Negotiating a deal for your company is one of the most nerve wrecking processes you will go through in your entrepreneurial journey. Whether you’re raising capital, exiting, or buying a company, the stresses are similar across each event.
Tony, you are playing checkers in a chess game.
One of the most profound insights I ever received about the M&A process is the difference in gamesmanship between a seasoned M&A practitioner, and a founder.
An M&A practitioner lives in the world of investing capital, or acquiring assets. They understand the world of contracts and risk, and know the things that do and do not matter. A founder, especially a new one, knows none of this. They know how to solve a problem, and in the process have often stumbled into their business model.
The M&A practitioner is playing chess. They have their pawns, those things that don’t matter, that can be sacrificed through the entire engagement, and they know when to leverage their superior pieces to achieve their desired end state.
The Founder is playing checkers. They have the few things they care the most about, maybe their team, or magical number they feel good about, or some other protection that helps reduce risk on earn-outs. Whatever the piece, they restrict themselves to the their squares and move diagonally across the board.
The only real difference is that in this game of chess, winning is not about check mating the opponent in some grandiose fashion. In fact, the best chess players help guide the Founders across the board, helping them feel as their moves are intentional and as if they too are playing checkers. They provide advice, they befriend, they simplify the whole process; they provide a life raft to hang from when you feel as if you are drowning.
A true chess player in the world of M&A only wins when the seller feels as if they have won, but in reality left a tremendous amount potential on the table; upside, and potential, few will ever realize was even there.
Tips To Founders Navigating a Process
Play chess, not checkers. If you don’t know how to play chess, find someone, a team, that does and make sure you prepare for an exit.
Here are some tips to help you think through the process:
First, if an exit is something you fancy and you lack the network to help you navigate the process, then seriously consider a seasoned investment firm. As daunting as a task as that might sound like, they will, if chosen correctly, be an invaluable asset during the M&A process. The key value comes solely in the fact that they too play chess, and you can always count on them negotiating in their self-interest.
Having a skilled player on your side is invaluable. If this isn’t an option, engage with others that have a network or that can help you think through the process.
Second, you don’t have to navigate the process yourself. There are organizations out there seasoned in the negotiation process. As much as we might feel compelled to do the process ourselves, it’s not a bad thing to step back and let someone else take the helm. Decisions will still be made by you, and your team, but having a middle-person helps create distance and allows you to see actions objectively, instead of emotionally. It will save you countless sleepless nights, but also preserve the relationship internally long term.
This is especially true with strategic acquisitions, where you might work with Business Development / Corporate Development representative and your corporate sponsor is really there to provide you a glimpse of how awesome life will be once you’ve partnered together. Organizations separate the functions for a reason, there is nothing stopping you from doing the same.
Third, never go at the process alone in terms of one person. Even if you don’t have another Founder or executive to lean on, try not to go at it by yourself. The process is tough, and having another perspective can be extremely helpful.
Be considerate of whatever perspective you get, and be cognizant of potential biases that might be driving that perspective.
Fourth, set the pace. Whether a financial or strategic, the key to the game is velocity for the investor or buyer. You don’t want someone simmering in the details, getting cold feet or getting second thoughts. Oh the number of deals that have been lost because of a weekend with family.
In BJJ, as you get older it gets tougher to compete with the younger, more athletic practitioners. They don’t have the wear and tear on their bodies, and can float like butterflies while the old timers move like buffalos. So the key to fighting the younger guys is to set the pace you want to fight in. The same is true when going through a process.
Fifth, and lastly, it’s not personal. Whether it’s a strategic or financial acquisition, no matter how personable the relationship might feel, when you’re going through a process like this, it’s business. No one is buying your company because you are just a great person, or team. They are buying you because you will contribute something to their portfolio whether it’s an asset, skill or economically.
You can invite each other over for beers and steak all you want, but push come to shove, the business will always make a decision in the best interest of the business, and you should always be ready to do the same.