Three Essential Rules for Selling Your Business From Serial Entrepreneur Jerry Jao

Five years after my co-founder and I launched our A.I. marketing firm, Retention Science, we made the Inc. 5000 for the first time, in 2018, and offers began rolling in to purchase our business. We weren’t ready to sell–more and more brands were turning to us to develop and deploy marketing insights from big dives into their sales data–but it was clear even more offers would be coming our way. A few months after we made the Inc. 5000 for a second time, in 2019, we started discussing an offer in earnest, from Constant Contact, in January 2020.

Of course, the world closed down around us months later as the pandemic raged, complicating the sale and giving our buyer a temporary case of cold feet.

At the time, something I heard often from bankers was that companies aren’t sold, they’re bought. Meaning, when you sell your business, there’s little you can control. The acquiring company determines the timeline, the price, and the terms, and it puts up the legal documents. That’s all true–however, I’ve since learned there are rules any seller should observe to encourage a positive outcome.

The selling process is ultimately a test of how well you and your buyer can work together; you want to be able to have honest conversations with them every stressful step of the way. I cannot emphasize enough the importance of trust. Without it, every conversation starts to feel like a negotiation, and it gets tougher and less enjoyable. It’s not how you want to form a new relationship.

So my first rule, and something I believe I actually did well during the sale, is to work to build an authentic, trusting relationship with the deal sponsor or the decision maker. As soon as it looked like we were engaging seriously with the offer, I flew to Boston to meet our buyer in person. Just sitting down, having a meal, looking each other in the eye, and sharing our initial ideas in person made a huge difference as issues arose later.

A buyer hires lawyers and auditors to find issues with the seller’s company, which has the potential to end the deal, or at least to impact the deal terms. A few months into negotiations, an auditor flagged a purchase I’d made on eBay several years before–for used laptops we’d bought for the team–but I couldn’t find the receipt. If there’s no trust between teams, a little thing like that can be a deal breaker. But because Constant Contact and I already had a good relationship, the buyer felt comfortable taking my word on the purchase, and we were able to move on quickly.

My second rule–and one I wish I had followed more closely: Expect the unexpected and prepare for it by knowing your buyer and their reasons for engaging with you. Do they want your product? Your team? You? What does success look like to them? A buyer’s interests can change quickly, and then it’s important you know how to keep them engaged. This is more art than science, but it helps immensely if you can also build a long-term vision of combining your operations.

So, it’s critical for you to gather data about your buyer, just as they will about you. Listen attentively and ask questions to help you anticipate, or at the very least understand, what they’re thinking at every point in this constantly evolving process.

In my case, our deal was all set to get underway when the pandemic started and Constant Contact pulled out. They offered me no definitive details about resuming the sale, and I didn’t have a good reason ready for why they should. As the deal was put on pause, I had to lay off 13 people. And I learned that no matter how far along you think you are in the sale process, nothing is ever final until the buyer’s signature is on the bottom line and the money is in the bank.

Eventually, I was able to articulate my good reason: I knew that Constant Contact’s main competitor had just acquired a company like ours, which also serviced e-commerce brands. Dollar Shave Club uses our software. So do Figs, Draper James, Perfect Bars, and other recognizable DTC brands. We offered Constant Contact a big, competitive market opportunity, but the clock was ticking: They had to act quickly. Once I was able to articulate that to them, they were on board again by May.

No matter how far along you think you are in the sale process, nothing is ever final until the buyer’s signature is on the bottom line and the money is in the bank.

Looking back, I wish that I’d had this idea handy right away, because time kills deals. I also wish I’d gone a step further and offered my buyer not just the reason we had to act quickly but also a plan, driven by data, articulating a vision for our shared e-commerce strategy.

Most of us don’t go that extra mile during a sale, because there are so many things happening. But as any real estate agent will tell you, you’re more likely to sell a house if you stage it properly. Businesses tend to buy other businesses because they’re looking for something they don’t know how to do, and they’re looking to start doing it six to 12 months down the road. A well-articulated combined vision will excite your buyer, and might even inspire them to write a bigger check!

Even if we had created a blueprint that didn’t exhibit a complete and accurate understanding of Constant Contact’s business, it would have shown our ability to take initiative and think ahead.

Remember, in these early discussions, your potential buyer doesn’t fully know your business. But no company is purchased without a thorough blueprint of what the combined company can look like. As a business owner, you should go into these conversations with a plan to help your buyer reach their strategic goals and show them a clear path to success. If you can demonstrate, respectfully, that you’re already coming up with solutions for them, it’s an even easier sell.

To sell a business, you need an accurate valuation for it, signed confidentiality agreements, count­less buyer and seller meetings, issue offers and counteroffers, due diligence, and a legal closing. At minimum, a sale can involve about 20 people.

Which brings me to my third big rule: Do not underestimate the time and effort required to manage this small army of people.

Unsexy things like scheduling and time management–whether the right people on the buyer’s side show up for a call, for example–can make or break your deal.

I sold Retention Science without the help of a banker, so I was the contact person for all aspects of the sale. This was on top of still running the company. I would not do that again. If you’re still running the business while you’re selling it, consider hiring a banker or project manager to help make sure nothing gets dropped. In general, don’t be afraid to ask for help when you need it.

By the time you’re more than halfway through your due diligence–at which point the buyer has hired third-party firms to evaluate your company, negotiated financial deal terms, and started discussing the integration of your teams–they want to close as much as you do. So when the process inevitably drags on with additional requests from auditors, lawyers, and anyone else, remember: There will be calm after the storm.

However, this is a warning: Don’t get too comfortable just because you’re hearing the words “getting close” or “strategic buy.” It’s important that you continue to demonstrate the same level of excitement for captaining the ship.