Do you want to know what nobody tells you about avoiding an earnout for your liquidity event?
After all, you have one chance for your liquidity event, and you better make it count.
Conventional wisdom says that you should accept an earnout to get the deal done.
Conventional wisdom is wrong.
The harsh truth is that you no longer have control over your business once the deal closes. Insult to injury, there’s little incentive for the new owner to have you succeed.
When you master the art of preparation for your liquidity event, you can call the shots.
How do you master the art of preparation?
Learn and master the 9-step roadmap.
Who am I, and how do I know?
I started my eLearning business right out of my MBA program with no money, experience, or team.
My new best friend was failure which happened every day. My grit and determination were the saving grace to welcome success.
When my business was successful, I received a 7-figure offer from an experienced buyer.
To everyone’s dismay, I said “no” to the 7-figure offer. Instead, I said “yes” to mastering the art and science of a liquidity event. Then, two years later, I said “yes” to a 9-figure offer.
Today, I pay it forward. I help business owners through the Deep Wealth Experience. At the heart of the Deep Wealth Experience is the 9-step roadmap.
The 9-step roadmap is what I created to welcome my 9-figure exit. In case you’re wondering, there was no earnout in my deal.
How can you avoid an earnout for your liquidity event?
Leaders don’t create followers, they create more leaders Tom Peters
Leaders don’t create followers, they create more leaders Tom Peters
When it comes to avoiding an earnout, you must ensure that your business is not about you.
How do you ensure your business is not about you?
Everyone is a leader.
Successful private equity firms are some of the most profitable and businesses around.
At the heart of a successful private equity firm is having everyone in the firm act and think like a leader.
You can start by creating at least one Key Performance Indicator (KPI) for every position. Then, measure the KPI on a daily, weekly, monthly, quarterly, and yearly basis.
As the saying goes, what gets measured is what gets done.
When you create and measure KPIs, you also create a rich and vibrant culture. Your culture is open and transparent.
From the CEO to front-line employees, everyone is accountable.
Money buys many things. Your competition can deploy its money to copy your technology.
What money cannot buy and what your competition cannot copy is your culture.
A rich and thriving culture empowers everyone to make changes as needed. With empowerment comes daily improvements. As a result, EBITDA increases, as does your enterprise value.
As necessary, your management and employees are the business instead of you.
Why is this important?
You remove the leverage from your future buyer to have an earnout when your business is not about you.
There’s one other thing you can do to ensure the business isn’t about you.
Do you know what this one thing is and what you must do?
A great brand is a story that never stops unfolding — Tony Hsieh
How do you avoid an earnout?
Ensure that your business is all about its brand and not about you.
In the 9-step roadmap of preparation, step three focuses on your future buyer. The art of a liquidity event is thinking like a buyer and not an owner.
Your future buyer knows what you did today and yesterday. It’s what your business does tomorrow that’s of interest to your future buyer.
A compelling narrative is a powerful strategy to paint a picture of a prosperous future. Wrapped up in the narrative is the brand of your business.
An effective narrative tells the story about your brand.
The narrative becomes the North Star that your management team and employees follow. From your front-line people to your CEO, everyone should be a living example of the narrative.
A consistent narrative creates the foundation for a strong brand. Your clients and stakeholder want to know that your business does what it says and says what it does.
You give your future buyer confidence in the business when the narrative is not about you. It’s your future buyer who is investing millions of dollars for your business. The expectation of your future buyer is to recoup the investment.
When you’re not part of the narrative, you do two things. First, you give the buyer confidence in the business succeeding without you. Second, you create the case for no requiring an earnout.
Do you know the one thing you’re not doing but should?
If you can’t describe what you are doing as a process, you don’t know what you’re doing — W. Edwards Deming
Could something as simple as documenting your business processes help avoid an earnout?
In a word, “yes.”
A rich and vibrant culture embraces documenting business processes. Freedom comes from having the business processes documented.
Documentation saves your staff time and effort when they check the documentation first. Everyone avoids pointless meetings, phone calls, and emails.
In the 9-step roadmap, you master the art and science of doing two important things. First, finding and removing skeletons in the closet. Second, finding Rembrandts in the attic and putting them out for public display.
Removing skeletons and displaying Rembrandts increase your enterprise value.
One such Rembrandt is well-documented processes.
Documented processes show your future buyer that the business runs without you. A business that documents its processes is also a business that is well run and organized.
Buyers prefer businesses that are well run and organized.
Documented processes do more than impress buyers. Prospective customers appreciate documented processes.
One of the reasons that documented processes is a Rembrandt is the ability to win new business. Prospective clients will choose a business that’s organized over one that isn’t.
Document your business processes to help avoid an earnout and attract new business. In the process, you create a win-win.
Speaking of avoiding an earnout, do you know two powerful things you must do?
Great relationships are based on clarity, not mind-reading — Steve Arterburn
Attracting the best deal includes no earnout.
How do you ensure you attract the best deal?
The 9-step roadmap of preparation is one of the most effective and powerful tools to help you:
Most business owners lack clarity heading into a liquidity event. Clarity of what you want and don’t want plays a vital role even before the liquidity event starts.
In step three of the 9-step roadmap, Future Buyer, you craft your deal points and no-fly zones.
Deal points are terms that you want that must be in the deal. No-fly zones are terms that you do not want in the deal.
If your deal points and no-fly zones are not met, you’re prepared to walk away from the buyer. You can walk away with confidence because you’re both prepared and in an auction.
Not having an earnout is an example of a no-fly zone.
Through your preparation, your investment banker and buyers know what you expect. Your deal points and no-fly zones will have some buyers walk away.
The great news is that you’re dealing with buyers who understand your terms. You’ll look for your deal points and no-fly zones in the letter of intent.
Through the process, you’re ensuring you find the buyer with the best cultural fit.
Speaking of cultural fit, do you know what you must do for success?
Ensuring you have the best cultural fit helps you attract not any deal but the best deal — Jeffrey Feldberg
Cultural fit with your advisors and buyers helps avoid an earnout.
The 9-step roadmap has powerful strategies to help you find the best culture fit with a buyer. Your deal points and no-fly zones are one such tool.
Your mission is to find the best buyer who, as it turns out, will have the best cultural fit.
Two critical strategies help avoid an earnout.
First, find the investment banker with the best cultural fit with you and your team.
There are investment bankers, and there are investment bankers. In the 9-step roadmap, you learn how to find an investment banker who is an advocate.
An investment banker who is transactional and not an advocate is not the best cultural fit for you.
An investment banker who is an advocate helps you attract the best deal, which avoids an earnout.
The second strategy, with the help of your investment banker, is an auction.
An auction increases enterprise value and finds the buyer with the best cultural fit.
With an auction, buyers know you have choices. The auction keeps buyers on their best behavior. You can expect a shorter due diligence period and better terms.
It’s the same auction that helps you avoid an earnout. Your preparation heading into your liquidity event sets you up for success.
Your preparation gives buyers confidence about the business. The buyer with the best cultural fit understands your deal points and no-fly zones.
The combination of preparation and the buyer with the best cultural fit wins both the day and no earnout.
Saying “yes” to the best deal instead of any deal includes not having an earnout.
Conventional thinking tells you that you won’t have a deal unless you have an earnout.
Conventional thinking is wrong.
The 9-step roadmap of preparation helped me say “no” to a 7-figure offer and “yes” to a 9-figure offer a short while later.
Today, my passion is helping others do the same through the Deep Wealth Experience. At the heart of the Deep Wealth Experience is the 9-step roadmap of preparation.
When you’re prepared, you have the certainty that you’ll capture the maximum value. When you know, instead of believing, you do the right thing at the right time. While you’re at it, you position yourself to say “no” to an earnout and “yes” to the best deal.
The 9-step roadmap of preparation protects you from being a statistic. Up to 90% of liquidity events fail. Of the “successful” deals, most business owners leave 50% to over 100% of the deal value with the buyer.
Don’t be a statistic, and at the same time, ensure you don’t have an earnout. Your liquidity event is the most important financial decision of your life.
What do you do, and where do you start?
Start with the first strategy I revealed and stay with it until mastered. Once done, move on to the next strategy. Repeat the process for all five strategies.
Yes, you can do it. I know you can.
Here’s to you and your success!
Your Biggest Raving Fan,