My partner and I started our Internet company, NetMarquee, in 1995 with $10,000 and a passion for using the new online medium as a compelling marketing tool. Over its life, the company evolved from a start-up operating a simple Web site for owners of family businesses into an end-to-end direct-marketing agency serving Fortune 1000 companies.
As we were building the business, we thought often about raising venture capital to facilitate our growth. What a little money could do for us! Wouldn't it be nice to have a better address and top-shelf equipment to attract employees and impress customers! At the time, so many Internet companies were raising even more money than they had anticipated that we thought it was a reasonable strategy for us as well.
Alas, we were wrong. Maybe our pitch didn't float investors' boats. Perhaps we were too far ahead of our time. Maybe we just didn't try hard enough. Whatever the reason(s), our board of advisors countered with some solid advice: We should not be spending our time trying to raise money. Build the business, they said, and find clients who can help finance growth.
Size Is Not Enough
We buckled down and did just that, with the result that revenues doubled every year, and in 1997 we made a profit. As we thought about it, we realized that not having other-people's-money was actually a benefit to us. We were able to focus on the fundamentals of building our business rather than on other people's ideas. And, as it became necessary to alter our business model - we did so three times! - we could do that unencumbered by the concerns of outside investors.
In spite of success, however, cash was always on our minds. Our ability to lease equipment and cover capital outlays was severely stretched. Our darkest fear was that all it might take was one missed project deadline, one lost customer, the departure of one key employee - and we'd be toast.
The other problem was that simply doubling in size every year just wasn't good enough if we wanted to move into the big leagues. Early in 1999 we realized we had two options: at long last raise some capital to fund our growth and stability, or merge the company with an organization that would provide the investment funding we needed. Since fundraising was not our forte, we decided to seek a financial partner and get hitched.
Rules of the Dating Game
Selling your company, it turns out, is a lot like looking for an ideal mate in a confusing singles scene. We realized we were faced with a marketing challenge. We also didn't want the process to drag on indefinitely. Here's what we learned about looking for RightCo. Inc.
- Set a goal. Establish some specific objectives and a time-line for each. We determined that one year was a reasonable amount of time in which to locate prospective merger partners and negotiate a deal. That would allow us to meet the company's needs as well as ours, as co-founders and owners.
- Target your efforts. What kinds of companies would be most interested in a merger with yours? We thought carefully about the core value that NetMarquee brought to the table for each market segment. What were the top firms in each of those segments and how could we reach them?
- Share the tasks. My co-founder and I soon realized that the responsibilities of running a fast-growing business and finding a merger partner with whom we could live happily ever after were incompatible. We wouldn't get anywhere if we were constantly multi-tasking and overlapping. The best approach was for me to take over the day-to-day tasks of running the firm, and he would drive our partner search.
- Get outside help. Entrepreneurs tend to be creative, passionate and driven - but not necessarily accountants, diplomats or lawyers. While we knew the ins and outs of running our business, we were much less comfortable positioning it for sale and negotiating the financial and legal aspects of a deal. All along we had carefully documented our thinking and solicited valuable feedback from our board and other associates. Now our advisors put us in touch with a number of "facilitators" (if we were a much larger firm, I'd call them investment bankers) to help us "seek strategic alternatives for the company."
Chemistry with the Matchmaker
The decision to bring a facilitator on board was a big one. In addition to a monthly outlay, we would need to commit to a substantial payout at the conclusion of a deal. Moreover, if we just got fed up and walked away, we'd still have to pay a commission at deal time and for several years thereafter. In the end, we swallowed hard and decided to press ahead because we needed the active help of someone who'd been there before. After meeting with several individuals, we began negotiating with one who seemed both capable and interested.
A month later, we were a signature away from engaging this person when our intuition got the better of us. Her negotiating style made us somewhat uncomfortable. She seemed to have a hard-line, "take it or leave it" approach. We didn't particularly like that style, and we sensed that it might not work during negotiations with our future owners. Even though it meant a month's delay in the schedule we had established, we eventually signed up with someone else.
Finding an intermediary whose style and approach fit ours made all the difference, since the matchmaker had to quickly become a third member of our partnership. Our new facilitator had the ability to understand our business and to see our company through the eyes of potential acquirers. Needless to say, that taught us something important: Your best decisions are the ones that first come from your head, then sit well in your gut.
Compatibility with the Suitor
Now the real work began. We developed lists, made contacts, dusted off old connections. The process reminded us that whether you're selling yourself, a product or your company, the power of your network makes all the difference. During the summer, we were in discussions with several qualified suitors.
In fact, we didn't have far to look to find the right partner. What attracted us to Circle.com was the management team's vision for Internet marketing and our shared view of the Internet's value in building customer relationships. NetMarquee had developed a relationship with some of its principals over the previous few years. Our organizations had already worked together on Web sites for certain clients. We shared a view that successful marketing needs to embrace the Internet, establishing and maintaining profitable customer relationships online.
Our advisors approved of the match. Our accountant liked it. Even our lawyer liked it. While I still suffer from sticker shock caused by the bills, there's no question that the right attorney can make or break a deal.
Adjusting After the Honeymoon
The period immediately following the transaction was perhaps the most exhausting time in my life. Recovering from the stress and exertion of months of meetings, late-night calls and e-mails to get the deal done isn't easy. We needed to integrate systems for financial forecasting, personnel and other matters. We had loyal employees who now had lots of questions and concerns about Circle.com, our new "family." On top of that, we still had a business to run and customers to keep happy.
Perhaps I should have listened to fellow entrepreneurs who told me, "It just isn't your problem any more." For better or for worse, however, my sense of obligation got the better of me. I worked hard to try to ensure a smooth integration with the acquiring company, but there were surprises, misinterpretations and misunderstandings. As any married friend will confirm, you never know what your spouse is really like until after you start living together. Indeed, if you don't want anything to change, don't sell your company in the first place.
At the time we signed the contract, plans called for me to continue to run the business, but within four months a decision was made to integrate NetMarquee with other Circle.com operations. I participated in that decision, and believed it was the right approach for a variety of reasons. However, when you merge, as when you marry, there's a key truth to remember: Despite all the commitments, promises and intentions partners declare going in, there will always be unforeseeable circumstances to which they may respond differently. When that happens, the open mind and positive attitude that made you an entrepreneur will be crucial for cohabitation. With the right partner, use the lessons you learned from the search, plus adaptation and cooperation, to make the new relationship work.
© 2001 Kauffman Center for Entrepreneurial Leadership at the Ewing Marion Kauffman Foundation, 4801 Rockhill Road, Kansas City, MO 64110.All rights reserved.