An Idiots Guide To Selling Your Agency
Points to consider when choosing to go down the selling path - many of which fall into the ‘uncommon sense' bracket.
Selling your business, unless you truly lack empathy, as many of the most successful business leaders do, is an incredibly hard and emotional thing. It also is of course potentially an extremely lucrative one. There are a number of points to consider should you choose to go down this path - many of which fall into the ‘uncommon sense’ bracket.
Knowing Why
Of the many reasons to sell, simply making money is both the most and least interesting. Truly understanding the ‘why’ of it is critical and worth spending time doing a bit of soul searching.
Things To Consider:
- Access: new avenues, clients and types of work
- Specialisation: being able to potentially focus in the more favoured areas
- Staff retention: you may have a ceiling, and by being part of a larger organisation it can be a draw to some
- Scale: once upon a time ‘big was beautiful’ - the cards are still out on that one
- Geography: depending on who you sell to - it’s a quick way to get international
- Burn-out: a change is as good as a rest they say
- Experience: the potential to expose yourself to new ways of thinking and doing can be very attractive
- Internal conflict: directors fight - that’s what they are supposed to do - a sale can be great conflict resolution (or equally compound the problem)
?Knowing What
The irony is not lost that most agencies will spend their time developing propositions for business to take to market (deliberately vague because there are so many types of business). Applying that thinking to your own business is often overlooked. You need to be aligning your motivations with theirs - and frankly theirs are more pressing.
Things To Consider:
- Sector specialisation: You have clients and the expertise and they want it
- Channel specialisation: You are awesome at X which complements their Y
- Balance sheet: You simply want to add a few zero’s to the bottom line - unless you are big that’s rarely the prime motivator
- Staff retention & growth: as above - this *can* give staff more of a motivation to stay
- Geography: you are where they want to be - often cheaper to buy than trying to establish a base in a foreign land
- Modernisation: The big and slow want some of that nimble and fast - usually with dire consequences but you never know
- The Acquihire: Commonplace in startup land, and becoming more of a trend elsewhere. In a candidate lead recruitment market (which we’re in) attracting great people can be very difficult, so if you’ve got a bunch, it’s simply cheaper and easier to buy in bulk. ‘Talent you CAN buy’, but keeping them is another matter
Understanding their motivations will increase the likelihood of finding somebody quickly. It also means you can consider shaping your business to the market rather than relying on love at first sight. Given how long these deals can take from initial discussion to completion knowing where *their* priorities are will help smooth the transition, even if it does potentially mean having to make some unpopular decisions in the process. Which leads nicely to...
Knowing Who To Keep
In most deals there will always be some casualties through duplication. Have a long hard look at who you currently have, as people - not just their job-specs before committing to any bloodletting. Given what is to come it is at best chaotic or worse traumatic, you need to make sure that those people - the social engineers who represent the fabric of your business - make the transition.
This can be challenging as they may not actually be directly involved in client work, but on the administrative side, which is often the first to go. They are the connective tissue that enables the business to continue in the short term before the true shock and awe of whatever deal you’ve done or are considering.
Knowing When
Unfortunately, the best time to sell is at exactly the point when you probably aren’t even considering it. When the sun is shining - when you are at the top of your game. You might be knocking back clients because you are so busy - the world is truly your oyster. That is when to do it.
Don’t assume it will be like that forever - don’t wait. Seriously. DON’T WAIT. Before you know it you’ll have lost a couple of clients, be doing work you hate to pay for your every increasing and disenchanted workforce, and watching new companies move faster and do better.
As a rule of thumb this is most likely within your first three years. This doesn’t always hold true and there is a pretty good argument to focus on growth to get a bigger prize at the end, but for every one that gets ‘there’, there are dozens who won’t.
Knowing Who To Talk To
There are many brokers out there who will help you sell. It’s worth being proactive and thinking seriously about who you’d like to sell to. There are many triggers you can pick up in the press, which might indicate whether they are in the market.
The big networks tend to be opportunity led, so there is a near constant flow. However, *what* they are buying will shift based on client trends. They are machine-like in their efficiency, and as such it’s worth finding and talking to others who’ve been acquired to get a feel for how positive (or painful) the experience is likely to be.
If you are looking for a more intimate ‘blending’ of compatible businesses you potentially need to look out of your immediate market to see who is doing what elsewhere and find complementary or potentially competitive business at different life stages.
Knowing When To Sit Back
Don’t. Ever. Whatever you do - don’t take the foot of the new business pedal regardless of where you are in the process. Deals fall through. Deals are still largely based on multipliers of turnover or profit; normally the latter but depends why they want you. Equally you can find yourself - having had many months of discussions that lead to nothing – to then discover that all that work you had dried up because you were overly excited about the prospect. It’s the definition of a rookie mistake - but unless you’ve done it before - you are one.
Knowing Me Knowing You
Do the deal yourself - yes get help - but YOU need to get to know whoever you are getting in bed with. By allowing ‘grown up’ proxies to do everything you will miss out on the opportunity to find out what they are *really* like. This is potentially one of the most important things you will ever do professionally and it can be incredibly daunting, and hence easy to rely on M&A consultants to walk-the-walk.
Knowing What You’re Worth
There are many ways to gauge the cash value of your business. Whilst it would be nice, there aren’t hard and fast rules which everyone sticks to. With agencies in general it’s a multiplier of either profit or turnover, with some estimation of how you and the sector are likely to grow over the period you will need to stay with the business (earn-out).
It’s the ‘grow’ bit that becomes somewhat problematic as time goes on. If the majority of your ‘new business’ is coming from within your new business (as it were), and your deal relies on ‘new new business’, then that will significantly both reduce your eventual earn out, plus defeats the purpose of selling in the first place if ‘getting newer bigger clients’ was the key motivator.
As a benchmark many use sector growth as an analogy for business growth. Depending on the shape of your existing business this may cause difficulty too – especially if your core proposition isn’t commoditized and doesn’t naturally scale.
This is how they will get you – be warned.
Knowing Who Is In Charge
Most start their own businesses to avoid having bosses, never mind bosses’ bosses’ bosses because you may find yourself very far down in the new food chain.
If all of this wasn’t enough – one of the hardest and most emotionally distressing side effects of this whole process is the sad realisation that you are giving up control. All of it. Regardless of how (ahem) ‘hand’s off’ the potential acquirer is, you will still have a boss and they will tell you what to do, what your targets are, and how high to jump.
Knowing When To Get Out
As soon as possible, unless of course you like big companies. Consider how well you will work as an employee. Does that corporate ladder look appealing, or simply appalling?
Even if you are smart and planned your own succession, thus enabling you to get out early, it may not help much. If the deal you signed says that you will get X reward if your business does Y in Z timeframe, not being there may further reduce your chances of hitting those targets.
If you are unsure – be prepared to take a financial hit yourself by NOT being there to stay the course.
Knowing When To Walk Away
You can’t take it back (well rarely anyway) - if it doesn’t feel right, if you aren’t completely sure, if the stars aren’t in alignment you are far better off writing off the time spent in discussions then putting a hell of a lot of your own blood sweat and tears into it, which ultimately goes down the drain.
This article was inspired by Richard Adams who suggested it might be interesting to some to ‘hear about my journey’. In general I’m not overly keen as it’s more fun doing that in the pub, however it did get me thinking and thinking in particular about a particularly difficult time - everything contained here is from first hand experience. You can have a bit of fun reading it again through the lens of ‘this is *exactly* what Jon didn’t do. Idiot.
About Jon Bains
Jon Bains, a 21 year net-vet, is founding partner of consultancy What&Why - purveyors of internationally proven, actionable strategy. They help new businesses get into the market and old ones out of their head. He is always up for new challenges, contracts and conversation. Connect with him at www.linkedin.com/in/jonbains. He doesn’t bite (much).
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