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10 Tips for Selling your Startup to a Corporate

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For a long time, I have been sick and tired of having to fill out forms on my iPhone with such a small screen. Then I was lucky enough to meet Chris Koch and Chad Stephens from Lets Pop. I have seen thousands of pitch docs and presentations in my time, but the one I saw from Chris and Chad before I even thought about doing this interview, is the best I have ever seen!

The guys previously sold their last startup, 1Form, which was a platform to help tenants apply for rental properties, without having to repeat the process of entering their information every time.

This startup sold for $15 million AUD in 2014 and had Carsales.com founders Greg Roebuck, Wal Pisciotta and Steve Kloss invest in them.

It was a grander vision that caused them to want to sell 1Form, to fund their new startup Lets Pop. Their new startup takes the 1Form idea and applies it to everything, not just real estate.

The need for Pop came about when they realised they couldn’t build a form that would be able to be used by every single industry in the world. In simple terms, Pop is an application to replace the need to input information.

Lets Pop still have their original Carsales.com investors on board and as the business continues to grow rapidly they will asses whether relocating to Silicon Valley will help them achieve their global goals, be visible to the US market, meet their customers needs and have access to the valley’s valuation models.

 

What follows, in the interview that I did with Chris, are his top tips for selling your startup to a corporate!

 

1. Know when it’s the right time to sell your startup

For Chris, he says that it’s always a gut feeling of when the time is right. You can quite often get a feel for the inertia of your business, you can see what’s coming, you can see competitors joining and maybe they might enter the space you’re in. Or maybe the time is right and the value that you are getting out of your startup is at its maximum.

 

2. Approach is everything. Use those consultants for something useful

Try and approach a corporate in a way where it’s not you going directly in. Quite often, you will have consultants, accountants or companies that you work with within your startup, who have a relationship with corporates already. It would be a great idea to take one of these contacts out to lunch and ask them to get your startup in the door through a recommendation first, before trying any other way.

 “ If you want to ask a corporate to buy you, then you never want to come in the door as if you were asking for that. Asking for a corporate to purchase your startup yourself is automatically perceived as you being in a position of lesser power. “

Corporates will be looking at a number of things when looking to buy your startup, which will depend on the industry and the market. In the real estate industry for Chris, it was the data space that a lot of the corporates wanted to play in. Think about the markets you play in.

For other industries like tech, it might be talent – if your startup has got some talent then that’s attractive. In the banking world, it might specifically be technology that can streamline processes for the customer.

 

3. You need to create competitive tension

Domian.com.au and Realestate.com.au really helped create that competitive tension when the guys went to sell 1Form. Once you have an intro into a corporate then it’s worth mentioning in your meeting that you are thinking of divesting out of your startup and that you have other corporates interested. This creates a much better position of power than asking them to buy you. When you’re starting to get the word out that your startup is for sale, it’s best to try and go to similar competitors, all at once, within the industry you’re targeting.

When you use this strategy, what you will often find is that one of them will ask you for an exclusive period. That’s fine, but you have to just let them know that once that period is over, you will then shop it to their opposition. Obviously this is done in a friendly, professional, non smart-ass way.

 

4. Understand the advantages of both sides

The question you really need to ask yourself is how do you go about it and build your product in a way that a corporate couldn’t. You may hear a corporate say that they could build your technology or service themselves, but the reality is that that is very rarely the case. They could never build it with the speed and complexity that a startup could.

Quite often, what you will find is that if a corporate can see the benefit of your product or service and they understand that they couldn’t build it themselves, or as fast as you can, they may offer to buy you without you even asking.

If a corporate is using and relying on your technology then the decision may come down the track for them to want to buy it, so they are not paying fee’s to your startup. It’s only best to consider this offer if you have more than one corporate using your technology.

The thing to be very careful of here is that if one of your corporate customers is grossly larger than the rest, the corporate might realise that if they cancel their contract with you for a year or more (and make you bleed), buying your startup could be a much cheaper scenario for them. At the same time, you should ensure that your customer base is never completely dependent on one particular client.

 

5. Communication with corporates shouldn’t be like trying to understand a foreign language

If you’re trying to get a corporate to buy your startup then the way you communicate with them is crucial. You really need to control the process as much as possible and the best way to do this is with timelines and deadlines. You tell the corporate that if a decision is not by reached by a certain date; you are walking away as you have other people that you’re chatting to.

Failing to control the process properly could see your startup meeting with every executive in the corporates management ladder and having them still not be able to make a decision. In the initial stages of dealing with them you follow their process but the moment you hit a brick wall that’s frustrating, you immediately go outside of their process as hard and as fast as you can.

If one of the executive’s just comes back with a response to your proposal such as “thanks, I have seen your pitch deck which John Smith forwarded to me,” and you’re not getting much buy in, you don’t take that for an answer.

You need to go back to the person who is not that interested and say, “everyone else seems to be interested, how come you’re not.” In that response, you would even consider copying in everyone else from the corporate you have met with. You would also reiterate again that there is a deadline to make a decision and there are other competing clients who are interested.

When I was talking with Chris on this topic he also agreed with Filip Eldic, from our Bluedot interview,, that startups need to be very careful dealing with corporates in the early stages because it’s very easy to burn cash quickly on these types of proposals.

 

6. Write a great pitch deck

Before writing the pitch remember not to make it too long. If a corporate is looking at a pitch deck as part of their decision-making, below are some slides you might want to include.

  • Demonstrate what’s changed in society for your product to be relevant and what problems are occurring.
  • Very clearly, you need to show how your product solves that problem in a way that it hasn’t been solved in the past.
  • Halfway through the deck is a great spot to put the “who we are “slide.
  • Show an exact example of how you solve the problem
  • Spell out the high-level revenue opportunity
  • Talk about the size of the market for your product and how you’re going to get a percentage of it
  • Finally, show some competitive analysis

 “So many Startups come up with ideas that aren’t really solving a problem, they are creating a problem and then their product is fixing it. “

 

7. Decide how much to sell

For 1Form, the amount of equity they sold was a lot to do with where they were at and their future plans. This will often determine whether you sell part of your startup or the whole thing. Specifically, when selling equity to a corporate and not the whole thing, you can create a lot of headaches for your startup.

The corporate will want a board seat, a say in the decision-making and the suggestions they make about your product will be more about what might help their company, not the other companies who are your customers. All of this could slow you down so consider very carefully before going down this path.

 

8. Negotiating the price of your startup and what country to sell it in

Demonstrate the value of your startup and look at similar companies in similar spaces. It’s worth comparing the multiples and valuations that these companies received and using that as the basis for your own valuation. Once you have proven your model regionally, overseas corporates will be much more likely to want to be involved, so consider what country you sell your startup in.

The other thing to look at is what’s known as the accretive value. If the corporate you’re dealing with is listed on the stock exchange they will have a PE (price to earnings) value based on their share price. Whatever earnings are going to hit the company ‘s bottom line, because of the acquisition of your startup, can actually be used to work out the accretive value. You shouldn’t expect to get all of the accretive value, but you can certainly ask for a percentage of it.

Image Credit: SiliconValleyStock.com

Image Credit: SiliconValleyStock.com

An example of this would be, let’s say the company that’s acquiring your startup has a multiple on the stock market of 37, if you’re going to bring a bottom line hit of $1 million, they are effectively going to get an accretive value of $37 million. If they pay $30 million for your startup, that still leaves $7 million on the table for them. If you’re in Australia, the only issue you will have is that valuations aren’t looked at this way; they typically look at discounted cash flows. In Silicon Valley though, they certainly are.

 

9. Know your appetite for risk

With 1Form, the guys had many years of corporates approaching them to buy their technology. They decided that they had exhausted the market in Australia and that there was going to be a risk to try and take it global. The guys were fine with risk but realised that both going global, and building Lets Pop, was going to be risky.

The question then came, which one would have the bigger reward? The answer was simple, starting Lets Pop. Once the decision was made they had to focus all their energy on it and get red hot on their technology. The next step was then for them to go back to the corporates that had try to buy them before and tell them that they were interested in selling 1 Form.

 

10. Understand the timeframe

The time it takes to negotiate these deals is a hell of a lot longer than you may think. You have to get your partners, board / investors and the corporate all to agree. You also need to spend the time to go out and talk to the interested parties and put together the IM doc for this. From here you need to agree with the interested party, sign a term sheet and then this term sheet gets turned into a contract.

Once you have agreed on the contract (this takes a lot of time) then you have to finalise a lot of CP’s (condition precedents). Once all of this is done then the money will finally hit your bank account.

The process for 1Form took about 8 months from when they decided to sell, which is a relatively short time – it can take 1-2 years in some cases.

 The way I have written the process may sound like it’s all very complicated, but it’s really not and occurs on a daily basis. You just have to have the guts and determination to make it happen.

The exception to the rule though is in Silicon Valley, where these deals can be literally done overnight. The reason Chris and his team didn’t look to the valley when they sold 1Form was because they were visible to companies like Yahoo, Facebook and Google so when the phone call when out to them, because they hadn’t heard of their company, they just weren’t interested. This is why it made more sense for 1Form to be sold locally.

Not having these overseas companies be aware of their startup, was probably one mistake that Chris thinks they made and have learnt from.

“Be visible to the right people that will pay the most for your startup. These are usually the ones that can extract the most value from you.”

 

Now you have the money from the sale, what do you do now?

This part of the journey is going to be different for every startup. In Chris and Chad’s case, they never viewed selling their business as a retirement deal. What a lot of people told Chris and Chad, was to let the money sit in their account for at least a couple of months and not to go and buy anything straight away – this decision often has a lot to do with your risk appetite. Ideally you would also take some sort of holiday for around 3-6 months before jumping into anything else.

 

 Should you stay on after the sale?

A lot of this will depend on the deal that you have negotiated and the next thing that you want to do. If you stay on and you continue to grow the business for the company that acquired it, it looks great for anyone that wants to work with you again, but if you stay on and it doesn’t do well then it will affect your credibility going forward.

Typically once your startup is sold there will also be an earn out. For Chris, it was only 6 months but that is considered very short in these types of deals. The main reason for that was because Chris’s startups technology, did all the work, so there wasn’t any need to stay any longer.

Chris Koch and Chad Stephens from Lets Pop!

Chris Koch and Chad Stephens from Lets Pop!

I hope you got some good tips (I know I did) and if you’re sick and tired of filling out forms then I suggest you check out Lets Pop, as it will change your online experience.

 

Tim is best known as a long-time contributor on Addicted2Success. Tim's content has been shared millions of times and he has written multiple viral posts all around personal development and entrepreneurship.You can connect with Tim through his website www.timdenning.net

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Startups

The Problem Is Not Your Website Or Your Product.

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spend a lot of my time talking to business owners. They focus on their product, their marketing channels and trying to make more profit.

I met one such business owner who was in the plastic surgery business. Their product (boob jobs and nose jobs) was not working. Their website sucked and people clicked off as soon as they visited it.

People would call their office, get put on hold, listen to the on hold message and hang up.

This business didn’t seem all that special. I’ve talked to many businesses and didn’t think for a microsecond that a plastic surgery clinic could ever teach me anything valuable.

I’ve been to Hollywood on holidays and the issues of body image are all too apparent to me. Anyway, this post is not about body image.

I ended up losing this business as a customer — not that I would ever have sold anything to them if it were up to me. I sat down one afternoon and thought about why we no longer did business with them.

That’s when I realized it’s not about your product or your website. All the issues with this plastic surgery clinic and a lot of other businesses I’ve dealt with stem from one thing. Let me explain in more detail.


Your Google Reviews say you’re an piece of work.

I looked up their Google Reviews and their customers said they were assholes.

They spoke down to clients, they didn’t deliver their clients what they wanted, they argued with their staff in front of customers and they treated people like they were nothing more than a dollar sign.

All I had to do was read their Google reviews to see that the problem wasn’t their product or their website.


Your clients tell you every day that you suck.

I asked the plastic surgery what their clients said.

Many of their clients told them that their services sucked and they would prefer to go to places like Thailand where they could get a better product at a much lower price.

The business owner made the mistake of thinking it was their product that was the problem and that a new website will tell clients a different message.

That wasn’t it.


You abuse your staff and they consistently leave.

I spoke with many staff that worked for this business.

Every single one of them hated the company and were not afraid to say what they thought of the business owner.

The business owner would sit outside on a nice sunny day and look across the street at all the yachts and the people boarding them.

They’d sit there and think that every lead they got was going to take them one step closer to owning their very own yacht.

“If only I could deliver more boob jobs, maybe I could have one of those,” they thought quietly to themselves hoping that no one else could hear how ridiculous this sounded.

I can remember multiple times being on the phone to the business owner and having one of their staff burst into tears halfway through the call.

The first time it happened I didn’t think much. After the third time, I got the message. During the short time I dealt with this business, people consistently left. If you made it to the six-month mark, you were some sort of hero and would probably be given a free surgery to say thank you for your work and make you feel worse about your own body at the same time.

It was free noses and boobs in return for daily abuse.

The problem still wasn’t the website all the product.


You don’t solve real problems; you solve your own problem.

A good business solves a problem.

That problem typically affects human beings and solving it is how you make money in business. Solving problems can start out with a problem that affects you, but at some point, you’ve got to start solving that same problem for other people/businesses.

This owner of this plastic surgery clinic was only trying to solve their own problem which was making more money to buy fancy items like yachts.

Only solving your own problem is not just selfish but bad business.

Good business is solving a big problem or lots of small problems for entire strangers who you don’t know thus doing something valuable for the human race.

Solving only your problem will make you poor.

The problem still wasn’t their website or product.


Creating more problems.

Everything this business owner sold created more problems.

They’d film videos to purposely make people feel like their body wasn’t perfect.

They’d write articles suggesting that everyone needs botox to feel young.

They’d take photos of men and women who were supposed to be perfect so that young people would dream of looking like them.

Not only was their business not solving a real problem; it was also creating more problems every day that it existed.

If your business creates more problems than it solves, you’re in real trouble.You need to take a long hard look at the business and become obsessed with doing everything you can to change it — and do so damn fast to limit the whirlwind of problems you’re creating behind you.


The heart of the problem.

It’s the business owner.

The business I mentioned will fail. That part is certain. The problem with the business is not the website or the product.

The problem is the business has no heart because the business owner has no heart.

You cannot focus on your own selfish desires, create really bad problems in the world, treat other human beings like garbage and expect to go buy a yacht and live happily ever after. It just doesn’t happen like that.

Whether you are a plastic surgery clinic like the one I described or a solo entrepreneur, the problem with your business is you.

Fix the problem of YOU. You can’t get away with being horrible forever.
Being horrible is bad business.

Being respectful, kind and valuable is the final answer to the problem with your business.

<<<>>>

If you want to increase your productivity and learn some more valuable life hacks, then join my private mailing list on timdenning.net

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Entrepreneurs

18 Must Read Business Books for Emerging Entrepreneurs and Startups

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business books

Reading is both relaxation and training for the mind. Who reads, dives into another world. Learning, entertaining and breaking out of everyday life for a short moment. One could go even so far as to say reading is the second most beautiful thing in the world! Whether it is non-fiction or a novel of all the world’s man has created, the book is the most powerful tool. That is also, why we wanted to find out which business book you should undertake in the new year. (more…)

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Startups

Everyone Wants Sales Leads But No One Wants To Sell

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Sales leads are the lifeblood of any business.

Without leads, your business doesn’t make money. That’s why many businesses treat leads like the most valuable resource in existence. Leads are a topic that never goes away and you can never have enough.

Sales leads are the cause of so many disputes in business.

We have it all wrong, though.

Having something to sell is the real answer.


Knowing what you’re selling.

Many companies don’t know what they are selling.

They think they’re selling products or services that magically turn into revenue and light up your accounting software with lots of green, shiny graphs.

Until you know what you’re selling, sales leads won’t help. Getting more sales leads, increasing your Adwords spend, buying more Facebook ads, doing more networking events, printing more t-shirts and producing more ‘content’ for your blog will not help.

You’re not getting enough leads or closing the leads you have because you’re not sure what you’re selling.


Are you selling to humans?

Go and Google ten company websites. Pick any ten.

You’ll notice one thing: more than half the websites don’t sound like they are selling to humans.

There’s no human language, very little content created by the people that work at the company, zero compassion and not a lot of humility.

Most websites are designed to sell to robots that can’t stop looking at their smartphone. That’s not us. We’re human despite our phones changing the way we live.

Humans look for thoughtful businesses.
Humans look for solutions to problems that are not being solved.
Humans like a business to stand for something human.


How you sell matters.

Selling like you’re in the office with The Wolf Of Wall Street Jordan Belfort will not help you sell.

How you sell matters just as much as what you sell.

The process you put a client through has to be simple, thoughtful and in their best interests (not yours).

That last point is crucial. Many businesses exist to serve the board or shareholders, but they do very little to help people like you and I live a better life and do our best work.

The values of your company and what you stand for effect the leads. Before anyone ever becomes a lead in your sales funnel they are a person or a group of persons (a business) with a problem.

Many people never make it into your sales funnel because how you sell what you do is wrong.

Paying for more leads is not nearly as powerful as changing how you sell to the leads you have.


Loving the people who do the selling.

Leads are only half the puzzle.

The bigger question is who is selling to the leads? Does your business treat those people who call your leads well? Do the people who call your leads even care or are they after nothing more than a pay cheque?

These are the unanswered questions that get lost in conversations about why your business needs more leads.

More leads won’t help if your salespeople burn them or don’t know how to convert each lead into a customer that becomes a raving fan and introduces more people (leads) for free.


Treat one lead really well.

I had a sales guy that used to work for me. He treated one lead in Queensland, Australia really well. He spoke to him every day. He knew a lot about the persons family. He even went to the leads barbecue.

That lead was so impressed that he referred several hundred (that we could track) leads to our business. Treating one lead really well is far more powerful than buying more leads who don’t care about what you do.

Digital marketing has become a drug that every business thinks they need.

If only the business world knew the power of one lead.


The good cause factor.

Your business may do something simple like mow lawns.

That may not sound like a life-changing business that can take this lead advice I’m giving onboard. “My business is simple,” you say to me.

Well, I’d challenge that. Any business can have what I call the ‘Good Cause Factor.”

Let be give you an example. The local butcher down the road from me has a BBQ every Saturday afternoon where they invite the community to come and eat some food for free. Everyone is welcome including the few homeless people in the area that never buy any meat from their business.

People stand out the front of that butcher and talk about things that are happening in the community. This Saturday ritual has become a place where business ideas have flourished, homeless issues have been discussed and people who were lonely and possibly suicidal, decided to live for a bit longer.

The last part is the most interesting. In my community here in suburban Melbourne, there is a large group of people that suffer from mental illness. When I went through my own battle with mental illness, I went to the local town hall where people gathered who suffered from the same condition.

It was that event every Wednesday that helped me become a different person.The loneliness and the isolation I felt were cured by the simple act of connecting with other people and having the guts to talk about the demons I was facing.

These same people go to our local butcher on Saturday and eat at the free BBQ. The butcher is thoughtful and they know that they are doing something far more important than selling meat; they’re selling connection to the community, and a possible solution for isolation and loneliness that leads to mental illness.

So back to the point of this post, the community butcher is selling a good cause — an X Factor as some people would call it.

What your business does with its resources to help a worthy cause that affects humans like you and I is just as important as sales funnels, lead generation and your product roadmap.

Link your business to a worthy cause no matter how simple it is.


Lead quality.

I lose my mind when people talk about lead quality.

The quality of leads comes down to the quality of people talking to those leads and what you have to offerEven the coldest lead can buy from you if you know how to find their problem — which they may not know they have — and use your product or service to enhance their life.

Quality of leads is a myth. All leads are equal.

No matter what stage of the sales funnel someone is in, they can be converted by the right business, with the right message and the right intentions to serve rather than take.


More leads are not the answer.

I know you want more leads. We all do.

I’m telling you to think much wider and deeper than that. If all we had to do was get more leads and we’d become the next Bill Gates, we’d be all billionaires.

I could go and set up a business that does nothing more than generate leads and call my business the ‘Billionaire Factory.’ One, two, lead, wham, bam and now you’re rich.

Refine your business down to helping one lead.
Make that lead believe in you.

Rinse, repeat.

<<<>>>

If you want to increase your productivity and learn some more valuable life hacks, then join my private mailing list on timdenning.net

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Startups

5 Digital Marketing Habits Geared for Success in 2019

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digital marketing

The digital marketing landscape is in constant flux. New social platforms are born daily, while others fizzle out, and search engine algorithms are updated hundreds of times a year. What worked last year may not work this year. The reasons you need a digital marketing strategy remain similar each year, but to be successful in 2019, you should practice the 5 digital marketing habits below. (more…)

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