10 Seller Mistakes
loves a good top 10 list. Presented below are the top 10 mistakes that
companies make when the time comes to sell the company.
1. Trying To Sell At the Top
is a key driver for getting the best price when selling a company. The
ideal time to sell is when the larger companies have the greatest need
for your technology or key assets. Trying to pick the top usually results
in missing the window and not selling for the optimal price.
market may be on a different time schedule than your company’s growth
curve. It is human nature to not want to sell when a business is doing
well. If you wait until revenues peak, there may be little growth left.
Too many CEOs think about value in financial terms, not
strategic terms. The mindset is: “If we wait, we will be worth more.”
For technology companies, the strategic value is almost always greater
than the financial value so waiting does not necessarily increase value.
2. No Competing Bids
with only one buyer is a mistake that many sellers make. They don’t
contact enough buyers and they don’t generate competitive bids.
Negotiating with only one buyer reduces your leverage significantly.
company may have received an unsolicited offer. Don’t presume that this
is the best candidate. A CEO may think he or she knows the right buyers
because they know their market space. The only way to identify the
complete set of buyers is to execute a disciplined market exploration.
Restricting the universe of potential buyers is a mistake. Even one
additional buyer can make a remarkable difference in price.
3. Unrealistic Price Expectations
price expectations can kill a good transaction. A savvy buyer will
recognize early on that a seller is asking too much and they will walk
away. Buyers have learned that an unrealistic seller can be a huge
waste of time.
Unseasoned negotiators make the mistake of
thinking that if they ask a high price, they will be more likely to get
it. This is rarely the case. In a strategic transaction there is no
“true” value of the business. The business is worth what a buyer will
pay for it. Get as many offers as you can and then take the highest one.
4. Not Engaging a Professional
CEO who tries to sell his own company puts himself at a distinct
disadvantage. He can’t possibly view the company objectively; nor can
he or she spend the significant amount of time that selling a company
requires. There is no way a CEO can run the company and competently
manage the sale process at the same time. Mistakes can be costly.
the CEO tries to move aggressively, he appears desperate. And if he
doesn’t drive the deal, it loses momentum which also has negative
consequences. Every transaction needs a quarterback to drive the deal.
You need to know when to push, when to be patient and when to switch
The sale of a business is a complex process with many
issues both large and small that must be addressed. An experienced
intermediary can manage the process more effectively, increasing the
odds that the transaction is concluded at the best price and with the
5. Poor Problem Solving
deal has problems. About 40% of transactions fall apart at least once.
Overcoming these problems is an essential deal skill. Poorly solved
problems can kill a deal or result in a suboptimal transaction
Understand how the other party views the problem—the
stated problem may not be the real problem. Strive to understand the
reasons behind your opponent’s positions.
Most problems have
multiple solutions. Step outside the box and don’t be too linear. Be
aware of clinging to your assumptions. Use creativity. Many tough
problems can be solved with out-of-the-box and imaginative solutions.
6. Not Prepared for an Unsolicited Offer
and more companies are being acquired early in their life cycles.
Receiving an unsolicited offer is a common occurrence for technology
companies. The buyer that approaches you, however, may not be the best
a company respond to an offer out of the blue? Should you scramble to
get competitive offers? The company must review its strategic plan,
examine the market, and assess the buyer. The firm must decide whether
to reach out to only a few additional buyers or to numerous
7. No Exit Strategy
company needs a sound exit strategy. The exit strategy guides
decision-making in the shorter term and improves the probability of a
successful exit. Few companies plan far enough in advance and every
firm has some elements of their exit strategy that can be improved.
clear exit strategy improves alignment between shareholder groups and
management. Exit strategy can guide product development decisions and
avoid downstream problems. Align managers’ incentives prior to the
sale and keep good financial and corporate records. Sound preparation
can bolster the price.
8. CEO does the Negotiating
CEO who negotiates the sale of his own company may not get the highest
price for the shareholders. CEOs are too close to be objective. Also,
CEOs don’t always listen well. Listening, or more aptly, “hearing” is a
key negotiating skill.
An objective third party can
establish a constructive atmosphere, help defuse unreasonable claims
and minimize extreme posturing. Friction can develop in negotiations.
To avoid an adversarial relationship, let an intermediary handle the
negotiations and be the bad guy.
If the CEO will be staying on
after the close, he or she may have a different agenda than the
shareholders and thus a conflict of interest.
9. Neglecting Day-to-Day Operations
time frame for selling a company may continue for six to nine months.
Management must mind the store and keep the business running smoothly
during this period. It is critical to keep revenues coming in, the
sales pipeline full and customers happy. Declining revenues can result
in a lower purchase price. In addition, if you are providing financial
forecasts to the buyer, make sure that you can achieve these
Employees are vital assets for most technology companies and the buyer
will want assurances that they will stay. Management should design incentives for key
employees so they stay involved and motivated during the sale process.
10. Intellectual Property Snags
property is becoming increasingly important in the sale of companies.
One of the biggest problems that can derail a sale is poorly documented
intellectual property. The ownership of all software and technology
should be well-documented. It should be evident what software is owned
and what software is licensed. Have copies of all agreements and
prepare schedules of all patents, trademarks and copyrights.