For this chapter, we spoke with Brian Brandt from iFound, an AR shopping application that was acquired in 2017 for an undisclosed amount.
Gunner Technology: First off, and I know I’ve said this to you a bunch before, but congratulations on getting acquired. That’s something very few people ever accomplish.
BB: We got really lucky and we couldn’t have done it without you guys.
GT: What was the biggest factor behind getting acquired?
GT: Were they more interested in the users or the revenue?
BB: Honestly both. Having that fairly substantial user base is always going to be attractive in this day and age, but also being able to point to all of these companies that we had partnered with and the revenue we were generating from those partnerships and just from general usage of the app was obviously key as well.
GT: Any recommendations for companies out there looking to sell?
BB: When we sold iFound, I had been working on it for almost eight years. It basically took me from my late twenties to my late thirties. That’s a huge investment both in terms of time, but also emotionally. One thing I’ve seen over and over again with founders or early stakeholders of a company is an inability to let go. And I understand that, believe me, because I loved iFound and I loved our team and everything about the company. But if you truly want to sell your company, you have to be ready to let it go.
We’ve come a long way since the start of this book on entrepreneurship, and if you’ve ever stayed with an idea long enough, you’ve gotten to a point where you’ve wondered whether it was time to sell. That’s what this chapter is all about.
Back in the day, valuations were a lot easier. Largely they were based off EBITA or Earnings Before Interest Taxes and Amortization, which is basically a measure of how efficient your business is. It cares about stuff like whether you have a balance sheet (and whether your books are in order), whether your taxes are paid and up-to-date, whether you have done proper accounting (and if not, whether you have any distressed assets).
Depending on the economy, you’d multiply EBITA by 2x or 4x or 8x or whatever multiplier. And then you’d increase the price based on other attributes like having some key partnerships or a rockstar CEO. And mostly all anyone cares about is the last 3 years of EBITA, with the most recent year being the most important. Also highly important is showing year-over-year growth.
And that was basically it.
But we now live in a brave new world.
Traditionally, folks wanted to purchase diamonds, but now they want to purchase pieces of coal to turn them into diamonds. Facebook, for example, had potential. Mint had potential. But they were both free and had no revenue to show, which is partially why Silicon Valley got away from EBITA. Silicon Valley loves to buy potential.
So what matters now, largely, is your user base. How many users do you have? What’s the acquisition rate like for new users? What’s the total pool of potential users? (Are you targeting some small, niche market or are you after the entire world like Facebook?) And how much are your users worth?
So if your product is free, what really matters is massive amounts of growth and engagement. That shows that people love your product and shows the potential for major upside as the idea grows even more. (Plus, your user data is incredibly valuable and the more you have, the more valuable it is.)
B2B works slightly differently, although a lot of the same principles apply.
With B2B, buyers would also look at how many contracts you have, the average length of those contracts (100 contracts for 4 years is better than 1,000 contracts for 2 years), the overall value of those contracts, what percentage of contracts are cancelled, etc.
It’s often a good idea to reach out to a broker to help sell your company. They’re experts on attracting potential buyers and focus on fitting the buyer to the company. Plus, if they can’t directly help you sell your company, they can often at least tell you what you need to do to get potential buyers interested.
But if brokers are interested in directly helping you, they can often expedite the process tremendously. Most brokers have a huge network of buyers, folks who love buying up companies with proven track records of success or even just companies with lots of potential. These brokers will shop your company around and hopefully sell it for you for a commission.
It’s honestly a great way to go if you’re looking to sell your company and it’s a method we’ve had tons of success with in the past.
Finally, to close this book out, let’s talk about how to run your company.
We’re not going to tell you how to build a culture or what your day-to-day looks like. That’s for you to figure out and customize. (Plus that’s a lot of the fun of running a business!)
What we will tell you is this golden rule that we use at Gunner Technology:
Don’t operate as if you’re going to sell your company, operate as if you’re a company that’s going to go all the way to IPO.
Operating your business this way focuses you on those key things that will make your company run like a well-oiled machine (and will also help you sell it down the line). It will make you prioritize keys like balanced books and long-term growth – all the things an acquirer will want to see when they’re looking at your company.
Operating in this fashion also helps you structure your business in a process-oriented manner where any piece can be replaced. This is hugely important during an acquisition because the acquiring company will often want to replace some (or all) of the pieces. They’re often buying the business, not the personnel (or at least not all of the personnel).
We started with an idea. We ended with an acquisition.
That’s the story of so many businesses and it could very well be the story of yours. Hopefully by applying the principles in this book, you can set yourself and your business on the path to success. We wish you all the best and all the luck in the world with your idea!
(And don’t hesitate to reach out to Gunner Technology for help with your idea by emailing email@example.com.)