I failed at selling Lead Cookie, here is what I learned
In early 2019, I made the decision that I was going to try to sell Lead Cookie over the course of the year. I had built the business to a good spot where it ran without me, and the idea of selling it and moving on to something new was quite appealing.
Over the course of the year, I went through the process of preparing the business for acquisition, talking directly with buyers, listing with a broker, getting an LOI, and then having them back out of the deal.
It was a wild experience and this is the first time I am writing or publicly sharing anything about this. My hopes with this post are to share some of the lessons I learned, as well as shed some insight into the process I went through, and what I would do differently in the future.
Why I wanted to sell
First off, I want to dive into why I wanted to sell Lead Cookie. After all, if you have a great business, why would you sell it? When I look into my reasons for wanting to sell, there were a few.
I had started a second company, Content Allies - At some point in my journey, I made the move to start a second company. While this may sound exciting, it's actually way harder than I imagined. Trying to shift my mindset between two companies is exhausting and it was weighing on me. I wanted to get back to a singular focus, and the long-term business model of Content Allies was more exciting to me, as well as the new challenge.
Lead Cookie could run without me - I had gotten Lead Cookie to a point where it could run without me entirely, which was amazing. We had become one of the top B2B lead generation companies in the market. This felt like a great time to sell since I had finally gotten it to this point.
Checkpoint in life - There is a great podcast called $250k is a Life-Changing Exit where it talks about how, for early-stage entrepreneurs, that first exit can be massively life-changing, even if it's not a huge sale. This idea, combined with the challenge of running two companies, was quite appealing.
I felt that Lead Cookie would be more stable in a bigger company’s hands - When I looked at the future plans for Lead Cookie, it was clear that to grow as a company, we would need to grow our LTV of each customer. One way to do that was to build out new service offerings, but that sounded exhausting to me. So I liked the idea of selling our single-service offering to a larger agency-model company that could offer a wider variety of services to our customer base, as well as sell our services to their customers.
Instead of trying to build out these new service lines myself, I thought it would be a good time to sell and tack on to someone else’s wider service lines.
I thought it would be better for the team - My fear of running two companies is that neither company would get my clear attention, which could mean that I slip or fail to give focus to my team or the organization. My hopes were to find an acquirer that was a good cultural fit and who would also be large enough that it was more opportunity for my team to merge into their company- instead of fearing what could happen.
During the acquisition, I spoke with several buyers who I dismissed purely on a cultural fit. There were a handful of buyers that I would never want to send my team to work for. And with the buyers I narrowed down to, I’d be ecstatic to put my team in their hands- as I knew they would be amazing leaders to work with.
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So that shares a bit on my motivations, now let's dive into preparing for the acquisition.
Preparing for an acquisition
To start off, I want to dive into the process of preparing for an acquisition. Some of you may want to jump straight to the juicy details, but this is one of the most important aspects I can share for many entrepreneurs.
In talking with my business advisor, Alex McClafferty, he shared with me how he did not really learn or prepare enough for WPCurve's acquisition with GoDaddy prior to it happening. As a result, he was scrambling to learn and understand how acquisitions worked, while the acquisition was happening.
Alex encouraged me to start learning more about acquisitions in late 2018 so I would be ready for when the timing was right. This way I would know what to expect when an acquisition potential presented itself, instead of scrambling to understand things while talking to a buyer.
This is a key insight here for any entrepreneur: Start to learn about acquisitions now.
Don't wait until it stumbles across your lap. Learn about acquisitions now so that you are not scrambling in the future. This is also important because everything you learn will help you structure and design your company in a way that is attractive to potential acquirers.
Ryan Tansom has some great free resources that were super helpful in educating me about this journey.
Here are just a few logistical points that were massive for me during this time.
Remove yourself from the business
This seems like a no-brainer but it's essential that, if you are going to sell the company, you need it to run without you. This means selling, operating, and functioning 100% without your involvement.
One thing that became clear for me with Lead Cookie over this past year is, even though it may run and sell without me, it does not market well without me. This is an area that I am still working on replacing myself in.
Keep your books clean
This was absolutely painful and is one of the most essential elements of going through an acquisition. My books were an absolute nightmare. I had hired a cheap accountant for the previous 2 years who had done a horrid job with my books. As a result, I basically had to go back and re-do my entire bookkeeping system from the start of the company...
Imagine reconciling 2 years of transactions at once... not fun.
Don't cheap out on an accountant and get your books clean.
If you are “not a financial person," well, too freaking bad. Get your shit together, learn how to do your books properly, hire a decent accountant, and get this together.
It's part of running a business. I avoided this for far too long and it bit me in the ass.
Get your books clean and professional. This is a base standard for business.
Separate any other revenue streams into different LLC's
Another thing that made the bookkeeping mess such a nightmare is that I had run my personal consulting and various other startup attempts all through the same LLC and set of books as Lead Cookie. I also initially launched Content Allies under the same LLC as Lead Cookie.
As a result, I had to go back for 2 years and tag all revenue and expense sources that were not related to Lead Cookie just to get a clean set of books.
If you are a compulsive entrepreneur like I am, then spin up a second LLC to experiment in. Here is my setup now.
Lead Cookie - 1 LLC & Set of Books
Content Allies - 1 LLC & Set of Books
Personal Brand / Catch-all - 1 LLC & Set of Books
That 3rd LLC is key to letting me be my crazy entrepreneurial self while still keeping my books clean. Any random income I get from side projects or new business ideas can be spun up in that LLC and then split off into separate ventures if they ever turn into anything.
Why it's worth learning about acquisitions even if you don't want to sell
When you begin to learn the process of acquisitions, you start to see and understand how experienced entrepreneurs and investors think whenever they will buy your business.
This is extremely valuable because, essentially, they are looking for a good, profitable, and predictable business. So if you can build something that someone else would want to buy... well, it probably would be pretty nice to own it yourself.
The one thing I can say is that even though this acquisition attempt failed, I learned a MASSIVE amount throughout this process. I feel as though I completely leveled up as an entrepreneur. Prior to this year, I felt like I was playing in the kiddie leagues, and now I'm in some sort of Freshman-Sophomore level... still not a pro, but getting there.
So even if you don't sell your business, spending time understanding and learning more about it will change your entire mindset and approach to entrepreneurship. It will force you to think about the big picture and to look at your business from an outside perspective.
Working with a broker
When you go to sell your business, you can do this directly by building a relationship with an acquirer and managing the deal yourself with supporting counsel.
Or you can work with a business broker who will essentially list your business like a real estate agent would and market it to their list of buyers in exchange for 10-15% of the total sale price.
While a direct sale obviously has more advantage, due to the commission fees on the other end, it's difficult if you don't have a strong network of potential buyers, and if this is your first time at-bat.
In the end, I decided to go with a business broker, although I can't say that it was a great decision...
My experience working with a broker
I interviewed a few business brokers when considering who I was going to work with for this acquisition process. And to be honest, I wasn't totally happy with any of them. But the fact that they have a list of buyers who are interested in my type of business is appealing as I didn't like the idea of trying to do this first sale on my own.
After interviewing a few, I chose the broker who made the best promises... yet in the end, I felt that nearly all of those promises were false and I was extremely dissatisfied with the experience.
Regardless of who you choose as a broker, here are just a few things to consider about the broker experience.
Their promises mean nothing - On the front-end, I felt as though each broker was promising the world. They told me that my business was great and that it was almost certain it would sell. I shared my concerns and they all said, "Don't worry, it will be fine."
For example, I told all of the brokers that there is a serious platform risk with LinkedIn in this business. I think this is going to be a deal-killer for anyone who is not a strategic buyer.
Again, they all said, "Don't worry about that. It will be fine."
Then, all of the buyers said, "I'm worried about the platform risk" and backed out. Only a strategic buyer actually moved to an LOI.
The brokers told me what I wanted to hear to get me to sign with them.
Incentives are NOT aligned - Brokers are paid based on a percentage of the sale of your business. They will use this to say, "Our incentives are aligned," but in reality, they are not.
Imagine you sell your business for $500,000 and your broker gets 10%. That means they walk away with $50,000. It sounds like alignment.
But then, when it gets into the negotiation, the alignment goes out the window. Their motivation is to get the deal done, yours is to get a good deal.
Now imagine that during the negotiation, they drop your price to $450,000. You lose $45k. They lose $5k but still walk away with $45k. For them, to ensure the deal gets done is more important than fighting for your good deal. That $5k difference isn't worth fighting for with their motivation structure.
How this played out in my deal is that my broker actually offered my business at a discount to buyers at multiple times throughout the process without even asking me.
Other than intros, I found the broker useless - Other than providing introductions, I felt that the broker was utterly useless to the process. They try to chime in and offer value, but it felt more like having a babysitter during conversations with buyers than having a useful partner.
You don't control communication or perception - One of the most frustrating things, which I did not realize until the end, is how my broker was communicating about my business on my behalf. They are basically preparing marketing materials, financial reports, and a prospectus to show to potential buyers.
While you approve of those at the start, you are never on the email thread where any of this is communicated with the buyer. This means that they are positioning your business in a way that looks the most advantageous to the buyer while trying to hide some of the real stories that lie within.
This played out in the sale with the broker using our cash-based accounting methods to make it look like an uphill trajectory when, in reality, we had just collected a lot of pre-pays that would be accrued over the coming months. To the buyer, this looked interesting and appealing and like an uphill trend.
But then, as soon as due diligence started, they realized that the numbers had been distorted to look more appealing than reality, and the entire LOI discussion was out the window in 48 hours.
This led to a massive misalignment between the buyer and myself as I didn't realize the distortion of the numbers until we entered due diligence and found ourselves so out of alignment.
With brokers, you don't get all of the conversations. You don't know what was said or presented on your behalf since you are often not included in email chains.
If I could do it all again, here's how I would do it
No broker.
Instead, I would prepare my own prospectus with the support of my accountant and business advisor.
Then I would target interested strategic parties directly by researching them just like I would a potential customer.
I would retain an advisor on partial cash and partial commission structure.
Then I would run and do this whole process myself.
In some ways, it would be more work. But when I look now at all of the lost time and mental energy that was wasted over the past year in a failed acquisition, well... that work doesn't actually look so bad.
Don't underestimate the mental overhead of an acquisition
One of the reasons I first went down the path of trying to sell was because it didn't seem like that much work.
I’d get my books clean, work on the prospectus with a broker, have a handful of conversations. Then, do a deal.
It sounded pretty simple and like it wasn't that much work. And in reality, the "work" of it all wasn't that much.
But what was painful is the mental overhead...
It's thinking about it.
It's the "what ifs."
It's the "why aren't they responding?”.
It's the "how do I plan next year? Will I have sold this, or not?"
It's the mental distraction that you place to focus on acquisition instead of the future of the company.
This was the worst part of the entire process. At times, it got to a point where my team said: "Yeah, you've seemed really off and distracted lately."
I wasn't able to tell them I was in the middle of a potential acquisition, but that was the reality.
The acquisition weighed so heavily on me, it's hard to explain. I tried to practice every stoic and mindfulness practice that I knew, but in reality, the stress still got to me, regardless.
And this is the real cost of the acquisition.
Not in the minutes that I spent in meetings or preparing.
But the countless cycles in my brain with “what-ifs,” and the distraction from just growing the business.
When the deal finally died, I breathed a sigh of relief.
I wasn't even sad.
I was just grateful that I didn't have this massive open loop in my life anymore.
I was grateful I could just focus on running my business again and not think about selling it.
Acquisitions are not a lot of time.
But they take up massive mindshare.
Would you buy your own business?
Another question worth asking during all points throughout the process is, "Would you buy your own business?"
Whenever we were going into the LOI, I had this feeling of this is amazing and too good to be true. But when I asked myself this particular question, I knew that I wouldn't actually buy my own business for the price or terms we had discussed. But they were going for it, so it was exciting.
But all of those feelings came true in due diligence when I realized that they wouldn't buy my business for those terms. They had, instead, been painted a pretty picture by the broker that was not the reality of my business. That is what they thought they were buying.
So ask yourself this question today when you start the process and when you are in an acquisition. Because if it seems too good to be true, then it probably is. Use some empathy, put yourself in your buyer’s shoes, and figure out how to make your business something that is advantageous and fair to them.
Keep your eyes on your business
Another thing that killed the deal was the fact that I had let my business slip. I was splitting my time between Content Allies, Lead Cookie, and the acquisition. This weighed on me and, as a result, I made some poor decisions that let our revenue slip in late 2019.
This was not ideal and was another piece that killed the deal. It's hard, but even amidst all of the distraction of the acquisition, you have to keep the business up and running like normal.
This sounds easier than it is at times when the mental overhead of the acquisition is weighing on you.
But pre-acquisition is the worst time to let the business slip. Unfortunately, I made that mistake.
It was a hard year, but I learned a lot
Despite the fact that I have a full year of working on this acquisition with nothing to show for it, I still came out in a better spot. I learned so much about business, acquisitions, and how to build a good company that I know I will be leveled up for years to come.
Someday, I will sell one of my companies. And when that time comes, I will be much better prepared and ready to handle the opportunity when it comes to me (or when I seek it out).
Hopefully, this post has helped share some insights with you and changed your perspective on thinking through acquisition.
Update: Lead Cookie is still active and we have become a top Linkedin Lead Generation service.