate the topic. That couldn't be true, could it?
Are They Being Intentionally Cruel?
It's not cruel, it's just them marketing to the client they really want.
The “sell a business” industry is defined by complexity. People get paid to do deals that often involve complicated components. The larger the deal, the more potential complexity – and the more money for the people helping with the deal.
So, professionals in the industry produce content that highlights their mastery over the variety of convoluted technical areas. They produce articles, videos, and lists (they love lists) that highlight their command of these thorny issues. They hope you’ll go to them when you need help understanding this topic (the same topic that they've helped make harder to understand).
What appears in these articles is often obscure, expensive, low percentage, hyper-technical solutions. Solutions that are terribly unlikely, and remarkably unimportant to most business owners.
Welcome to the small business owner’s “sell a business” reality.
What’s the Big Deal?
The big deal is that these obscure alternatives, consistently presented as standard fare, confuse, complicate and often crater an already difficult problem-solving challenge for the business owner.
They ask you to focus on your fear, and the complexity of this topic, instead of helping you see the real basics that are likely to keep you from selling your business.
The average business owner is overwhelmed by work and responsibilities. Add to that the challenge of figuring out how to sell a business and the load is back-breaking. Yet most content in the “sell a business” space is graffiti-ed with these obscure, minimally used, complex options.
Can we agree that a lot of “sell a business” content is broken for the average business owner?
Small business owner beware – what they are teaching, and the tools they are offering you, will make your “moon shot” attempt to sell your business harder, if not impossible.
Not only do you need to recognize and ignore the bad tools that are out there, you also need to ignore the technically accurate tools that will still lead you further away from a sale.
It's hard enough to sell a business, even more so when they keep handing you the wrong tools. Maybe it's time for the "sell a business" industry to embrace: “Don’t give me anything they don’t have on board”.
It's certainly time to learn to leave.
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