When it comes to selling your business, your first offer is not your best offer.
You read that right.
Your first offer is not your best offer when it comes to selling your business.
Whatever you do, don’t let the experts and conventional wisdom insist that your first offer is your best offer.
As usual, both the so-called experts and conventional wisdom are wrong.
A quick story.
I started my EdTech, Embanet, right out of school with no money, experience, or team. On paper, I should have quit before I started.
It was my persistence and willingness to fail forward, every day, that kept me in the game.
A decade later my EdTech was profitable beyond belief and a leader in the industry. A savvy buyer took notice and offered to by my company.
Conventional wisdom and the so-called experts would have had me accept the offer.
To the surprise of the buyer, I said ‘no,’ and looking back I’m thankful I did.
Why?
I turned down a 3 times EBITDA offer that was 7-figures.
A mere two years later I accepted a 9-figure offer, from a different buyer, based on 13 times EBITDA.
Was my experience the exception to the rule?
Not a chance.
Why is your first offer not your best offer?
Keep reading.
Why Your First Offer Is Not Your Best Offer
Every master was once a disaster. – David Wood
Why is it that your first offer is not your best offer?
The simple answer is you’re not prepared.
If you’re like most entrepreneurs, you’ve defied the odds and made your company a success. You may have bootstrapped your company and run it like a cockroach startup.
Your company culture has employees who do whatever it takes to win, and your customers love you.
You may even be one of the few entrepreneurs who cracked the code and your business model doesn’t suck.
Congratulations!
But here’s the thing. Your focus, time, and energy are on surviving and thriving. Exactly as it should be.
The skill sets you’ve mastered are great for building an empire, but not for selling your company.
Buyers know this and profit at your expense.
Most entrepreneurs are busy running their companies to make the time to prepare for an exit.
And the allure of a 7-figure, 8-figure, or 9-figure offer is too tempting to turn down.
For buyers, the first offer is the best offer because they’ll buy your company at a lower value.
For you, my fellow entrepreneur, your first offer is not your best offer.
Want to know how the buyer ensures your first offer is not your best offer?
Keep reading.
Tactics Buyers Use To Ensure Your First Offer Is Not Your Best Offer
No pressure, no diamonds. – Thomas Carlyle
Your future buyer will do anything and everything to ensure your first offer is not your best offer.
A quick story.
My first offer was from an experienced, savvy, and smart buyer from a Fortun 100 company. The buyer’s approach was brilliant.
The buyer approached me to explore an “alliance.” The buyer was quick to point out how fast my company could grow with his global customer base and sales team.
Myself and business partners flew to the buyer’s corporate headquarters. To say we were wined and dined by the top brass is an understatement.
It was clear to the buyer and his team that my strength was running my company and not preparing it for sale.
Before you could say “exit strategy”, the buyer went from an “alliance” to a “strategic alliance” to a buyout.
The buyer insisted that the highest offer would occur if no other buyer were part of the process. All I had to do was sign an exclusivity agreement, which of course, he had already written up.
I signed the exclusivity agreement and let the buyer lead the process.
The due diligence process was extensive. The time and cost of going through the process were significant.
The buyer came out of due diligence with a list of compelling reasons for a low company value. Since the buyer prevented an auction, it was a take-it-or-leave-it offer.
To the buyer’s dismay, I left the 3 times EBITDA 7-figure offer.
In reality, the buyer came as a wolf dressed in sheep’s clothing.
Why Human Nature Ensures Your First Offer Is Not Your Best Offer
Love your enemies for they tell you your faults. – Benjamin Franklin
Do you know how buyers ensure your first offer is not your best offer?
Let me explain with a story that, at first, seems out of place. It isn’t.
Read and learn.
I spent much of my childhood with my Grandparents.
My Grandparents were immigrants to the country and were as ethnic as ethnic gets.
To my Grandparents, the thought of not offering food to any and all visitors was a travesty.
As a result, with a smile, and with love my Grandparents’ offered a tray full of food to anyone who visited.
Sometimes the tray was freshly baked cakes, pies, or other ethnic delicacies. Other times the tray was brimming with fruit.
Most people declined the food on the way in only to have eaten the food by the time they left.
Even the people who protested the most and said they were full ended up leaving full(er).
Why did the visitors eat the food even though they said they weren’t hungry?
Human nature.
People can’t resist the temptation of the food once it’s in front of them.
And it’s the same human nature that your buyer is counting on to ensure that your first offer is not your best offer.
How?
Keep reading.
Revealed: How Your Future Buyer Ensures Your First Offer Is Not Your Best Offer
A fool thinks himself to be wise, but a wise man knows himself to be a fool. – William Shakespeare
Your future buyer is wise and motivated to ensure that your first offer is not your best offer.
In the previous section, I shared my experience with the buyer who approached me. The buyer did three things to tilt the situation to his favor.
First, the buyer had the element of surprise when he approached me and played up the greed factor.
How?
The buyer suggested that if he were the only one in the process, he would offer the highest value. A round of applause for the buyer who eliminated other buyers and an auction.
Second, the buyer attempted to wear me down through an extensive due diligence list. I lacked the due diligence mindset, and it showed.
Third, the buyer played the human nature card by throwing a 7-figure offer my way.
To the buyer, I was an unprepared country bumpkin who would say ‘yes’ once I saw the money.
The buyer was counting on my human nature to overcome any logic and have me accept his low offer.
In reality, I was the exception when I said “no.”
Most entrepreneurs sell their company for two reasons.
First, the buyer approached them which, in their view, saved them time and effort.
Second, the offer “seemed” like a lot of money. More on this later.
Know that your first offer is not your best offer when the buyer eliminates an auction and plays to your greed.
What You Must Do To Ensure Your First Offer Is Your Best Offer
The greatest pleasure in life is doing what people say you cannot do. – Walter Bagehot
When it comes to selling your business, ignorance ensures your first offer is not your best offer.
The first offer I rejected to buy my business was a 7-figure 3 times EBITDA offer.
A different buyer bought my EdTech two years later for 9-figures based on 13 times EBITDA.
At my expense let me contradict myself for your benefit.
When prepared you can ensure that your first offer is your best offer.
How?
For starters, create a market disruption to differentiate your business.
Know the 7 mistakes every buyer wants you to make when selling your business.
Dominate and win when you know how to choose an investment banker.
Master the art of building out a virtual data room.
Assemble your exit team so you can crush it and win (big).
Educate yourself so you know how to maximize your business value.
Does this seem like a lot of time, effort, and work?
You better believe it is.
You have a choice.
Do what’s right or do what’s easy.
Your future buyer is counting on you doing what’s easy and not spend the time and money to prepare yourself.
Do the easy thing, and you guarantee that your first offer is not your best offer.
Choose and choose well as you have one chance and you better make it count.
Conclusion
Don’t be like most entrepreneurs and do the wrong things to ensure your first offer is not your best offer.
You’ve read about my journey which had me turn down a 3 times EBITDA offer that was 7-figures.
Two years later I accepted a 9-figure offer, from a different buyer, based on 13 times EBITDA.
I didn’t know what I didn’t know.
My saving grace was that the only thing I did know was that I was not prepared to sell my company.
I desired to learn the art of preparing myself and my company for an eventual sale that maximized value. This was my saving grace.
And the numbers and results speak for themselves.
Do what most entrepreneurs do and know that your first offer is not your best offer.
Your future buyer plays you like a fiddle, at your expense.
But it doesn’t have to be this way.
I’ve revealed the tactics buyers use to ensure your first offer is not your best offer.
If I can do it, so can you.
Remember, I was the kid right out of school who started his company with no money, experience, or team.
Knowing what not to do is as important as knowing what to do.
You now know what to do and not do.
May you go forth and prosper.
You can do it.
I know you can.
Here’s to you and your success!
Your BIGGEST Raving Fan,
Jeffrey Feldberg
Today, Feldberg's passion is helping you extract your deep wealth. The 90-day Deep Wealth Mastery program helps create a solid foundation for three areas: increasing profits to enterprise value and optimizing post-exit life. Deep Wealth Mastery offers strategies and insights drawn from Feldberg's rich experience. The strategies from the trenches get results. Jeffrey's vision is to increase the social fabric of society one entrepreneur at a time.
Learn more through https://iapdw.com/prosper
