12 Concepts We Can Learn About Selling Right on How2Exit's Interview W/ Kirk Michie - Watch Here
Here is what my team and I learned from this interview: (These are notes from team members, writers, sometimes AI, and even listeners who submitted what i learned loosely edited and shared here) - If it seems a bit unrefined, you're reading our notes, so. yeah. -Ron
Concept 1: Specializing In Business Acquisitions And Mergers
Business acquisitions and mergers are complex processes that require careful planning, strategic decision-making, and expert guidance. In the podcast transcript titled "How to Exit," the host interviews Kirk Michie, a business advisor with Candoor Advisors, who specializes in helping entrepreneurs buy or sell their businesses. This essay will discuss the importance of specializing in business acquisitions and mergers, the role of a business advisor, and the diverse industries that can benefit from such expertise.
Specializing in business acquisitions and mergers is crucial because these transactions involve significant financial investments and have long-term implications for both buyers and sellers. Having a deep understanding of the complexities involved in these processes allows advisors to provide valuable insights and guidance to their clients. Kirk Michie, with his three decades of experience in finance and business advisory, has honed his expertise in mergers and acquisitions, making him well-suited to assist entrepreneurs in navigating these transactions.
The role of a business advisor in the context of acquisitions and mergers is multifaceted. They act as intermediaries between buyers and sellers, helping to facilitate negotiations, conduct due diligence, and ensure a smooth transition. In the podcast, Kirk Michie mentions that his primary goal is to help clients get to the right investment banker and M&A attorney, as well as prepare them for maximizing their deal's potential sales price and protecting against potential pitfalls. This highlights the importance of having an advisor who can provide comprehensive guidance throughout the entire process.
One interesting aspect of Kirk Michie's work is that his firm, Candor Advisors, does not specialize in any particular industry or sector. Instead, they are generalists who adapt to the market's demands and their clients' needs. While this may seem counterintuitive, it allows them to bring a fresh perspective and a diverse range of experiences to each transaction. They have worked on deals in industries as varied as cannabis services and genomics, despite having limited knowledge of those specific fields. This demonstrates the importance of having a skilled advisor who can quickly grasp the intricacies of different industries and provide valuable insights to their clients.
Furthermore, Kirk Michie emphasizes the importance of working with entrepreneurs who are willing to collaborate closely with their advisors. This collaborative approach allows for a deeper understanding of the client's goals and aspirations, enabling the advisor to tailor their guidance accordingly. By developing a covenant with their clients, advisors can ensure that the necessary steps are taken to achieve the desired outcome.
In conclusion, specializing in business acquisitions and mergers is crucial for both buyers and sellers. Kirk Michie's experience as a business advisor highlights the importance of having a knowledgeable and experienced professional to guide entrepreneurs through these complex transactions. Whether it is in a specific industry or as a generalist, a skilled advisor can provide valuable insights, facilitate negotiations, and ensure a successful outcome. As the business landscape continues to evolve, the need for specialized expertise in acquisitions and mergers will only grow, making the role of advisors like Kirk Michie even more essential.
Concept 2: Cannabis Industry Regulation And Oversupply
The transcript of the podcast provides insights into the cannabis industry regulation and oversupply. The speaker begins by comparing the cannabis industry to wine, stating that it is potent and potentially even less potent depending on the THC content. However, the regulation of licenses in the industry has been poorly handled, particularly in comparison to Canada, where cannabis is federally legal. In the United States, cannabis legalization varies from state to state, with around 30 states having some level of legalization.
One of the main issues discussed is the oversupply problem in the cannabis industry. The speaker mentions that Canada has faced this issue, where they have so much oversupply that they burn 25% of their crop per year because they cannot sell it. This oversupply is attributed to the lack of effective regulation of licenses and uneven enforcement of regulations for both users and growers.
The speaker also discusses the presence of entrepreneurs in the cannabis space, comparing them to early entrepreneurs in the beer industry. They acknowledge meeting massively talented entrepreneurs in the cannabis space but also encountering individuals who are in the industry solely to make money without much knowledge or understanding of cannabis. These individuals are referred to as "Chads" in the cannabis space.
The podcast also touches on the legal implications of operating in the cannabis industry. The speaker mentions a friend who is facing potential federal charges due to his business partner engaging in illegal activities, such as shipping cannabis to other states. This highlights the uneven regulation and enforcement within the industry, which can lead to legal complications for those involved.
In conclusion, the podcast transcript sheds light on the challenges faced by the cannabis industry in terms of regulation and oversupply. The lack of effective regulation of licenses and uneven enforcement of regulations has resulted in oversupply issues, as seen in Canada. The presence of both talented entrepreneurs and individuals solely motivated by profit further complicates the industry. The legal implications of operating in the cannabis industry are also highlighted, emphasizing the need for better regulation and enforcement. Overall, the transcript provides valuable insights into the current state of the cannabis industry and the challenges it faces.
Concept 3: Importance Of Matching Buyer And Seller
The podcast transcript discusses the importance of matching the buyer and seller in the context of selling a business. The speaker emphasizes that understanding the "why" behind selling the business is crucial in finding the right buyer. Different buyers have different motivations and goals, and aligning these with the seller's objectives is essential for a successful transaction.
The speaker mentions that if the seller's main goal is to retire or spend more time with their family, a private equity firm may not be the right buyer. Private equity firms often require the seller to stay involved in the business for a certain period of time and may offer additional incentives to keep them engaged. On the other hand, if the seller wants to take some chips off the table and build towards the next outcome, partnering with the right private equity or financial sponsor partner could be the right choice.
Matching the buyer with the seller's "why" is not just about financial analysis. It goes beyond numbers and involves understanding the seller's personal goals, aspirations, and vision for the future. The buyer should be able to support and align with these objectives, ensuring a smooth transition and a successful outcome for both parties.
The speaker also mentions that determining the buyer's terms and the seller's terms is a crucial aspect of the transaction. Negotiating the terms and structure of the deal is important to ensure that both parties are satisfied and that the seller retains control over their legacy. The speaker emphasizes the need for collaborative negotiation and creating competitive tension to get the highest price and best terms for the seller.
Overall, the importance of matching the buyer and seller in a business transaction cannot be overstated. It is not just about financial considerations but also about aligning motivations, goals, and visions for the future. By understanding the seller's "why" and finding a buyer that matches these objectives, both parties can achieve a successful outcome and ensure a smooth transition.
Concept 4: Financials Tell The True Story
One crucial aspect of this matching process is the financials of the business. The transcript highlights the need for the financials to tell the true story of the transferable economics of the business. This goes beyond just painting a positive picture and requires a deep understanding of the business's financial health and potential.
To ensure that the buyer understands the true picture of the business, it is essential to have professionalized financials. This may involve getting the financials reviewed by a CPA or even obtaining a sell-side quality of earnings report from a reputable CPA firm. These steps help to provide a more accurate and reliable assessment of the business's financial performance and potential.
The transcript also emphasizes the importance of not giving up too much too soon. Many entrepreneurs, especially those who are skilled at sales, may be tempted to provide a wealth of information upfront to maintain rapport with the buyer. However, this can backfire if the information is used against them during the negotiation process. It is crucial to strike a balance between building trust and protecting sensitive information.
Another key point is the need for professional guidance throughout the transaction process. While it may not be necessary to hire a business broker or investment bank right away, seeking advice from trusted sources such as Vistage groups, CPAs, or experienced entrepreneurs can help identify potential risks and navigate the complexities of the deal.
One of the most significant factors that can make or break a deal is seller expectations. It is essential for sellers to align their expectations with market realities. Arguing with the market or holding unrealistic expectations can hinder the progress of the transaction. Instead, sellers should explore alternative paths or focus on growing the business to a point where they can accept the market value.
The transcript also highlights the importance of collaboration and effective communication throughout the negotiation process. It is not a battle between buyer and seller but a collaborative effort to find common ground and meet each other's expectations. By openly discussing needs, wants, and expectations, both parties can work towards a mutually beneficial outcome.
In conclusion, financials play a crucial role in telling the true story of a business during a transaction. Professionalizing the financials, managing expectations, seeking professional guidance, and fostering collaboration are all essential elements in ensuring a successful outcome. By understanding the importance of financials and aligning motivations and goals, both buyers and sellers can achieve a smooth and mutually beneficial transaction.
Concept 5: Seek Advice, Don't Go Solo
One of the key takeaways from the podcast transcript is the importance of seeking advice and not going solo when it comes to business transactions. The speakers emphasize the need for sellers to "armor up" and balance the power dynamics by having a knowledgeable advisor or team on their side.
The podcast presents the analogy of a junior person in a private equity firm who may have more deal experience in a year than the seller has built over 35 years. This highlights the expertise and knowledge gap that can exist between buyers and sellers. The speakers stress the importance of leveling the playing field by having someone in the seller's corner who can match the skills and experience of the buyer.
The analogy of the MMA fighter is also used to drive home the point that going into a business transaction without proper guidance is akin to entering the ring with a trained fighter without the necessary skillset. Just as one wouldn't jump into a UFC ring without the proper training, it is unwise for business owners to enter into negotiations without the support of an advisor or broker who understands the intricacies of the transaction process.
The speakers also highlight the common behavior among entrepreneurs, particularly men, of thinking they are weak if they seek help. This mindset can hinder their ability to make informed decisions and maximize the value of their business. They stress the importance of recognizing the value in seeking advice and leveraging the knowledge and experience of others to achieve better outcomes.
The podcast emphasizes the need for entrepreneurs to overcome this stubborn instinct and embrace the idea of standing on the shoulders of giants. By seeking advice and guidance, entrepreneurs can tap into the expertise of others and make more informed decisions. They can avoid pitfalls, mitigate risks, and ultimately achieve better results in their transactions.
The speakers also address the misconception that seeking advice comes at a cost. They highlight the potential risks of going it alone, such as ending up with unfavorable terms, contingencies, and earnouts that may not align with the seller's expectations. While there may be upfront costs associated with seeking professional help, the long-term benefits and potential for a smoother and more successful transaction far outweigh these initial expenses.
In conclusion, the podcast transcript emphasizes the importance of seeking advice and not going solo in business transactions. The speakers highlight the expertise and knowledge gap that can exist between buyers and sellers and stress the need for sellers to balance the power dynamics by having a knowledgeable advisor or team on their side. They debunk the notion that seeking advice is a sign of weakness and emphasize the value of leveraging the expertise of others to achieve better outcomes. By seeking advice, entrepreneurs can make more informed decisions, mitigate risks, and ultimately achieve smoother and more successful transactions.
Concept 6: Transaction Advisors Provide Guidance And Support
Transaction advisors play a crucial role in providing guidance and support during business transactions. The podcast transcript emphasizes the importance of seeking advice and not going solo in these transactions. The speakers highlight the expertise and knowledge gap that can exist between buyers and sellers, and stress the need for sellers to balance the power dynamics by having a knowledgeable advisor or team on their side.
One of the key points made in the podcast is that many people hire transaction advisors because they believe the advisors are gurus who know more about the specific area of the transaction. While this may be true to some extent, the speakers argue that the real value of a transaction advisor lies in their ability to guide and assist clients through every inflection point of the transaction. They use their experience and "useful scar tissue" to provide insights and recommendations based on what they have seen other founders do in similar situations.
The speakers also emphasize the importance of the advisor acting as a gladiator on behalf of the client's future self. This means that the advisor fights with the client against their own fears, anger, or other emotions that may hinder them from achieving their desired outcome and legacy. The advisor's role is to advocate for the client's goals and help them navigate any obstacles or challenges that may arise during the transaction.
Furthermore, the podcast transcript highlights the importance of having a transaction advisor when dealing with buyers who are represented by professional transaction advisors. The speakers explain that buyers often engage transaction advisors to ensure risk control and to conduct due diligence on the seller's financials. However, if a seller does not have an advisor, they may perceive these requests as insults to their integrity, rather than recognizing them as standard procedures in the transaction process. Having a transaction advisor can help sellers understand and navigate these requests, ensuring a smoother and more successful transaction.
In conclusion, the podcast transcript emphasizes the importance of seeking advice and not going solo in business transactions. The speakers highlight the expertise and knowledge gap that can exist between buyers and sellers and stress the need for sellers to balance the power dynamics by having a knowledgeable advisor or team on their side. They debunk the notion that seeking advice is a sign of weakness and emphasize the value of leveraging the expertise of others to achieve better outcomes. By seeking advice, entrepreneurs can make more informed decisions, mitigate risks, and ultimately achieve smoother and more successful transactions.
Concept 7: Advisors Are Crucial For Successful Deals
The podcast transcript makes it clear that advisors are crucial for successful deals in the business world. The speakers emphasize the need for sellers to have advisors on their side to navigate the complexities of transactions and ensure favorable outcomes.
One of the key points highlighted in the podcast is the knowledge gap that exists between buyers and sellers. The speakers acknowledge that sellers may not have the expertise or experience in certain areas, such as legal documents and the law. They stress the importance of having advisors who can provide guidance and ensure that sellers are aware of any potential risks or pitfalls in the deal. By relying on advisors, sellers can avoid making costly mistakes and ensure that the transaction is conducted in a legally sound manner.
The speakers also discuss the importance of due diligence in business deals. They point out that buyers may have hidden agendas or undisclosed information that could impact the success of the transaction. By having advisors who can conduct thorough due diligence, sellers can uncover any potential issues or red flags and make informed decisions about whether to proceed with the deal. Advisors can help sellers identify any pending lawsuits or other factors that may be driving the buyer to sell the business quickly.
Furthermore, the speakers emphasize that seeking advice is not a sign of weakness, but rather a smart business move. They highlight the value of leveraging the expertise of others to achieve better outcomes. By having advisors who specialize in specific areas, such as legal matters or financial analysis, sellers can ensure that all aspects of the deal are properly addressed and negotiated. This can lead to smoother transactions and more favorable terms for the seller.
The podcast also touches on the importance of accurate financial records and documentation in business transactions. The speakers mention cases where businesses have operated with inaccurate or incomplete financial records, which can create challenges for sellers when trying to sell their businesses. Advisors can help sellers organize and present their financial information in a clear and accurate manner, which can increase buyer confidence and facilitate a smoother transaction process.
In conclusion, the podcast transcript emphasizes the importance of seeking advice and not going solo in business transactions. The speakers highlight the expertise and knowledge gap that can exist between buyers and sellers and stress the need for sellers to balance the power dynamics by having a knowledgeable advisor or team on their side. They debunk the notion that seeking advice is a sign of weakness and emphasize the value of leveraging the expertise of others to achieve better outcomes. By seeking advice, entrepreneurs can make more informed decisions, mitigate risks, and ultimately achieve smoother and more successful transactions.
Concept 8: Financials And Governance Matter In Sales
The podcast transcript sheds light on the significance of financials and governance in sales transactions. The speakers, one of whom is a former partner of a private equity firm, provide insights into how certain factors can impact the sale of a business.
One of the key points made is that poorly organized financials can hurt a business in a sale. If a buyer sees that a business lacks organized financial records, they may expect a discount on the sale price. The speakers explain that without clear financials, it becomes difficult for a buyer to assess the transferable economics of the business. This lack of clarity can lead to a decrease in the perceived value of the business and potentially hinder the sale process.
Similarly, the speakers discuss the potential challenges that can arise when a divorced or divorcing couple continues to run a business together. They argue that this situation can be exploitable for buyers, as it may indicate governance issues within the business. The speakers suggest that a divorced or divorcing couple trying to run a business together could lead to problems such as lower revenue and profits, or even the eventual dissolution of the business. Buyers may see this as an opportunity to negotiate a lower price or exploit the situation for their benefit.
The speakers also touch upon the perspective of the buyer in a sale transaction. They explain that buyers are typically value-oriented and aim to get the best deal possible. They may have specific financial models and return expectations that they need to meet. Therefore, if a seller's asking price is higher than what the buyer believes the business is worth, negotiations will need to take place to bridge that gap. The speakers emphasize that this is not an insult to the seller, but rather a reflection of the buyer's financial model and return requirements.
Throughout the podcast, the importance of seeking advice and expertise is emphasized. The speakers encourage sellers to consider working with a team or advisor who can help navigate the complexities of the sale process. They highlight the value of having someone who can provide guidance, assess the financials, and help the seller achieve their desired outcome. Seeking advice is seen as a strategic move that can lead to a smoother and more successful transaction.
In conclusion, the podcast transcript emphasizes the importance of financials and governance in sales transactions. It highlights the potential impact of poorly organized financials and governance issues on the perceived value of a business. The speakers stress the need for sellers to seek advice and leverage the expertise of others to achieve better outcomes. By doing so, sellers can make more informed decisions, mitigate risks, and ultimately increase the chances of a successful sale.
Concept 9: Plenty Of Money For Selling
The podcast transcript discusses the abundance of money available for selling businesses in the current market. It mentions that there is approximately $2 trillion in private equity, private debt, and venture capital that is committed but uninvested. This "dry powder" is seen as fantastic news for entrepreneurs considering selling their businesses because it means there is plenty of money available for potential buyers.
The speakers also highlight the importance of understanding the buying power of strategic investors. These investors can further increase the amount of money available for potential acquisitions. With the combination of private equity firms and strategic investors, there is a significant amount of capital in the market for entrepreneurs looking to sell their businesses.
However, the podcast also cautions against rushing into a sale. It uses the analogy of not marrying the first person you kiss to illustrate the importance of taking the time to consider all options and make the right decision. The speakers advise entrepreneurs to think about what they really want to do and evaluate their passion for running the company. If they have lost their passion and no longer enjoy running the business, it may be time to consider selling.
The podcast suggests that private equity firms may not be the best option for sellers who no longer have a passion for their business. Private equity firms often want sellers to stay involved in the business, which may not align with the seller's desires. The speakers emphasize the importance of being honest with oneself and one's closest advisors about the desire to sell and move on to something else.
The transcript also discusses the importance of focusing on the right outcome and eliminating distractions. It suggests becoming an essentialist and narrowing down the path to achieve the best outcome. The speakers highlight the need to prioritize what is truly important and let go of things that are not serving the desired outcome.
Furthermore, the podcast transcript touches on the approach of making offers to potential sellers. The speakers mention that they typically make offers with multiple options based on the current state of the business. They offer a lower price for the business as it is and provide the opportunity for the seller to increase the offer by fixing certain aspects of the business, such as hiring a new operator or improving accounting practices. This approach allows the seller to see the potential value of their business and provides a clear path to increase the offer price.
In conclusion, the podcast transcript emphasizes the importance of financials and governance in sales transactions. It highlights the potential impact of poorly organized financials and governance issues on the perceived value of a business. The speakers stress the need for sellers to seek advice and leverage the expertise of others to achieve better outcomes. By doing so, sellers can make more informed decisions, mitigate risks, and ultimately increase the chances of a successful sale.
Concept 10: Importance Of Buyer-Seller Relationship
The podcast transcript highlights the significance of the buyer-seller relationship in the context of business transactions. It emphasizes the need for sellers to establish a positive and cooperative relationship with potential buyers in order to maximize the chances of a successful sale.
One of the key points made in the transcript is the importance of communication and transparency between the buyer and seller. The speakers discuss the value of sending follow-up emails to potential buyers, expressing interest in continuing the discussion. This approach not only demonstrates the seller's commitment and enthusiasm, but also provides an opportunity for both parties to clarify their expectations and requirements.
The transcript also acknowledges that there may be different responses from potential buyers. Some may react hostilely, which could indicate that they are not serious buyers or a good fit for the business. In such cases, it is suggested that sellers may not need to retain the services of a transaction advisor, as the buyer's response itself may reveal their true intentions.
On the other hand, a neutral response from a potential buyer may indicate some reservations about the involvement of a transaction advisor. In these cases, the speakers suggest that sellers may need to go through additional rounds of discussion and negotiation before the buyer decides to proceed. However, they also mention that sellers may choose to forego the services of a transaction advisor if the initial conversation with the buyer reveals a bad fit or lack of motivation to sell.
The ideal response from a buyer, according to the transcript, is one that welcomes the involvement of a transaction advisor. This indicates that the buyer is open to professional guidance and is genuinely interested in acquiring the business. The speakers emphasize that reacting hostilely to the involvement of a transaction advisor can jeopardize the buyer-seller relationship and reduce the chances of a successful sale.
Furthermore, the transcript highlights the importance of trust and motivation in the buyer-seller relationship. The speakers mention that they sometimes have reservations when a potential buyer brings in an advisor, as it raises questions about the buyer's true intentions and commitment to the sale. They suggest that sellers should inquire about the buyer's game plan and motivation to ensure that they are genuinely interested in completing the transaction.
Overall, the podcast transcript underscores the significance of the buyer-seller relationship in business transactions. It emphasizes the need for effective communication, transparency, and trust between the parties involved. By establishing a positive and cooperative relationship, sellers can increase the likelihood of a successful sale and achieve better outcomes.
Concept 11: Investment Banker Helps With Transactions
One key aspect highlighted in the podcast is the role of an investment banker in facilitating transactions. The speaker suggests that buyers should reasonably expect the involvement of an investment banker, especially in larger transactions. This is because investment bankers bring expertise, experience, and connections to the table, which can greatly benefit both buyers and sellers.
The podcast also mentions that in smaller transactions, such as when one entrepreneur is buying the business of another entrepreneur, the involvement of an investment banker may not be necessary. In such cases, the right attorneys can handle the legal aspects of the transaction. This highlights the adaptability and flexibility of investment bankers, who can tailor their services based on the specific needs of the parties involved.
Furthermore, the podcast discusses the potential challenges that may arise during negotiations. It suggests that hostile responses often come from larger competitors or independent sponsors who may question the valuation of the business. In such situations, the investment banker can play a crucial role in providing clarity and presenting the math behind the seller's expectations. By presenting a clear and logical case, the investment banker can help align the expectations of both parties and prevent misunderstandings or frustrations.
The podcast also touches upon the importance of understanding the financial dynamics of a business. It mentions a specific case where a software business has high net margins, which affects its valuation. The investment banker helps the buyer understand the financial implications and the rationale behind the seller's price expectations. This demonstrates the investment banker's ability to provide valuable insights and help buyers make informed decisions.
Additionally, the podcast highlights the resources available to buyers and sellers who are looking for guidance in the transaction process. The speaker mentions a website where interested parties can find videos and an ebook on various topics related to buying and selling businesses. This showcases the investment banker's commitment to educating and empowering clients, ensuring they have the necessary information and resources to navigate the transaction process successfully.
In conclusion, the podcast transcript emphasizes the crucial role of investment bankers in facilitating business transactions. Investment bankers bring expertise, experience, and connections to the table, helping buyers and sellers navigate the complexities of the transaction process. By establishing effective communication, transparency, and trust, investment bankers can help align the expectations of both parties and increase the likelihood of a successful and mutually beneficial transaction.
Concept 12: Focus on purpose over profit.
One key takeaway from the podcast is the importance of focusing on purpose over profit. The guest speaker emphasizes that when considering selling a business or engaging in a capital event, it is essential to have a clear understanding of why you want to do so. Whether it is retiring, reducing stress, or funding your next adventure, having a strong sense of purpose can serve as a compass during inflection points in your business journey.
The guest speaker suggests that focusing on purpose over profit does not necessarily mean serving a social good, but rather having a guiding principle that directs your decisions and actions. By aligning your business with a purpose, you can make more informed choices that are in line with your goals and values. This can help you navigate the complexities of selling a business and ensure that the outcome aligns with your overall vision.
Another important point raised in the podcast is the need to be cautious when approached by financial sponsors or strategic buyers. While these individuals may not be inherently bad, it is crucial not to give away too much too soon. The guest speaker advises against giving up your leverage and providing everything that these buyers ask for. Instead, it is important to carefully consider their requests and determine whether it is in your best interest to fulfill them.
By maintaining control and not giving away too much too soon, you can negotiate from a position of strength and ensure that the terms of the transaction are favorable to you. This highlights the importance of being strategic and protecting your own interests throughout the negotiation process.
In conclusion, the podcast transcript emphasizes the importance of focusing on purpose over profit when considering selling a business or engaging in a capital event. By understanding your motivations and aligning your actions with your purpose, you can make more informed decisions that lead to a successful outcome. Additionally, the transcript highlights the need to be cautious when approached by potential buyers and to protect your interests throughout the negotiation process. By maintaining control and not giving away too much too soon, you can ensure that the transaction is in your best interest.
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