The Exit Engine Podcast Episode 51: The Super Stress of Negotiation

Welcome to the Exit Engine Podcast, episode 51. Welcome to the Exit Engine Podcast, where we help founders create, grow, and eventually exit their companies with clarity, confidence, and on their own terms. I'm Jo Stapleton.

And I'm Jon Kniff. Whether you're thinking about selling, stepping back, or just building optionality, we're here to help you get ready, not just financially but mentally, emotionally, and strategically.

Exactly right. Today we're going to dive into what might be one of the most stressful, Jon, and misunderstood parts of the exit journey— negotiation. Man, we have just witnessed this roller coaster firsthand. For the umpteenth time, but this one was a piece of work, man.

It is still, frankly, a piece of work. So I can update you later on that.

Right.

Um, but yes, there's a reason that it's a roller coaster, right? It's, um, you go from highs to lows to going slow to going fast to waiting to being scared to being exhilarated. Um, And we've got today, we've got a real story, uh, to take you through.

That's exactly right.

There's— and, and the story revolves around Laura. Obviously the names have been changed to protect the innocent and the guilty. Um, named Laura, and she's a seller with an incredible business. However, she's in a tough negotiation.

Tough negotiations. And before we get started and dive into that, just a kind of a word in general. Exit negotiations, folks, right? This is not about just numbers and contracts. Okay? They're emotional, high stakes, and sometimes very deeply personal. Right? And here, here are some of the, the, the issues that swirl kind of around an exit in general, and especially when you're being acquired by somebody, is that, you know, there, there is a, there's a very strange dynamic relationship. Because at the beginning, you are a seller of a product, right? You're meeting a buyer, but eventually what's gonna happen, the result of this is essentially, at least for a period of time, a partnership.

Yeah.

And so what's strange about this situation is that, again, there's this dance that has to happen during the negotiation period and during the entire process, really. is kind of, you know, obviously up and down. We're going to talk about how up and down it can be. There are personalities involved and different personalities coming together and kind of clashing, right? And there is the business part of it still too, the realities of business in terms of things of like revenue and profitability and EBITDA and, you know, and earnouts and things like that. But the reality is, is that there is something that most founders are never prepared for. is to manage and navigate this highly charged, highly emotional time when you are negotiating the deal. And one of the reasons why we recommend you let your advisors handle this piece, right, John?

Yeah, because again, this is your baby, the company you've built. You've done things at 11:00 at night, you've done things on Saturdays, you work all the time. And if you weren't emotionally invested in the business, it'd be weird, right? It'd be weird if you didn't care. So by having an advisor handle the negotiations, and you obviously have input into negotiations, you let her or him or them know what your desire is, that's so much better because A, these people do this. We do this for a living. Like, we negotiate for a living. We like it. I like it. I'll speak for myself. I know Joe likes it too, but I like it. And we, we have the— we have sort of guidance and rope, if you will, from our clients to say, this is what I want and this is what I'll accept. And by having an arm's length away from the deal is you can distance yourself from the deal. So you're not getting emotional with the terms of the deal and you're not getting emotional or upset with the person that's on the other side of the negotiating table with you. Because that's just natural. It's natural if you, when you have so much at stake in the negotiation, sometimes you can't see the forest for the trees.

But, and of course, what makes this kind of an unusual situation, even from a negotiation standpoint, is that you'll need to then end up working with this person for the next 2, 3, 4 years, right?

It's a very good point, especially, yeah, especially when there's an earnout situation, right? Or you're staying on for, You're signing a contract and you're staying on for 18, 24 months, 2 years, whatever it happens to be.

Exactly.

You're going from on Tuesday to calling the person all sorts of names I'm not going to mention in the podcast because I don't want to get flagged, to working on a business plan to make sure that the earnout that you've negotiated, you can maximize it and you'll get the most amount of money possible. And you've been thinking about calling the person names, and then Thursday they're like, oh, John, you know, Joe, like, can't we— let's talk about this. We've signed the deal. Now we've got to work on integration.

Right. Hey, man, it's not personal. It's just business, right? How often do we hear that, right? The problem is that, again, what you don't want is that taste lingering, right? Because that can poison the well. And now you're in a situation where, you know, as much as you want this deal to go through, which is one of the— that you are also in a position now where there's kind of some animosity may have built up, right? There may be some trust issues now. There may be some things that go back and forth. So, this is a very— and by the way, you know, the same thing can come from the buyer's side too. This is not exclusively a seller's issue, right?

Exactly correct.

But know that at the end of the day, that this is something that needs to be treated with kid gloves. But if you can prepare yourself and set yourself up with the mindset that is, A, you know, about trusting advisors first of all, but then be able to kind of like know that this is just a way of getting to the It's a necessary evil that gets you to the place that you want to get to. And 9 times out of 10, if we can align the, align the, the needs and the wants and the fears between the buyer and the seller, then everybody's going to come out and be happy in the end, which is really what matters, right? So that said, let's set the stage here, John. Okay, so let's talk again about, about Laura. As John mentioned, uh, you know, we have changed all the names here, uh, the number— we have changed basically everything about this because Some of these negotiations are actually ongoing. And so what we're gonna— but we felt so compelled today. This has been something that's been taking up a lot of our time over the last couple of weeks. And, you know, it's such a huge learning moment that we had to share it with everybody, right? So, John, let's talk about Laura. Laura's been in business for 30 years or so, right?

Yep.

She's been on a great mission. She took over the business from somebody else. But that was a long time ago. She's got very loyal clients and a very, very clear goal, right? She wants to sell her business, and together we valued her company at about $10 million, a little bit over $10 million, right?

Yes, exactly. And for the buyer side of the equation, Dave, again, name changed, They had a history, right? They knew each other. He was an operator within the same, with a similar business, not the exact same, but it was, it looked like a good fit, right? It looked like Dave wanted to buy businesses, Laura wanted to sell. It looked like we had a, looks like we have a good match.

Absolutely. On the outset, no question about it. This is a strategic buyer, right, who can buy both both market share and capability by buying Laura's company. Okay, so what he's gonna get in the deal from a value standpoint, just on the outset without getting into the details, he is going to buy more market share for his existing business because Laura's got, uh, Laura's got clients that Dave wants and can, and can sell his services to. And Laura brings a unique service that Dave does not currently offer. But can basically be plug and play into his business and start generating him revenue almost immediately. Okay, so that's accurate?

Yeah, 100%. Yep.

So basically, that's— this is why this is important, okay? Because it's a matter of understanding that in this situation, there is just from objectively, okay, there is— this is a great fit. This is value on both sides, right? Here's the one downside. Okay. All right. Laura's company has had a little bit of a hard time recently.

Yeah. And she, they, again, they, everyone had a tough time in the pandemic, right? Everyone had challenges. The business changed. It shifted. And this company did that, right? Laura's company did that. She experienced sort of some problems post-pandemic. And lost a couple of big customers. Right? So they had a couple of big customers. Unfortunately, they lost some business. I'm not gonna get into how they lost business, but just realize that they lost a couple of their big customers. And they had a couple of down years since a very good year pre-pandemic in 2019.

Right. Great, great setting. And understand why is this important that we mention this? Because Again, value is in the eye of the beholder. Okay? And at the end of the day, what we saw here and the opportunity that popped up for Laura was, hey, I've got some debt. I'm obviously in a bounce-back year based on the revenue projections that they have. Right? And the thinking was that, yes, I've had these cut down a year or so, really only a year. Right?

Yeah.

Where, where the revenue was off compared to the last 5 or 10. Okay, now remember, this company's been in business for 40 years. She's, she's run it for 30. Okay, this is the first year they've had with this kind of down year. Okay, so the history is there, right? Her ability to be able to run the company. They're in a market— let's talk about the market for a second. The market, a little bit down, right? Right now, a lot of things are down. It's not having a— it's not a banner situation in terms of the industry they're in right now, right? But it is active and it still works. And Dave's company is making money in it.

Yeah, exactly. Dave's company is, again, they're not in the exact same business, but they're sort of in adjacent markets. And Dave's company is thriving, doing really well. He's made some acquisitions over the last year or so, couple of years. We don't really know the details around those, but we know that he has bought companies previously. Right.

So Dave approaches Laura, says, hey, Laura, we know each other from seeing each other at conferences and blah, blah, blah. Wondered if you would be interested in entertaining a potential acquisition. Are you in the market? potentially to sell your company, um, you know, to me as a possibility, right? And that's the way that the conversation starts. And so Laura says, yeah, absolutely, I would be willing to entertain that. And of course, we've been working with Laura for a while to get her prepared for this exact moment. And this is worth, worth saying right now, John, right? That is that if we had not been working with her up, you know, for the last 8 months preparing her for this moment, Which we didn't know would come. Okay. She would not have been able to even attempt what is happening right now.

Yeah, it wouldn't have been possible because again, just like many of our other clients, they're focused on running their business, not focused on selling their business. Right. So it was, you know, it was one of those things. It's a classic example and it's great in what we talk about all the time on these podcasts is you got— what got you here won't get you there. She ran— she's run a very successful business. You can't blame her for not preparing the business for sale, right? Like, but like, thankfully she talked to us and we started— we started the mission, we started the work, and, um, and she was far more ready than she would have been without us to, to answer these questions and to, to, to get back in touch with him and, and, and from a position of strength, right? She had worked on her business and made changes, material changes to the business based on what she thought she needed to do and also our recommendations, frankly.

Exactly right. So the, the good news was, okay, when this guy approached, she's kind of buttoned up, right? And, and, and, and it turns out to also, for what we're going to talk about next, turns out to be a really good thing she was buttoned up. Because turns out that maybe this, this strategic buyer, let's say, not as enlightened about the process, um, although he's been through it before, um, he has made relatively small, uh, acquisitions that didn't require a lot of due diligence and things like that. So he's a relative newbie at this as well, right? Would you say?

Uh, yes.

Right. So again, the idea here is that what you're doing now is now you've got potentially 2 people in the room, right? You've got a seller and you've got a buyer. Great. Here they are together. They've made contact. It's excellent. One of the issues that's going to pop up here though is about, does everybody understand the process? Is everybody using an advisor? How much, how involved and how much time and effort and everything else does everybody want to take to actually go through this thing? And so, This is, again, another thing that you can't necessarily anticipate. The assumption is that any buyer who comes to you is going to be serious and is going to do the work of vetting you and doing everything they need to be able to do to, right, to be able to make sure that they're getting a good deal. But that doesn't always happen.

No. And it's different levels of engagement, as we've seen with many deals, right? We see deals where the the buyer is impatient and they are, but they're ready, right? They're impatient because they want to get a deal done. They think this is a good deal and they want to move. There's also people who are impatient and it's— they're impatient for you to do stuff, but they can take as much time as they want.

Right.

And, and, you know, it's so— it's, it's, it's an odd dichotomy where you have someone that's making you rush but then taking their time. And, and you just gotta— you gotta deal with them and just say like, look, like We'll get it to you as soon as we can. We want, we want to get it. There's 2 ways to do things, as I say always, right? Correctly. And again, I don't want to have to do it again.

That's exactly right. And again, and the more time you take and the more things that go by, um, you know, by and large, the harder it is to get to a deal, right? You are, you actually are better off kind of, uh, at the beginning if things move relatively quickly, due diligence aside. And we'll talk about that specifically in a minute too. But in general, here we go. Okay, Laura has been has been working on this. You know, getting ready for this. She didn't know she was getting ready for this exact event, but she has been working on the business with her advisors, getting this thing ready to go. Everything's cleaned up. She's in good health. She's got to you know, so she's able to move quickly when when when when Dave shows up. Okay, so what's the first thing that happens? Dave comes. Hey, this is great. What do you think? Whatever. Uh, Loris comes to, comes to us, we sit down, we figure out, okay, here's how we're gonna, you know, we, we'd already done this, here's how we're gonna value the company. For the purpose of this discussion, it's not really important. Um, but, but basically we're gonna value the company at this, and here's— and, and what we're gonna do is basically tell him that this is the asking price, right? Our thought is what should happen— John, let's outline for the, for, for people what should be happening now. What is the process we want to follow at this point?

Yeah, I mean, what happens at this point is the buyer would come up with a letter, what we call an LOI, a letter of intent. And what the letter of intent spells out is here are the general terms and here are the high-level terms. And what I mean by high-level terms, uh, you know, this is the purchase price, this is the down payment, this is the earnout, right? This is the amount that you're gonna get essentially now at closing, and this is the amount that you can earn over time. Because, because most of the deals that we're working on are not here, here's $8 million in cash and you go away. Because again, that's very risky for the buyer to, to do that, right? Um, and also by the flip side is it's not 85% of the deal in the earnout because that's very risky for the seller. So you meet in the middle, right? It really depends on what what type of company you are, what size you are, how many buyers there are in, you know, that are circling around. If there's one buyer and one seller, typically it can get— it can be pretty even, frankly, on the purchase price or the down payment and the earnout amount. But that, again, that's individual. It differs by industry. But that's essentially what the general term is. The buyer works on that letter of intent, the LOI, and sends it to the seller. And then there's not all the terms of the contract are in there. Again, it's high-level deal points. We're not talking about non-competes or anything like that in there. It's, here's what I want to buy your company for. And if the seller accepts that, usually there are provisions in there that say, hey, don't shop this deal, right? You can't shop this deal for the— as an example, the time that I'm doing the due diligence. So if the, if the LOI is is for— is binding for 40, 45 days, then it's going to take me 45 days to do diligence. Usually any more longer to do due diligence. So let's go— let's use 60 days. Um, and, and during that 60-day period, the seller's not going to shop the offer, the buyer is going to conduct due diligence, and, and at the end of that time period, they will get back together with— oh, the buyer will usually say, I need to adjust this down because of what I What I found during due diligence, and the seller is like, well, and then there's that. Then negotiations really start from from that standpoint or continue again.

Right, exactly right. Now, in this case, is that what happened?

Um, not exactly.

Right.

So, and yeah, what what happened was it went back in in a series of emails, went back into a sort of. Either a misunderstanding, some miscommunication, which again, in my experience, is the biggest problem with deals, is either intentional or unintentional miscommunication about the high-level terms of the deal. Because the problem when you get into these things and you don't do one of these, like an LOI or an indication of interest, you know, IOI sometimes, is you have confusion about the deal points and all these things are moving around. Now, the final numbers are always going to change, right? Because you always find things in due diligence that were not what you thought they were, right? Is it tech? Is it revenue concentration? Is it a customer just left? Whatever it happens to be, something happens during due diligence. You lose a big customer. Okay, well, you lose a big customer. I'm going to pay less for the company. That's natural. But when you don't have clarity about the objective, if you will, right, the objective is to sell the company for X amount with X, with Y amount down and Z in an earnout. When you don't have that sort of clarity at the beginning, all sorts of other things happen during that period to— can muck up and get in the way of you getting a clear purchase agreement started. So with that LOI, the next step should have— or the first step should have been an LOI. We did not have that in this case.

Right. And normally after the LOI, or even, even, you know, we— there was one conversation that happened before the LOI, right? One, one phone, one, one phone meeting where everybody was able to, to talk about the company, where this— where Laura was able to, you know, promote, uh, you know, to give her version of the story, you know, tell the story of the company and what was there, you know, and why— what the value was, right?

Yeah, which is really weird, right? So Yes, listeners, having only one conversation is weird. And the reason that we're sort of highlighting this particular story is for a number of reasons, right? As Jo mentioned, you know, he, as he said, we did, we went, we went, you know, we didn't go in a linear fashion, right? We didn't go step 1, step 2, step 3. We were at step 4 and we came back to step 2 and now we're at step 3 and our Are we going to go to step 4 again? So it didn't happen in a linear fashion. It didn't happen in a normal way. But, but, but again, all deals are, you know, they eventually have to— are like a baseball game, right? Every baseball game is different, but they pretty much all have 9 innings. Sure, some go into extra innings, but they all follow that format. The 6— there's 6 outs in an inning. Each team is up and each team is up for and gets 3 outs. Usually that's the way the deal goes. And when the deal doesn't go that way, It ends up getting screwy and miscommunication happens in a lot of deals. It's more likely to happen in a deal that goes from home to second base and then back to first.

Exactly right. And in this case, again, started with a conversation. Okay, that was fine. That was good. Everybody seemed to be aligned. Everything was cool. And so now we basically— he, the buyer, now asks us What us, meaning this, this Laura's side, Laura's team, asked Laura, okay, well, what are you valuing the company? You know, basically not even— he wasn't even asking what the value of the company is. He was asking her, so what do you think? Basically, basically tell me what you want the deal points to be. That's essentially what he said, right?

Yes.

He said to the seller, you tell me what you want this to be. And so this is an unusual situation, but we hadn't listed the company. That information wasn't out, you know, in a, in a, in a, in a SIM or a certified, uh, a, uh, confidential information memorandum is what it's called in the business. So that information is usually in there, and the, the buyer generally has that information even before the first meeting. Well, we've had a meeting where no money or no terms have been discussed, simply been a matter of to Talking about the history of the business and where it was, and and the hopes and fears and dreams and things like that, which again is important, but is again not the certainly not the last stop. So what what had had to happen was that Laura had to actually submit to him her opinion on a deal and what the deal points could be. And so essentially, we helped with her with our help. She wrote an email. Um, and put together some, some documents and some things like that. And basically, you know, it sent over to Dave what she thought the, the terms should be. What Dave came back with, okay, was not, uh, oh great, let's talk about this. And in fact, despite all of us kind of imploring to have another conversation about these points, Dave came back with a full— Uh, I'll say full, but again, a, a, a, I, I think in their mind, a full But turned out to be incomplete and also misaligned and kind of not well-written purchase and sale agreement, right, with his own terms in the deal.

Yeah. And, and, and there, again, we're not going to get into this, some specific things that were important, um, to this buyer, but, but, but suffice to say, um, it was, it was what my colleague Richard— shout out Richard Bradley— used to say majoring in the minors, right? So he was concerned with lower level, or not lower level, but unimportant details from my mind. Now, I could be— this could be my bias that these are unimportant because we deal with these things all the time. But like, I've never had a deal held up because of these particular things. I have had deals held up over the percentage of an earnout or the percent or the amount of a down payment. And what it led us to believe, and it's like, maybe his acquisition history was not as robust as we had thought, right? Maybe his experience was not as robust as we had thought, because going back to the buyer and explaining like the process of an M&A transaction, you have to be delicate about it, right? Because A, you don't want to sound like a know-it-all. which I've been accused of in the past by my wife. That's another whole story. But you also need to explain without making them feel petty and small that there's a process to this and we'd like to follow the right path. Because a lot of people, there's a lot of huge deals that never have an LOI. It happens. Publicly traded companies, sometimes this doesn't happen, right? But usually it does. And explaining that and being sincere and in the vein of and in the spirit of getting a deal done can be a delicate discussion. Like, hey, you know, and the way we did it was, hey, let's, you know, we need to take a pause and we need to back up for a second so that we can all move forward. And I think everyone understood that. But that's a delicate conversation when you're talking with someone of Dave's stature. who's done, presumably done these deals before and, and, and knows what he's doing, um, or thinks he knows what he's doing at least. Right.

So in this particular case, I mean, again, this is a— and of course he will— he refuses to have conversations with anybody other than the senator.

And sorry, and that's another weird thing. Sorry, that's a really good point, Joe. And, and oftentimes this often happens with, with us. We're used to getting disparaged all the time that You know, of, you know, something along the lines of— and I love when, I love when they say Joe instead of John, but usually, unfortunately, it's me. But when they say like, Joe is screwing up this agreement or this deal because he's doing bullet point, insert bullet point, insert bullet point, insert bullet point. And usually those bullet points are annoying to the buyer. But realize that Joe was doing those things on behalf of the seller, right? You're being— you're representing— we're representing our client in this case. So we have to vigorously represent our client just like lawyers do. And we have to take their point of view for this whole thing. And we're doing this in this case. And that can seem negative to the buyer. And the buyer oftentimes tells the seller that directly, which is why you don't want to have— oftentimes have buyers and sellers directly negotiating with each other. Because again, they get contentious and personal. And it's far better in this case. He appears to have an advisor, or he appeared to have an advisor, but doesn't really. So we're used to getting picked. That's why we both have very healthy egos, because we're used to getting, oh, John's going to screw this deal up because he's being too forceful.

Because he's existing, right? Because he's there. Inside this deal. And from the buyer standpoint, he is a hurdle. To basically being able to, again, people who are used to doing this and have done this in the past or whatever understand the process, they understand the players, and they have their own representation too, right? The perfect situation is one in which you've got 2 advisory firms or 2, you know, M&A law firms or whatever the advisors are basically doing the negotiation and leaving the parties who have to work together, you out of it and clean, right? So that their individual representations— now, there can still be animosity, that can still happen. You can be pissed at the guy because his lawyers are asking for something that is ridiculous, right? That stuff still happens. But by and large, if you have advisors working for you, it's going— the first lesson in all of this is keep your nose clean in the negotiations for as long as you possibly can, right? Because, because— Why is that? Being able to have other people do this for you helps— will only help your relationship with the buyer later on, right? So in the case that we're talking about right now, just again, Laura has put out, despite, you know, the way that it's supposed to work, she has put the first terms out on the table. And again, we're gonna— we'll use some numbers here. These are not the real numbers, but we're gonna use some numbers just to give you some context. Okay. She has asked for a $12 million valuation of the company, which, which we have helped her come up with. She didn't do it on her own. We believe that that is a fair and reasonable cost for, you know, the starting place. We had already discussed, because this is the second part of this, number 2 is you need to be able to understand where, where is your bottom, right? Because In order to be able to negotiate effectively, for anybody to negotiate effectively, whether it's you directly or someone on your behalf, they have to know where you're willing to stop, where you're willing to— when you're willing to walk away, and what are the things that are deal breakers for you. Okay? And so starting there, right, basically is now what's happened is we've gone out, told him that we think the value of the company is X, Y, and Z. And what he's now come countered with is a, uh, the, the, the last document that we're supposed to be working on. Not an LOI, not, not any kind of high-level term thing, but actual purchase and sale agreement that has terms of it. Remember, we asked for $12 million as the first asking price. He has come with it with a, with it with a term— with not with a term sheet, with a purchase-a-sale agreement that has a $2 million down payment and the rest of the backend in an ambiguous earnout.

Yeah. And again, the problem with this is, again, it's not the way it's done. And not assigning a total value to the deal is strange, right? Because typically what happens is You'll assign a value to the deal of, let's call it $4.5 million for argument's sake. And, um, that's not what he did, but because he didn't come up with this, but we'll come up with $4.5 million. $2 million or $2.5 million will be in a down payment, and $2 million will be made in an earnout at X percent of, of revenue, X percent of net profit. The way we used to do it in real estate was gross commission income, which is what real estate agents are paid on or how they're paid. And it's some percentage of gross commission income over the course of a period of time, right? Over the next 3 years while those agents are at the firm, you get 34% of their gross commission income as an earnout percent, full stop.

And the idea is that you want to be, as the seller, you want to be part of making sure that happens, right? Because you need to make sure that people aren't going to pull any, anything, you know, fast and loose with your earnout, right? You don't want to not be there. You want to not have contact. You don't, you don't want to just rely on some report that they send you, right? You need to make sure that you're kind of part of it. And by the way, for the buyer, most of the time, it's in order to help the buyer actually realize the investment they're making, right?

Yeah.

They need your help to be able to get it off the ground, to integrate it, to train staff on the new product, to be able to make sure that the customers that you're bringing with you stay, right? There's lots of things potentially that that you could do to make or break the deal on the back end, right? And that's— so there's a vested interest in both parties doing that.

Yeah, vested interest. There's— and so again, you wouldn't want to buy a company that has products that the customers are free and clear to leave right away, and all of a sudden they leave right after this happens. You wouldn't want to buy a company like that. And so there's, again, there's protections in there. There's definitions of what that thing is that is part of the earnout, like how the earnout is, is, is, um, calculated. The math problem around, again, gross commission income— that can mean a lot of different things to a lot of different people. You spell that out of the contract and you have the, the, the seller who was at the company that you just bought make sure and stick around for a period of time during the earnout. That's very, that's very common. Or you incent someone at your company to make sure that the revenue is generated. Because if someone's getting 32% of the gross commission income in my example, or 34, whatever I said, I can't remember.

34.

The other portion of that is earned by the buyer of the entity. So they have an incentive, everyone has an incentive to grow that number as big as possible.

So earnouts obviously are important. They're a standard part of the deal. And so it's not a surprise to see, right, to see someone basically putting that earnout The surprise was twofold. One was, A, the value of the company, okay, was basically undetermined by him. In other words, we gave a $12 million valuation. We, we broke that, that, we broke that, that money into, uh, an upfront, you know, up, you know, again, in our terms, I think the, the original terms, we broke that up into an upfront upfront of, I'm trying to remember, about $6 million upfront, which was about 50%, and the rest was tied to earnout. The other half was tied to earnout in the backend, but tied not to profitability or anything like that, but just tied to a time thing where Laura had to make sure certain milestones were hit. A relatively simple earnout strategy. What came back in the counter was a $2 million cash payment upfront, and then a percentage of something called net profit on the business that was being purchased over 3 years. A nebulous, hard to understand, not really clean way of being able to do an earnout, especially for the seller. A great way for the buyer to mitigate risk. Right.

Yeah.

And not a great deal for the seller.

Because, right. And the reason that it wasn't a great deal from the seller, I talked about revenue in the examples that I used to do. When you're doing net profit and you do some percentage of net profit, it can be challenging because what are the expenses that go into that calculation? Right. What, you know, define profitability? Is that including interest, depreciation, amortization, all those things? Is it a fully loaded net profit number. What is it? How does that work? So usually, again, if it's a deal where the buyer and seller are sort of on even footing, then it typically is revenue that I like to use for earnouts just because it's much cleaner. It's a number that everyone can understand. It's net revenue too. It's like, okay, You sell the product for $10, you'd sell 10 of them, and you have 1 return. Okay, that's an easy calculation for everybody to do.

But what we've got, what we've got in this situation is a way, way, way, way low counteroffer, a lowball counteroffer with a, with a, that actually does not have a total value attached to it.

Yeah. And, and the problem with, the problem with these types of offers, and let's talk about this one in particular, Was it— what it doesn't do is it doesn't demonstrate seriousness. You know, like, okay, fine, that could be— there could be— you know, in this case it was— oh, um, how do I say this? Um, we don't know what it was, right? It's a negotiating tactic, right? The valuation that was done by this buyer was either incomplete or we couldn't understand how they arrived. We didn't really understand how they arrived at this dollar figure, which is, again, as Joe mentioned, way off what our valuation was. So it had, again, had us questioning, frankly, you know, why are we so far apart with this?

That's right. And you can imagine, though, that for, again, for Laura, okay, to see it, to see a number like this come back as a first step that was so much lower is a huge gut punch, right? I mean, the poor woman. I mean, to see this and go You know, we think the valuation of this company is $12 million, and to come back with a $2 million cash offer that again she couldn't even understand the the the the the the earnout formula he had put in place, right? So before that, all she can see is he's only given me $2 million. That's not even going to cover the debt I have, right? So now she's in a situation right now where basically she is. She is watching. And again, this is, again, the first thought, right, is, oh no, I thought, I thought this was going to be $12 million and you're telling me, and this one is coming back for 2. Is this— I'm, you know, and you're— and, and the alarm bells start going off in your head. This isn't going to happen. And, and you're questioning at this point, you're questioning everything. You're questioning his sanity. You're questioning your own sanity. You're questioning the sanity of your advisors who told you that this thing could be worth $12 million. You're questioning everything that you've done and where you are and what you should do and going forward in the whole thing. Because— and this is the first— this is just the first twist of all the twists to come.

And one thing to clarify that we didn't have mentioned yet, I don't think— if you did, Joe, forgive me— but this was an asset purchase, right? So this wasn't a situation where they were selling the whole company. Dave was buying not even all the assets, substantially all the assets, but not the liabilities, specifically not buying the liabilities that the seller Laura would have to pay off the liabilities from the proceeds of the asset purchase transaction.

That's exactly right. It's a good point to understand that again, they're not taking the entire company. And in fact, what they're not purchasing specifically is is actually the liabilities. Okay? So again, it's a— we'll do a whole other episode on the difference between asset sale and equity sale. But for right now, just understand that again, everything else still remains true, right? The valuation's the valuation. We stick by that valuation. We can prove— also, by the way, during all this, we're having discussions With, with Laura, right? Laura, we can prove that the valuation is this valuation. We can prove with math that he will— how quickly it will— like, is likely for him to amortize the investment he's making in this asset, right? We can show him on paper how it will work. If he gave us a couple of bullet points, or if we could have a discussion with him, he could give us some information about his company. Currently in his current financials that we could plug in here and demonstrate beyond a shadow of a doubt what is likely to happen to, to these assets when he takes them over. Okay, so there's lots of information, there's lots of ways to be able to prove that this is a good deal for both parties, but we are at this point, we are unable to have this conversation.

Right, because it, because it becomes very difficult, and it became very difficult in this specific situation to when you can't have a conversation with the person, it's difficult to— and I don't want to use the word convince, but demonstrate, I should say— the way that our valuation makes sense given all the components of the future state of the company, right? So we were trying to do this all in a written document.

Right.

Because that was the buyer's preference. And it became very difficult to do that because it became very clear that he wasn't even reading the, the documents we were sending to the— Dave wasn't even reading all the documents, which again makes it really difficult when you don't want to get on the phone and you don't want to read. You know, the communication became challenging.

That's no question about it. So in the meantime, you know, let's, let's think about poor Laura here, okay? Laura's just been punched in the gut thinking, I was going to sell my company for $12 million and now it looks like I might get, uh, a 2 and some kind of weird earnout thing that I'm not even sure I understand. Okay, so from, from her standpoint, she is like, what the heck has happened? Okay, now she is willing to do a deal, okay, which means that she understands where she is. And it just so happens, okay, that in this situation, Laura wants to move on to another thing that she's working on. And the reason that she's going to sell this company now is, is, is the fact that, you know, again, it has been a hard road for her. In the meantime, she has come up with another thing that she wants to go work on full-time. And so she wants to basically divest herself of this asset, um, get as much money as she can for it, pay off some debt, and then be able to use the rest of it to be able to support this next, next, uh, endeavor that she wants to go on.

Fair. Yep, exactly.

The good news is, again, she was— it was a gut punch. It was, uh, it was a, it was a little bit of crying and a little bit of being upset. I'm not going to be able to realize my dream here. Um, but she was able to actually— we were actually able to build a counter to this, um, and be able to kind of go back to Dave. And what we'd had to do with Dave was we had to kind of try to take Dave back to, you know, and get him back back on track. And so what we did was we came up, we came up with the LOI, right? We, we put together in terms, you know, came down on the, on, on the overall valuation, carved out the terms of cash versus earnout, used his earnout play because again, we understood that was a concession, that if we can use his earnout schema, right, but define To John's point before, you know what the schema actually was and make sure that was on. It was very, very clear how that would work. That basically that we could get a deal done here. Okay, and so gut punch, but she stayed in the game. She came back. She countered. She's still trying to get, and and she's doing the right thing in our mind because she is still trying to build a win-win situation here. Right? He meantime, here comes the next twist. Right? The classic M&A negotiation tactics where you try to get inside the head of the seller.

Right? Yeah.

Now we're in a situation where he is now the— where Dave the buyer is now directly contacting Laura the seller, sweet-talking her. We can get a deal done. Just leave those guys, those M&A guys out of it. They're not doing you any favors. You know, it's going to be hard for us to get a deal if they're in the way. She's poison. He's poisoning the well, right? He's purposely trying to get in her head and try to say that what we're doing is not valuable to her and that he's she's going to lose a deal. And so now we're now this is this is again you are not prepared for this, right? This is this is like head games, right? This is. You know, we're gonna say is that it got to a point where it was no longer— there was no negotiation going on here. There was just a psychological kind of war of attrition happening, right?

Yeah, there were attacks, right, coming from— based on what we sent back to him, there were attacks and name-calling to a degree. Yeah.

And by the way, I should just point out, no substantive or material anything as far as a deal was concerned.

Right?

It was asking a couple of questions. It was asking for another document, you know, and we have, by the way, at this point, we had provided all documentation already. Everything was out, out front and, and transparent and visible, right? So now we're in a situation where, where basically is, is, um, you know, we do an LOI, he's starting to play these games, and we've got to kind of sit on the sideline and coach Laura, right? Because Basically, what he has told Laura is that if we're on a phone call or whatever, that he's basically not going to do a deal with her. All right, this is like— this is a very impossible spot for us to be in because obviously it's our job to help her. Um, normally we would be even doing the negotiations, and we're basically not even allowed on a phone call at this point, right? And, and she's complying with him because she's afraid that, again, that this is— she really wants to get this deal. done, right? And, and here's the thing, the reason we stuck with it, John, let's be honest, is that we knew that this would be the right thing for both parties.

Yeah. And, and it was, you know, the— we were looking at the, like, revenue projections for the company in a very conservative manner. And I think, again, hand up, I think we made— I think I made a mistake in doing some of these things. in, in only doing that side of the coin. So we should have done more things with regard to, uh, showing some, some potential growth, because what he kept harping on was, oh, all of the risk, the risk that he was taking in doing these deals and the uncertainty. Well, you know what? Tomorrow is uncertain, right? It's saying that it's going to rain all weekend. That creates some uncertainty for my daughter's soccer game, right? And for getting outside, and but the but the problem with that is the future is always uncertain, and and and there's got to be there's a there's a risk there's a flip side to the risk it's reward, and and and this company happened to be going through a tough time had a tough year all he happened to be looking at was the riskiness of what happens if this failed, and I have to credit Joe with saying well what about pointing out the reward, right? The reward side of this coin is tremendous. You know, if— and we looked at some projections and we set some projections— if revenue only increases to 80% of what was done in 2020, which is very possible given some circumstances about the companies and the future, then this is a home run for everybody. And by home run, I mean everyone's making a ton of money.

That's exactly right. And as it turns out, right, the guy's position wasn't really about cash flow or deal terms or anything. It was really about his control, right? And what he wanted to do ultimately, as we discovered, was essentially was he wanted control over everything he could possibly have control over, right? He wanted certainty. He wanted to understand something that was exactly going to happen. And so, We, you know, another one of John's favorite expressions is that, you know, let them have our way, right? And the reality is, is that what we've— what we were able to do was basically show him in no uncertain terms, you know, how much money that he would be able to make. And we were able to basically do this without us even being on the call, right? We were able to basically give her everything that she needed to be able to talk to him directly and to get this stuff done. And again, and again, a lot of this was about her being able to stand her ground because, you know, the fear of what— of the downside happening or the worst-case scenario happening, right, is very, very often outweighs, you know, our belief in something positive happening, right?

Yeah, because the reality is, you know, she's running her business. Like, this is all happening In parallel, and this is all happening for everyone listening to this podcast that's about that's either gone through a deal. You're doing your day job too, man. Right? You're doing your day job. You're doing an afternoon job, and you're obviously doing a night job and sometimes an early morning job because you have to run your company. And that's what she was doing during this whole situation, dealing with just a bass-ackwards way of approaching this deal and and and negotiating tactics that are just. You know, it's like, all right, let's, let's, let's be adults and get this negotiation done. It's not— let's agree to things and move forward as opposed to opening up things we've already, you know, agreed to. And that's what we were dealing with in this case is we pointed out the, the benefits to, to Dave and to what he would gain from acquiring Laura's company. Right. Not only just the assets, but the relationships, which I guess are part of the assets, but the The products and the relation— the products and the assets are one thing. The relationships and the doors that will be opened that he couldn't open when they did have in this overlapping business that they do have.

So, and in the timeframe in which it could happen, which is obviously a huge part of the risk, right? The risk mitigation is to know that I can get this done. And as it turned out in this case was like, you know, like 13 months of a 3-year And, and right.

And we approach it from a risk standpoint because what we understood was risk was very important to him. So how can we demonstrate? How can we lower the risk? Now, there's no way we can predict the future. We're good. We're not that good. So we can't predict even the projections that we were doing will— projections by definition are wrong. They will be wrong. But usually they're directional. Like, we were remarkably close on a couple of things. I'll tell you later, Joe. But How close we were on these, on some of these numbers. But like, but, but by definition, they're never going to hit the number that you think they're going to hit. They're either— yeah, they might be close. It's happened to me before. I've never hit an exact projection. Hand up, never done it.

No.

But what they do do is they show direction and the forethought. And what it does is it gets you to think. So when you put these projections together, know that they're going to be wrong, but know that the inputs to those projections You need to be able to explain them. And that's in the case— in this case is what we did is we explained the inputs to our projections, why he should believe us and why our conservative approach matches with his conservative, low-risk profile.

That's exactly right. And so it took us getting to that point to really understand what his motivation was, what he was— what were his hopes, fears, and dreams. And normally, when you're having conversations with people on a regular basis, on the phone or in person even, you're getting this, collecting this information. But this guy put himself in a position where it became because of the lack of communication gave us a very, very it took us a long time to get to the things that for us to really be able to understand what mattered to him, right? He could have had this all cleared up and this could this deal could have been done in in. In the space of a week. Well, okay. Yeah.

And one other thing we haven't mentioned— sorry to interrupt you— one thing I just want to mention that we didn't mention yet that's really important, um, was the desire to have due diligence occur after the agreement was signed. So we've mentioned a lot of things that were really weird and bass-ackwards earlier. This was the weird— this was the weirdest one because you can't have due diligence after a deal is signed. It just can't. It can't happen. doesn't make any sense. The assets transfer over and then you're doing due diligence? Like, how does that work? So one other example of just the oddity of this particular deal.

No question. Exactly right. And, you know, again, but, and as he came back in between, and again, we're skipping some, obviously, some negotiation steps and scenarios of back and forth. But remember, every time we've, we think we've solved something, whatever, for Laura. Laura has gone in, done that, and then returned back from from a conversation with Dave, dejected, right? It didn't happen again. Now he's asking for this, or now he wants to see this stuff, or now he's not sure, blah blah blah. And so what's happening again? This is these are tactics, okay? This is somebody who basically knows that if I if I you know if I put this kind of pressure. If I ask for things to be fast and then go slow myself, right? I ask for, um, you'll see all the time people basically will again try to poison the well from an advisory standpoint. They'll just get— they'll say, don't, you know, don't get your lawyers and stuff involved in this. We can do a deal without them. That's always a red flag, right? Um, but the reality was is that she was able to again convince him that, you know, this is a fair deal for both people. That they were, that there was, you know, that these were real terms and a real doable thing, and the risk was shared between both of them in the appropriate way. Right? So again, but what she was able to do, and this is the big learning, is stick with it. In order to make the sale, you have to be willing to forego the sale. Right? At the end of the day, you have to be willing to walk away. Because whether it's because you don't like the person's attitude, whether because you don't like how fast they're going, whether you don't like the terms of things that they're, that they're trying, or their negotiation tactics, any of these things are things that you don't want to get into business with the person.

Because again, when you're buying, when you're selling your company, in most cases there's going to be a period of transition and earnout or whatever you want to call it, however people term it. If you don't want to work with this person after negotiating, like, yeah, like sometimes that can be difficult to determine. But man, if they're being in if if you're if you determine that you don't want to work with them, don't do the deal with them.

That's exactly it. Just say no, right?

You have the power. As Joe mentioned, you have the power to say no, and you have the power to walk away.

That's exactly right. And either way, what we were still though, what she what she again she she she did ultimately do is is send him. the message that we're still in, but we will not be pressured this way, right? And so the ability for her to be able to kind of stand her ground and say calmly and, and on her own terms and in her own timeline, be able to get this stuff back and not take what he was saying as literal or that he was definitely going to do this was— again, kudos to her for being able to do it. Because again, in this process Right? You're getting tired. You're literally getting sick and tired, right? This is weeks. And, you know, we're condensing this thing to an hour podcast, but remember, in real time, this was weeks and weeks and weeks and things going by. And a week would go by before you'd hear anything, and nobody knows what's going on. And the anxiety is building and building and building.

And also, I want to do this deal quickly. I want to do this deal quickly. Like, right? It's like talking out of both sides of your mouth, right? Like, one hand is saying, oh yeah, uh, let's do this quickly, and the other hand's going like this.

That's exactly right. So, you know, let's get to some— you know, this, this was the very up and down, very up and down thing all the way to the last minute, you know, and, and getting the— you know, and again, this is the negotiation phase. All you're trying to do right now is get to a purchase and sale agreement, right? And the reality is you can't get there until, as John said, that you do— due diligence is done, That you, that you have an LOI that, that, that where everybody agrees on the basic terms subject to due diligence. Okay, obviously if you've done the work that she has, um, and that we've worked with her on for months, you are prepared for due diligence and there shouldn't be any reason why this deal changes substantially. Okay, that doesn't mean that, that the buyer doesn't try. That was the case in this case as well. There were still some more kind of last-minute things that were popping up that looked again like maybe this deal is not going to happen after all. But again, the big learning here is stay on it, stay on the ride for as long as you possibly can, but be willing to walk away at any moment. And if you've done your work, if you have a healthy and a sellable and a valuable company, company that someone else is going to buy according to our entire total exit value system and everything else that we preach on this podcast, then you're going to be able to do that, walk away and wait for the next one to come along. Okay? But if you are in a place where, again, where you really want this deal to happen, and again, it could be because of, for financial reasons, it could be because you've got some other opportunity waiting for you, whatever that is, you know, be, hang in there. And the key is find the way that the deal can come together. Find the way. What is the motivation from the buyer? And what can you provide that buyer that is going to help, you know, is going to give him what he thinks he wants or mitigate his risk or fit into his kind of view of this stuff without, you know, at the same time, something that's going to, you know, you may have to give a little, he has to give a little, right?

Yep.

But the idea of getting this done. So, Again, a couple of things that we got to keep in mind here. First, even good buyers can fall into bad habits when trying to manage risk. Everybody goes— buyers go nuts trying to basically make a deal that they know is going to work 1,000%, right? That's what everybody would love to have. The reality is that there's nothing in business, like in life, that is 100%, and being able to get as close as you can really has to do it. But again, You can be a good buyer, you can have some bad habits. From a seller standpoint, let's make sure that you understand that it'd be better if you had advisory partners and that somehow that the buyer also had those, right? That would actually be the best case for both parties.

Because then you're truly acting like a client, right? You're acting like a client. You're at the restaurant, You are ordering your meal, the advisor going back to cook it and bringing it out to you. Oh yeah, you do. The steak isn't, isn't, uh, cooked enough, send it back. It's not cooked enough again, send it back.

The bottle of wine, great.

You don't go to a restaurant to cook your own meal.

That's exactly right. So keep in mind that when you're doing this stuff, that again, the more help you have and a team that you have that you can, that can respond also to what happens, you know, a lot of what we've been doing the last couple of weeks is jumping on phone calls after these other phone calls, right, and trying to— and coaching them through, you know, what needs to happen. You know, the other thing is that you are going to, and most people do, underestimate how emotionally draining this negotiation can be, okay, and it can be. It can be really, really hard. And again, you know, the— I think some of the biggest things is that you get tired and that starts to— your defenses start to wear down. And, and maybe, maybe you make a bad decision at this point when you're, when you get kind of exhausted by the emotional roller coaster you're on, right? Um, the delay, ambiguity, or, or overwhelm, and, and direct reach out and contact, they are tactics.

Yeah. And, and also tactics are anything they've read in the most recent negotiating book, right? So like, don't split the difference or do all these, you know, they'll do all these things that they read recently in a book, which is fine, which I get it, understand. Sure, look, I understand. But just realize that while they can be, um, like a sign of a red flag or a problem, oftentimes in our experience, people aren't devious. Most people aren't devious. And most people are just using this as a tactic because, I guess, because again, they've gotten a tip, they've listened to a podcast, they've read a book, and they say, oh, well, let's try this, see how this works.

That's exactly right. So they're using it, it's leverage to them, and they're trying it again, again, to do everything they can because they, in their mind, they want to get a deal, right? The value of a company and stuff like that is not just about EBITDA or cash flow or any of those things. It's also about the structure, the risk mitigation within its own business, the leadership, and the story and the history. Okay? So no matter what anybody tells you, Okay. There are people out there I know that are talking all the time about how none of this matters except for what your numbers are. And the reality is—

Yeah, sorry. And yeah, it's a really, really good point. And I was guilty of this early in my career in that I would— if the number— there's a qualitative side and a quantitative side to every merger. And the quantitative side is, as Joe's just talking about, is the value. It's in the EBITDA. It's in the numbers. But also it's in the people, right? When I bought— when I used to— or when I bought a company back in the day, it's like you got to look people in the eye. And I looked these people in the eye and I'm like, I believe these people. These people— I want to work with these people in the future. And I enjoyed working with them. But I had to like— I had to have a meal with them. I had to talk to them. I had to understand their motivations, where they were coming from. So this point might be the most important point in our whole discussion today is you're not just buying and you shouldn't just value a company via a spreadsheet or what's in its EBITDA. You have to, you know, you're buying its past, you're buying the story, you're buying the leadership. All those things are coming along in most cases with the spreadsheets.

That's right. You're buying the past and you're buying the future, right? And all those things, and because they're inextricably linked.

Right?

And you're buying the people, and you're buying the process, and you're buying the secret sauce. And you're right, and you might be buying the market share and the capability. But at the end of the day, it's a matter of just, you know, again, from the seller side, red flags, caution flags, right? Not necessarily deal breakers, but again, what you need to know is what is, you know, is A, Try to stay out of the fray if you can and keep your emotional health in check, right? Um, but basically make sure you're also surrounded by people who, who know what they're doing and will help guide you through this, right? No matter who they are. So let's, in the last couple minutes we have left, let's talk about these actionable— we got some actionable steps for people to take. All right, John?

Yeah.

So the very, very, very first thing, there's going to be about 8 of these things, okay? So get your pens out, get ready, write this stuff down. Ready? Number 1, know your walkaway number. Okay? Before negotiations start, before you get in there, when you're talking with your advisors, right? Understand what is your deal, what are your deal breakers, and where do you walk away? And, and what is the point at which you are willing to walk away? You need to have this upfront. You need to know what it is. You need to advise your team that this is your position. And remember, it is easier to stay disciplined when you're not in an emotional state. Right. And so if you know those things and everybody agrees that this is where you're going to net out, it makes it— your team gives your team a lot more, uh, you know, guidance in terms of where they can play and where they can't. But at the end of the day, you will be able to say, nope, that's a deal breaker for me. We've already discussed that and I'm willing to walk away from the deal.

Yep. Number 2, document everything, right? So Make sure that you're keeping— that you keep a running tally. And oftentimes this occurs in emails, or if you're not on every phone call, it's another reason to be on every phone call, frankly, is you know the path that this deal has taken, right? It started here, it went over here, it went this way, these— this is what introduced. And you have that. Make sure you know everything because that becomes just a lot of information and a lot of good information that that you can go back to the second time when you sell your company if the deal sours, right? You know that the 19-path step or the— you can circumvent these things in the future if you learn from what you've done in the past. So document everything.

Yeah, absolutely correct. Obviously, don't go it alone, guys, right? Number 3 is don't go it alone. You need an M&A advisor of some kind. An M&A lawyer will work, somebody who's done this before, who understands this stuff. And again, we are not lawyers, right? That's not what we do. But we engage lawyers to do the contract work and all that stuff, just in case anybody thinks that that's, you know, not something— again, we are not— that's not what we do. What we do is help, help, help come up with the— with what those deal points are, and then the lawyers take over. And obviously you're doing things like the contracts and stuff like that. So even we need help. Right, in doing this stuff when it comes down to brass tacks. So again, make sure you've got an advisory team. And again, that buffer of your advisors during your negotiation is really invaluable, right? It keeps you clean, keeps you out of the fray, watches your emotional health, and actually sets you up to have a better relationship with the buyer, you know, during integration, right?

Yeah. 4, define earnouts early. Be as specific as possible. Get agreement on terms and define terms. What I mean by define terms, just so everyone is clear, is if you have like a capitalized term in your contract, if you look at many contracts, you have a definition of what that means. The definition of net profit, as an example, the definition of net revenue, just so that there's no— there exists no lack of clarity. between what you mean by the earnout and what they mean by the earnout. Because I guarantee you, it's like a foreign— it's like when you're converting money, you never get the good side of that deal, right? You always get the bad side of the conversion.

Right.

Um, and in the same way, if you assume something that the earnout is this way and it's not spelled out, if you're the seller and you sell this, trust me, most of the time The buyer's perspective on what the definition of the earnout will be what it is unless it's ironclad. So really define those earnout terms and be specific as necessary.

Exactly. Everybody's focused on the cash they're gonna get, right? But the reality is that the earnout can often be half or more of the actual deal and making sure that you're in a position also to make sure that you can have some kind of say in what happens in there or some kind of action. So So it's not just you're giving over your company and your control of what happens. Right.

And we have another podcast. I'll tell the story about an almost epic screw-up in the definition of an earnout that was not my fault, but would have been my fault because I didn't catch it in the deal. So I guess it was my fault. But it's a good story. It's another story for another day, though.

Press pause if needed. Okay? At any time in these negotiations, if you need to stop and take a break and let some things air out, it's advised. Okay? And again, your advisors should be helping you do this as well. And again, if you have advisors doing the negotiation, you may not get to this point. But just keep in mind that if you need to regroup, if you need to walk away for a couple of days, you can do that. Right? But again, the more you get to do that, more if you are in a healthy state, if you are a valuable, sellable company, right? That gives you way more leverage in these negotiations. It gives you the power to walk away. If you are in a state of distress where, you know, oh my God, if I don't sell this company today, my entire life is ruined, that's not a great negotiating place, right? You don't want to start from there if you can help it. Okay?

Yeah.

Doesn't mean, again, doesn't mean you don't have answers or options there too. But know that one of the key ways that you can basically kind of keep your sanity in all this is to make sure that you're prepared before you even get a buyer at the table, right?

Yep. Next one, validate your value. What that means is there are, again, this sort of harkens back to what we talked about, is the qualitative things that the buyer is getting when they're buying you. They understand the quantitative things in most cases. They understand There might be some arguments about it, but write down the sort of the qualitative things that the buyer gets when they, after they buy you, right? And make sure that you say those in conversations with the buyer so that they understand that, yes, they're getting these, the qualitative, the quantitative things, excuse me, of the money, the revenue, but they're getting you. They're getting your team oftentimes. They're getting things that are sort of non-financial information and non-financial benefits that will accrue to them over time that need to be heard by the buyer and understood.

That's exactly right. It's all part of the story. It's part of what they're buying. And so don't be afraid to make sure that, again, there's many ways to make that case and many moments within the deal framework to do that. But having that together, again, well ahead of time is gonna help you Prepare for the fatigue. It's gonna happen, right? It's not gonna be an easy path. It's gonna be up and down. It's gonna be a roller coaster almost no matter what. And you may have deals fall apart before you make one, right? But you gotta know that if you are serious about exiting your company and getting its value, you gotta kind of kiss a couple of frogs maybe before you find a prince.

Yeah. And just to build on that is, keep your routines as much as possible. Not really part of these things, but if you meditate, if you exercise, if you walk your dog, if you go hiking, do those things during this period. It's sort of obvious to say, but don't forget about that.

Right. And also, yeah, it's a matter of, again, your mental health is way more important than any potential thing that you could ever do, right? Any money or anything like that. And being able to, again, Keep in mind that this negotiation and getting to the closing table at this point is only half, half the job, right?

And last one is just like everything else, like everyone talks about, you know, Kobe Bryant used to talk about 10,000, or I think it was 10,000 hours, um, of practice, or whoever that was that said that. You will not get good at things unless you practice, right? I used to shoot baskets all the time when I was younger. I was pretty good at free throws. But that was from 100 shots a day. 100 shots a day. 100 shots a day. Practice. Get on the phone. Talk to somebody. Call your sister. Call your brother. Call someone to just listen to. Talk. Annoy your spouse if you're married. Annoy your girlfriend or boyfriend if you're married. Practice on them. Yes, they may get annoyed with it, but it'll help you. And, and, uh, and, and It'll help you deal with things, to bounce things off of people and practice answering those questions. Seed those questions with your partner, with the person you're working with to go through things so you're not caught off guard by a wacky question.

That's right. And to build on that, you know, talk to people who have been through this, right? You can talk to us, right? You can reach out to us here at Exit Engine Podcast simply directly by emailing us at info@myexitengine.com. You can email John directly at john@myexitengine.com or me, Joe, jo@myexitengine.com. Hey, another great episode today. I think there's a lot of information here. You know, we're excited about the fact that these deals, I think what we're demonstrating is that these deals can be hard, they can be rigorous, they can be a roller coaster. But ultimately, if you are primed, if you are in a place where you understand what your value is and where your deal breakers are, that you can actually be successful in this, you know, no matter what good tactics they get thrown at you, no matter what the buyer's, you know, relative education is, or, you know, or even how they kind of approach a deal. So, thanks for riding with us today. Again, guys, if this story hit home, If you're in a deal right now, reach out to us. Let us know about it. We're always here to help you think through your next move. Love to hear the stories kind of come in as well. You can find us again at myexitengine.com, at LinkedIn. I'm LinkedIn. It's J O Stapleton or John Caniffe C A N N I F F E. Follow the show. Leave us a review and send this guy. Send this to a founder that you love. Send this to somebody who might be in the. of a deal or might be thinking about selling their business and share this with them. All right, um, John, thanks again for today. Another great one. We will talk to you soon. Thanks, Joe.