One day BLP’s technology investment bankers got to chatting on the classic errors prospective clients make, that we see being repeated again and again and again. We thought articulating a list of these common mis-steps could be helpful to the entrepreneur. None of them should be fatal, but they do impede the process:
1. Depending on the Hail Mary
Many venture-backed companies who contact an investment banker to sell their company are in extremous and close to going under. They have already contacted the logical potential buyers, and are hoping that the investment banker will work a miracle.
2. Muddying the Waters
Companies often contact me after having approached all the known potential buyers on their own, and failed, hoping that I can create a miracle. I don’t and can’t. Oftentimes, the companies have gone out with ill prepared materials, have not thought through the offering and are asking for unrealistically lofty valuations. I try to avoid these situations at all cost.
Sometimes, the act of hiring an investment banker adds that degree of professionalism, realism and perspective that makes all the difference. It can happen, but it is rare.
3. Assuming Buyers Grow on Trees
Most companies have one buyer. If your turn off that buyer, don’t assume that another will appear out of nowhere.
4. Aggressive valuations
Dan Ariely, in Predictably Irrational proved that people consistently overvalue items they own, such as houses and cars. You’re better off not providing a value rather than driving off buyers with too high a value
5. Lack of transparency
Assume that your competitors and employees will discover that you are selling your company. Construct the message to deliver when you address those inevitable questions from employees and customers.
6. Untested product/market
This may be why you must sell. The market was not interested in the product you delivered. Is there another, more suitable market? Are there changes you can make to the product that make it more in sync with your target market? See Steve Blank’s and Bob Dorf’s The Startup Manual.
7. No Plan B
You always need a Plan B
8. Selling in a downward trending market
If you think you want to sell the company, sell as the market is going up and to the right. Bulls make money, Bears make money; Pigs get slaughtered.
9. Wordy Presentations
You want buyers to be engaged, not asleep, when you are taking them through your presentation. Take a presentation course, or at a minimum read and put to work Nancy Duarte’s Slide:ology.
10. Insensitive to the message from potential buyers of your company
If everyone is turning you down, figure out why. Are you communicating your value proposition and product features well? If the answer is that they just don’t find your Company/Product compelling get back to the drawing board. Fast. Often times, a Company has to go to market several times. Take this opportunity to construct a line from a point to convince potential buyers to take a look
11. Self Delusion
You’re going to tout your Company’s strengths to high heavens. At least be realistic and straightforward about your Company’s weaknesses. It’s better to admit to weaknesses in a matter of fact manner and move on, rather than spend 10 minutes arguing the fact.