What Will Happen to Your Business if You Die

I was recently engaged by the estate of a founder to assist in finding a new owner for their business after the founder died. There were a lot of valuable business lessons that came out of this process that I wanted to share with you. Not for your estate survivors after you die, but instead for you before you die, so you don’t repeat the same mistakes of this other entrepreneur who failed to properly lay out a clear legacy plan in the event of his death, leaving the survivors scrambling looking for answers in the wake of his death.

Read the rest of this post in Entrepreneur, which I guest authored this week.

For future posts, please follow me on Twitter at: @georgedeeb.

Lesson #377: What to Expect After a Change in Control of Your Business

Congratulations, you just sold your business!  But don’t expect things to remain the same under the new ownership.  Oftentimes, new owners have a different vision of what to do with your business to help achieve their needs, and they may have different ideas on how best to do certain things inside of the organization, resulting in a ripple effect of chaos for the transitioning staff in its wake.  This post will help you figure out what to expect after a change in control, so the expectations of you and your team are properly managed ahead of time.

Every Single Aspect of Your Business Can Change

Even if the buyer says nothing will change post-sale during their “romance” period of getting you to agree to a sale, that is rarely the case, as a buyer starts to put their own fingerprints all over your business.  This could be things like changing your product mix or website to better bias their products or other preferred vendors.  Or, changing all the various systems your business uses for accounting, marketing or operations, that will be a learning curve for the legacy staff.  Or, the other specifics of your business, like the details of your sales and marketing plan, or the details of your sales commission plans, as the Buyer may have experience in doing these things in other ways that better syncs with their current business.  So, the point here is to get ready for a lot of change.

Get Ready for Potential Layoffs

Even if a buyer says they plan on keeping everyone post sale, that doesn’t mean they will.  There are high odds that overlapping positions, especially in the management ranks, are likely candidates for the buyer to want to remove.  And a buyer will be a lot less willing to carry any struggling staff members, that you were more forgiving with.  If a salesperson is not hitting their sale quota, or the sales organization has too much excess capacity in relation to the leads coming in, those staff members will be a risk.  So, prepare for this during your negotiation period, to make sure any severance packages are pre-negotiated for any layoffs in the first year, to protect your staff members.

Get Ready for a Lot of Paper-Pushing Busy Work

Everything is going to change post sale.  Your legal entity’s name, your bank accounts, your credit cards, your sales tax filing systems, your government contracts, your social media profiles, your about us pages, etc.  Prepare to backburner your normal work for a while, as all this minutia gets sorted out, setting everything up for the new owner and communicating such changes to all of your staff, customers, vendors, partners, etc.  And your finance team is most likely going to be doing lots of post-sale report building and auditing for any working capital adjustments or other post-closing monies that are moving around between the parties.  The first few months post a sale will not be your most efficient work months!

You Need to Prepare to Let Go of Your Baby

Your “baby” is grown up now and post-sale is somebody else’s “teenager” to worry about, not yours.  Psychologically, this can be a very difficult time for the founders to transition through as the new owner starts to implement their vision and desired solutions, which most likely is different to how you were doing those same things before.  That is okay; let go of any “sacred cows”, be flexible to the new owner’s needs and don’t have any opinions that are “set in stone”.  If you think they are screwing something up, that is their lesson to learn, even if you communicating your past learnings on such topics are falling on their “deaf ears”. 

You May Need to Find a New Passion

Nobody loves a business as much as its founder does.  And that founder invests a lot of blood, sweat and tears in helping that business grow and succeed.  But once you cash out, and you no longer have the economic upside you once had, your emotional ties to the business will start to fade over time.  When you feel that passionate flame starting to burn out, most likely within a few months of closing your transaction, that may be a good time to start looking for your next “baby” to raise, where you can get that passion back from your next venture.  It is very hard to simply be an “employee” in the buyer’s organization, after you have had been “steering the ship” for all the years prior.

Closing Thoughts

I have been the CEO of three businesses that were scaled and sold to a new buyer.  The themes discussed in this post come from firsthand experience of what happened in the wake of each of those changes in control.  So, before you sign your name to your pending sale agreement, make sure you can deal with the above issues raised, practically and psychologically.  If you can’t, maybe you shouldn’t sell?  But, if you can, make sure you go into the sale process “eyes wide open”, and for anything that you feel could become post-sale issues you want to protect against, make sure you get it pre-negotiated in your sale agreement before you sign on the dotted line.  Good luck!

For future posts, please follow me on Twitter at: @georgedeeb.

 

[VIDEO] How Founders Can Evaluate Venture Capital Options

 

I was recently interviewed by ASBN, an online "television network" serving the small business community, about the importance of doing your research before picking a venture capital partner.  This video will help you learn about how to find the best firm and the best partner therein for your business.  I thought this video turned out great, and I wanted to share it with all of you to make sure fund raising efforts prove successful, but in the near term and the long term. I hope you like it!!

The embedded video player didn't give me the option to change the size of this video.  But, if you want to see a bigger version, simply click the expand size button in the player above.

Thanks again to Jim Fitzpatrick and the ASBN team for having me on the show.  I look forward to our next interview together.

For future posts, please follow me on Twitter at: @georgedeeb.

AI Can Do Everything Now and It Will Replace You--Protect Yourself Now!

 

Artificial intelligence (AI) has been more than a buzzword for the last couple of years; it is literally taking over every single aspect of how businesses are run. Big corporations have even started hiring Chief Artificial Intelligence Officers to ensure their organizations are getting the most out of AI tools, largely to replace slow and expensive human-driven tasks with fast and inexpensive technology-driven tasks.  The applications are literally endless, but this article should help inspire you to rethink everything you are doing in your business, as there is probably a technology out there that can do it faster and cheaper.

Read the rest of this post in Entrepreneur, which I guest authored this week.

For future posts, please follow me on Twitter at: @georgedeeb.

Lesson #376: Know When to Cut Your Losses

 

As a founding entrepreneur, it is hard to not to always be “in love” with “your baby”.  You created something from nothing, you nurtured it along the way and you built something really great.  Until that point “your baby” stops growing, your profitability falls with increased competition and the roller coaster starts picking up speed in the wrong direction, with revenues going down, not up as before.  It is very easy to want to “stay the course” and hope for things to get better in the future.  Depending on the root cause of the fall, like a temporary decline in the economy, it very well could rebound.  But there are times when the root cause cannot be fixed, or worse yet, will continue to “snowball” in the wrong direction.  In those scenarios, you need to know when to pull the “ripcord” to save whatever value you have left before your business is worth zero.  This post will help you identify what to look for and how to get you and your shareholders a “soft landing” when things start to turn south.

A Case Study on Joe’s Bikes

Meet Joe’s Bikes, a fictional ecommerce seller of electronic bikes (“eBikes”).  They were one of the first movers to be marketing eBikes online, launching their website in 2018, and were experiencing meteoric growth in the first several years that followed, growing their revenues from $0 to $20MM by 2022. But soon after that point, they were seeing a lot more competition from other eBike sellers online, and the effectiveness of their Google advertising was getting a lot worse.  Their profits which had peaked at $2MM in 2022, had quickly fallen to $1MM in 2023 with the increased advertising costs to break through the clutter of additional competitors online.

But then Joe noticed something really strange start happening in 2024; he saw his cost per click starting to double in Google, which meant his cost of customer acquisition was going to double.  And he saw his number of clicks from Google starting to cut in half, largely due to the invent of artificial intelligence engines like ChatGPT (taking traffic away from Google) and Google itself redesigning their pages to give their own A.I. results more promotion at the top of the search results (at the expense of the traditional search links at the bottom of the page).  The doubling of the cost per click meant his profits were going to slowly head to $0 on his current level of revenues, and the halving of his traffic meant his revenues would most likely cut in half from $20MM to $10MM over the next year, which suggested huge losses were in his future.  It wasn’t yet visible in his financial statements in 2023, but he knew the storm was coming in his 2024 projections.

If this case study sounds familiar, it should, as most all ecommerce companies in most all product categories were living some form of the above during their own growth curves over the last couple years.  Now what do we do about it?

What Are Joe’s Options

Option 1:  Ride Out The Storm.  Joe could do nothing and simply “hope” for his advertising struggles to improve.  But unless there were new marketing channels for Joe to pursue (e.g., distribution of his eBikes through retailers like Dick’s Sporting Goods), his ad metrics may never improve if he only stayed focused on search advertising.  You should never make business decisions with the word “hope” involved, so this path does not make sense.

Option 2: Restructure His Business.  Maybe Joe is fine watching his revenues fall from $20MM to $10MM, as long as he could think of a way to cut his expenses so that projected losses could become a small profit to afford his lifestyle.  But we are talking about a lot of cuts here (around 70%) for Joe to hit his goal.  And that does not sound like a reasonable path forward either.

Option 3.  Sell The Business While You Still Can.   Yes, Joe could have sold a year earlier for $10MM (5x his $2MM in profits at the time).  But that is water under the bridge at this point, and he should not be chasing that number.  He still can sell today for $5MM (5x his $1MM in profits reported in the prior year that just closed).  Which would be $5MM more than the $0 he would get next year, if profits are truly on their way towards big losses.  Assuming Joe can move quickly to find a buyer and getting the deal to closing, this is the best path forward.  But the longer he takes to get to the finish line, the lower the odds this path will work, as the profits start to fall in the coming months’ financial reports.  Joe must move at light speed here.

What Will Joe Do?

If Joe is a sole owner, the path that Joe should pursue is a personal decision, based on his personal goals.  But if Joe has shareholders, he must protect their interests, and in this case, selling now before it is too late, will at least get his investors an exit at a reasonable valuation that would yield them a nice return on their investment.  He should take that “win”, which his investors would appreciate and be willing to back him again on his next venture.  Because if Joe doesn’t sell now, and let’s revenues and profits fall resulting in a terrible trend line, they will never be able to sell, and his investor will lose all their monies invested, and more importantly, their faith in Joe.

How to Create Leading Indicators For Your Business

Joe was fortunate that he set metrics for himself to predict the future health of his business.  Most entrepreneurs live in the present and simply track their success and make decisions based on historical results.  You need to figure out how you can predict where your business is heading, to learn the bad news that may be coming your way, before it actually hits your business, so you have time to respond and take the necessary actions ahead of time.  In Joe’s case, his leading indicator was clicks and cost per click from his Google campaign, which he could track in “real time”.  The minute he saw those heading in the wrong direction, he knew it was time to take action.  Remember, a buyer of your business is studying historical financials, which still looked good for this business.  Only Joe knew of the future storm that was coming his way.  You need to figure out which leading indicators will be the ones that will save your business from a looming storm, with time to sail to shelter while you still can.

Closing Thoughts

So, a couple closing thoughts here.  First, stop chasing historical peak valuations that may never be achieved again.  A "bird in the hand" is always worth more than waiting for "two in the bush" especially if you feel the business is heading in a downward direction.  And second, make sure you have leading indicators in place that will enable you to quickly pull your “ripcord” with enough time to get you a “soft landing”.  Otherwise, prepare to crash and burn, entirely wiping out your equity value and reputation with investors in the process.

For future posts, please follow me on Twitter at: @georgedeeb.

You Sold Your Business--What Happens Next?

Congratulations, you just sold your business! But don’t expect things to remain the same under the new ownership. Oftentimes, new owners have a different vision of what to do with your business to help achieve their needs, and they may have different ideas on how best to do certain things inside the organization, resulting in a ripple effect of chaos for the transitioning staff in its wake. This article will help you figure out what to expect after a change in control, so the expectations of you and your team are properly managed ahead of time.

Read the rest of this post in Entrepreneur, which I guest authored this week.

For future posts, please follow me on Twitter at: @georgedeeb.