Articles by Paul Lange

The fundamental principles of selling a business are the same as selling anything, including whatever the business sells. The best businesses have a sales system and documented processes. They also sell on value rather than hourly rates or other ‘per widget’ metrics. But most business owners have either never sold a business or only very rarely. It comes as no surprise then that many will achieve a lower sales price than the business is potentially worth, because they start doing things differently to what has made them successful in the first place.   Paul Lange founder of “The Hedonist Entrepreneur Initiative” has bought and sold many businesses over his more than thirty year career as part of the private equity and venture capital industry. Lange says that “Higher sale prices can be achieved by selling the sizzle of the business and not just the the crunchable data; it’s not rocket science. You start the process by positioning the business in a Sale Deck, very much like a Pitch Deck when seeking investment.” He adds, “When we invest in a business we’re always planning for the exit from the start, usually before the ink is dry on the share certificates. The majority of our exits are via a strategic sale. We rarely go IPO. Our way of building an asset we acquire toward an exit includes acquiring and assimilating one or more other businesses before we go for the ‘big sell’. When we do, we lead with the Sale Deck every time.” Although there is no magic formula for success and maximising the sales price of a business for sale, Lange suggests there are three fundamental steps you can follow to increase your chances of a better return on your time, money and other resources invested in growing your business to the point of a sale. These are: 1. Position the business as valuable asset Investors and high net worth people buy assets. An asset works for you and gives you a return. Whether your prospect knows it or not they want to buy an asset.  They don’t want to buy a job. Buying the business from you is attached to many personal aspirations that are unique to each purchaser. An asset will help the purchaser achieve these. A job won’t. 2. Have a system for selling the business Building a successful and scalable business requires systems. Having documented systems and processes for running the business can help achieve a better return when you come to sell and exit. Sales systems and processes focus on presenting the value of the offering and eliminating possible objections, by addressing them and closing doors on them, as you step through the process. Sales systems are always selling the next step in the process. When selling a business, you need a system to present value, close doors on objections and sell the next step. 3. Approach the sales process psychologically more than logically Selling a business like selling anything requires describing the item for sale. However only presenting the logical and analytical facts of the business for sale is like selling based on features and benefits instead of value. When you present value in terms that the purchaser gets, you connect them with their emotions; their aspirations and all of the reasons why they want to buy a business. Selling a business won’t be achieved on emotional responses alone, but presenting the value in terms the purchaser gets and supporting it with the cold hard facts for them to consider goes further than the facts alone. When you have a business for sale, the Sale Deck showcases the business and the value in a concise and compelling way, and sells the prospect on taking the next step. It avoids providing information that is overkill in the beginning. If a potential buyer wants more information, make sure there is just enough in the addendum information, or dataroom, you provide with the Sale Deck. The full documentation can be offered up later for full due diligence to occur. Lange says, “When we acquire a company to roll into an existing investment, we mostly receive these large business for sale documents that describe the facts of business in great detail and provide reams of financial data for the analytically minded to paw over; and that’s it! No warm up? Just wham bam! There’s nothing wrong with having complete data available for presentation in your dataroom, but making that your opening move, with a prospect, is like spewing your life story over a partner within the first few minutes of a first date.” He goes on to say, “A good Sale Deck will have no more than 18 slides and they have to be in a specific order.  The order needs to be such that each slide builds psychologically, not logically, on the previous slide. I know that sounds weird for traditional thinking about business for sale documents, but selling is psychology. Don’t have more than 18 slides. You can have less than 18 so long as you have them in the right order. We prefer 18 when we’re selling a business; it’s just a magic number we’ve found works really well for us.” If you’re thinking of selling your business, consider the possibility of creating a Sale Deck in addition to the traditional more complete documentation, and make it part of your system for selling your business. Use the Sale Deck as the initial touch point with potential buyers to present your business as a valuable asset. Layer the information you present in the Sale Deck and in your overall process using a psychological approach supported by logic. For more information on the how to create a compelling Sale Deck using a formula that has been tried and tested, visit www.hedonistentrepreneur.com/businessforsale

Being successful in securing equity investment from private investors is about more than just the nature of the deal, the team, the financial viability, and the supporting market data. You also need to understand the mindset of investors because it should influence everything you do to present your deal in the best possible light. For the last thirty years, Paul Lange, founder of The Hedonist Entrepreneur, Exit Strategist and Investor has created, operated and exited businesses, raised investment for his businesses, connected businesses to investors and invested in ventures himself, both in Australia and internationally. In his experience, the bottom line for securing investors is that you need a lot of common sense, some good timing and most importantly, you need to keep it real. Lange believes there are five steps to securing equity investment for any business. These include: Step 1: Understand who you are pitching to An investor uses their capital or leverages their assets to grow wealth by using the work and effort of others. This means an investor wants their money working for them, instead of them working for their money. They take an informed decision to put their money at risk for a limited period, after which they want it back to reinvest elsewhere. Show them how your proposal will make them money, how the risk is balanced, how they will receive their capital back and the upside for backing you. Step 2: Put yourself in the investor’s shoes When people sell to you, you are most likely to buy if you feel like they understand you and see the world from your perspective. The same applies to securing investment. You have to understand the investor’s mindset by putting yourself in their shoes. Most investors will have some core thing that is important to them and they may focus on opportunities from various industries that satisfy that. If you can identify what is core to a specific investor you will have a better idea of your chances of success, and may be able to structure the offer to suit both the venture and the investor’s interests. Step 3: Get the value right Put a hundred accountants, wealth management advisors, business brokers and other financial services professionals in a room and you’ll hear a hundred different opinions and variations on how to value a business. There is no one solid way to value a company. One party will use one rule to justify their ridiculous asking price and the other will use another to justify their low-ball offer. When you say to an investor you are offering 20% of the equity for one million, you are suggesting that the company has a value of five million, right now. No matter how you choose to value it, your company is only worth today what someone is prepared to pay for it today, or for the piece of it that you negotiate to sell to them. Step 4: Check your list before you go to an investor Do you have the information that’s needed? Whilst there are always common elements to due diligence processes, the contents of due diligence lists vary from one investor to the next, the industry being targeted, and the type and size of investment sought. You will almost always find headings such as compliance, corporate structure (legal and capital structure], material contracts and agreements, financial data, management and employees, markets and competition, products and production, assets (property and non-property], information systems, intellectual property, tax status, litigation, environment, health and safety, regulatory compliance, joint venture agreements, channel partners, and insurance. Other items that were once scarce or at best less common and are starting to gain attention are social responsibility, giving, and performance and talent leadership. If you are not prepared and able to answer these questions, don't start until you can answer them or you have a plan to be able to. Step 5: How to speak to investors If you’ve made it into the room it says something about the value of your proposition to the investor. An investor’s most valuable asset is their time, so do not cause them to waste it. Know your stuff, be clear and articulate. Practice your pitch, identify as many questions and objections that you and your team can think of, and then document and practice your responses. Then practice again until you don't make mistakes. Step 6: Keep it real If you’re upset or disoriented that the title of this article says 5 steps and this is number 6, you’re probably not ready to pitch to an investor. Alternatively you could just see this as a bonus insight. When you start to adopt the mindset of an investor and think like they do you will look at your opportunity differently. As the late Dr. Wayne Dyer said often “If you change the way you look at things, the things you look at change.” Know the extent of your own capabilities and be honest about them. Find people who complement them and build a killer team that gives investors the confidence that you can pull off what you propose. For more information about equity raising go to www.hedonistentrepreneur.com