For some entrepreneurs, the ultimate goal of building a business is selling it for a sweet profit.
In an ideal world, the buyer treats the founders with respect and appreciation, and continues to nurture the business by supporting it with more capital, resources and opportunities. In this scenario, the buyer and seller are happy. It’s a win-win all around.
But what happens if you sell your “baby” to the wrong buyer? What are the downsides of having someone take control that doesn’t care about the person who started and built the business, its employees, how it was operated, its customers or growth strategy?
While getting an much money as possible is critical when selling a business, another factor may be finding the right buyer, even if their offer may not necessarily be the highest.
For anyone looking for insight into the perils of doing a deal with the wrong buyer, an interesting case study is TechCrunch’s sale to AOL Inc. last year for a reported $25-million.
TechCrunch, the world’s most popular technology blog, was created by Mike Arrington, a smart, aggressive and ultra-confident corporate and securities lawyer-turned-serial entrepreneur. TechCrunch was started as a personal blog that quickly evolved into a lucrative, multi-pronged business. In the process, Arrington established himself as one of the most influential players within the high-tech startup ecosystem.
While there had been rumours about TechCrunch being sold, its purchase by AOL was surprising because AOL is a slow-moving conglomerate that is no longer considered a key player within the online world.
It also seemed like a strange fit for someone like Arrington – who has a reputation for being a loose canon – to work for AOL, which insisted Arrington to stick around given his brand was so closely associated with TechCrunch.
Not long after the sale was completed, the cracks started to show. First, it was TechCrunch wanting editorial independence. Then, Arrington became so unhappy with the deal he offered to buy TechCrunch back from AOL.
Eventually, the situation came to a head when Arrington was forced out in September. Over the past few months, several other TechCrunch employees have abandoned ship, including CEO Heather Harde last week.
Arrington may have walked away with millions of dollars by selling TechCrunch to AOL, but I suspect if he had to do it all over again, he probably would have decided either not to sell, or find another dance partner who was willing to let him operate and grow the business with less oversight.
For many entrepreneurs, it is exciting to be wanted because it validates the value of their company and the hard work they have invested. At the same time, selling a business involves a variety of considerations. There is obviously the price it attracts but, as important, is how the business is going to be operated and whether the new owner will enhance and nurture it.
Selling a business can be an emotional decision as much as a financial one, particularly if part of the deal is that a founder has to stick around for a transition period.
Entrepreneurs need to know exactly what they want from a buyer. If it’s just about the money, then it may be easier to accept the new owner’s terms. If, on the other hand, it’s important to put the business in good hands, there are different issues that need to be part of the negotiation process.
Special to The Globe and Mail
Mark Evans is the principal with ME Consulting, a communications and marketing strategic consultancy that works with startups and fast-growing companies to create compelling and effective messaging to drive their sales and marketing activities. Mark has worked with four startups – Blanketware, b5Media, PlanetEye and Sysomos. He was a technology reporter for more than a decade with The Globe and Mail, Bloomberg News and the Financial Post. Mark is also one of the co-organizers of the mesh, meshmarketing and meshwest conferences.
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