Guy Kawasaki was interviewed by John Warrillow for a 2011 online article for Inc. magazine. In his book Enchantment: The Art of Changing Hearts, Minds and Actions Kawasaki has advice for building your company so that it draws the interest of potential acquirers. Want to sell your company? Kawasaki suggests the best way to entice takers is to make them want to buy instead of being sold on you company. How? Make them fall in love with your company.
The goal of any company should be to enchant its customers. My sequence of events would be build a company with great products that is enchanting to customers, which would make it successful, which would make it attractive for acquisition, which is different than saying, “build a company that enchants acquirers.” Call me naive, but I think acquirers like companies because customers like them.
And the third step is to wait for the phone to ring. I believe companies are bought, not sold. Lots of entrepreneurs ask me, “How do we make people acquire us?” or “Do you know anyone in business development at Cisco, Google, Yahoo?” I keep telling them that you don’t sell a company. Google and Apple are getting 50 calls a day saying, “We have a strategic client who would fit in well with your portfolio, and you should buy them.” I don’t think that ever works. I think a company decides they want to buy another particular company and they go buy it. But I don’t think that company sells itself.
Good advice: build the company around solid products and services. Others will want to buy it, and they will seek you out.
Yes, absolutely. But what I’m saying is the key to being bought is building a great company—which is different than being sold. To me, “sold” means you call up a business broker or a boutique investment bank and you say, “My kids don’t want the business. Can you sell it?”
Call me romantic, but when you start a company, I don’t think the primary motivation should be selling it. I think the primary motivation for starting a company should be to build a great company with great products. And one of the possible outcomes is being acquired.
However, if you and your co-founder are sitting around planning how to be bought, and you don’t even have a product, that’s just ass-backwards. I think you’re doomed to failure because your priorities are wrong. You should be thinking about building a great company, not how to get bought.
I think the key is you make the company so successful, generating so much cash that you don’t want to sell. And then the phone rings. Then you’re in the driver’s seat because you don’t want to sell because things are going so well. So they have to make an offer that sucks your eyeballs out and that you can’t resist.
Having said that, you need to avoid doing stupid things so that, when the phone call comes (from a potential acquirer), you don’t blow it.
What does Guy Kawasaki consider to be “stupid things” that you could “blow it” on? Listen up, here. This is one of the big issues I harp on, and Kawasaki gets it.
A simple thing is your legal structure. Are you a normal corporation, or are you one of these weird offshore companies you set up because you got it in your brain that you’re going to make so much money that you need some kind of Cayman Islands organization. Plus the paperwork and legal structure, and the corporate minutes are so totally weird. It’s going to take (an acquirer) a lot of work to undo all that crap.
More sage advice:
Avoid having unsophisticated shareholders who are going to stand in the way of the acquisition. You don’t want a bunch of rich dentists blocking a sale because they didn’t know what they were getting into. . . .
What about those ebooks or software you develop and sell?
You need to clearly and cleanly own the intellectual property. For example, you want to avoid a situation where you work on your new business idea while simultaneously working for another company, because your employer could turn around and say they own the intellectual capital because you worked on it while you were on the job for them.
He goes on to offer up more good advice about happy employees, stock option strategies, and a smooth transition for new owner and crew. The underlying principal, though, is basic and sound:
A clean capital structure, indisputable ownership over the intellectual capital, and motivated employees are the essentials. The real key, though, is that you have a great product that customers are buying.
And good books and records to prove it.