Perfect waves are what surfers all around the globe dream of. But even if you travel to Queensland, Australia and paddle out to the break with a freshly-waxed board, your experience could be very different than the guy next to you. Professional surfers are set apart by their ability to align themselves perfectly with the waves.

Selling your business is a lot like surfing. You can have a phenomenal business that is performing well and growing fast. But if your business isn’t aligned correctly, you’ll miss the wave. Excellent companies have been sold for pennies on the dollar because they did a poor job at positioning themselves for a successful exit. This leads to 3 questions you need to ask yourself as you build your business:

  1. What are the fundamental business components that must be in place when the wave of opportunity comes along?
  2. What is the tide in my industry?
  3. How do I navigate the shark-filled waters of investment opportunities?

THE FUNDAMENTALS

A mark of a true professional is a mastery of fundamental techniques. The best surfers, for example, paddle with a strong crawl stroke, arch their back as they are dropping into a wave, and bend at the knees, not the waist. For instance, watch Kelly Slater’s near-perfect ride in the 2013 Pipe Master Championship. It’s obvious he has perfected the fundamentals of surfing.

If you want potential buyers to get excited during the due diligence process, it pays to have a professional beef up your fundamentals. The fundamentals vary for each transaction, but 9 general areas of due diligence should be addressed:

  1. Corporate structure and general matters
  2. Taxes
  3. Strategic Fit
  4. Intellectual Property
  5. Material Assets
  6. Contracts
  7. Employees and management
  8. Litigation
  9. Compliance and regulatory matters

INDUSTRY TIDES

After college I backpacked southeast Asia with some buddies. Our last stop was Bali, Indonesia.

“It has the best surfing waves in the world,” they told us. “It will be epic,” they told us.

So there we were. Three dudes, who had never surfed before, paddling out to the crowd of professional surfers that were grouped together in what seemed like a random spot about 200 yards from the beach. You can probably guess where this is going.

As we crossed over the reef a few feet below us, we looked up and realized that a massive wave was about to crash on top of us. We bailed from our boards and tumbled backwards in the wave, barely avoiding the sharp reef. As soon as we surfaced for air, another wave came slamming down, this one bigger than the first. Again, we were violently thrown back towards the shore. We charged ahead, trying to get past the break to the waters where the other surfers were calmly floating. After a few more frustrating attempts, we conceded to our fate of boogie boarding. What had we done wrong?

We didn’t understand the inflection points of that surf spot. Instead of waiting for calmer waters, we decided to paddle straight into a set of waves, which any surfer with experience will tell you is a rookie mistake.

The industry you operate in is constantly changing and has its own inflection points. Deal multiples ebb and flow, industries grow and shrink, just like a set of waves. An industry will often see a set of multiple M&A deals happen within a few years, and then nothing for a decade. In all of these changes, timing is the most crucial factor. Including when to sell, what opportunities to grab, and what buyers to pitch your company to.

With each inflection point, market opportunities are emerging and disappearing. Sometimes massive opportunities arise by only changing your perspective. Slack built a multi-billion-dollar software company from the leftovers of an unsuccessful video game. Southern New Hampshire University went from only a few thousand students to over 30,000 online students by better understanding the industry tides.

Additionally, each potential buyer you meet has a specific target and valuation range they are seeking. While one buyer might be looking for companies with EBITDA between $1-5 million, another might only consider acquiring companies that have revenues greater than $100 million. It’s more effective to pitch your company to the 20 potential buyers looking for a company exactly like yours rather than to 200 potential buyers shotgun style.

In short, industries are nuanced and constantly changing. It is imperative to have an aerial perspective on what is happening in your specific industry to understand the inflection points, respond strategically, and at the perfect time.

NAVIGATING INVESTMENT OPPORTUNITIES

“My passion for surfing was more than my fear of sharks.” – Bethany Hamilton, professional surfer and shark attack survivor.

Surfing has its dangers. One of them is sharks. While it’s rare, surfers are occasionally attacked by sharks. Some surfers, like Bethany Hamilton, lose limbs or even their lives to the underwater predators.

Before you catch a wave and sell your company, you’ll first need to navigate the shark-infested waters of taking on investment, partial sale, or full sale opportunities. Raising capital, for instance, can be a very good thing for the right growing business (as was the case with Apple, Google, and Microsoft). However, there are occasional sharks swimming with the VC’s, PE firms, and investment banks. A firm like Economics Partners can help you navigate the waters to avoid any dangerous sharks.

TAKEAWAY

Learn and master the fundamentals of business. Recognize the ebbs and flows of industry tides. And finally, don’t let the sharks keep you from successfully funding or selling your business with the right counter-parties at the right time. The big wave you’ve been waiting for may be coming – are you ready to catch it?

 

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