Why do some companies grow by leaps and bounds while others only inch forward? Simple. They embrace Deal-Driven Growth in addition to organic growth! DealQuest is where you learn how to strategize, prepare for, find, and complete deals to grow your company faster.Listen in as host Corey Kupfer takes you behind the scenes with some of the world’s most fascinating deal-savvy business leaders. This is the one place where they can share openly the secret to deals they have done (or failed to do) and the issues, opportunities, benefits, pitfalls and lessons learned.Here you learn first-hand all about:Powerful deals that require little capital Mergers, acquisitions, and tuck-insJoint ventures, partnerships, and strategic alliancesLicensing, raising capital and onboarding key employeesNegotiating, structuring, finding, valuing, closing and integrating dealsDon’t be the one at the table who doesn’t grasp the power of Deal-Driven Growth! See acast.com/privacy for privacy and opt-out information.
Episode 174: Trading Services for Equity with Corey Kupfer
Back in the early 2000s, artist David Choe graffitied Facebook headquarters and charged $60,000. One of Facebook’s founders convinced him he should take Facebook equity over the money. Fortunately, David did. As it turned out to be worth over $200 million.
In this solocast episode, we’ll go through the benefits, harms, and how to trade services for equity. I’m putting this episode out there, especially for those who are in the service business as consultants, trainers, or lawyers who always asked me whether I would take equity instead of a fee.
How Equity Works
Equity is an ownership in a company, whether it’s stock in a corporation or a membership in an LLC. You can own 3%, 1%, or 10% of the company and receive the corresponding percentage of the profit. From the company’s point of view, equity for service is a brilliant solution when you need certain services and are in an early stage of the business where cash is tight.
From the service provider’s point of view, you will be offered equity instead of cash - it could be for consulting, training, or technical, as it’s more often services - because the company doesn’t have cash for a start-up or because you are going to be an ongoing partner.
What To Consider?
The real question is how to decide whether to accept equity over cash. First, there are a few things I would advise you to consider if you choose equity:
1 - If you’re getting a small percentage of equity, you will not end up controlling any company decisions just by the ownership percentage. Unless you own 51% of the company, the company has contractual rights to have veto power over certain major transactions. You are most likely going into a situation without having a say in decisions. For this reason, you need to be confident and comfortable that you trust the company’s management.
2 - You don’t have any guaranteed distribution. This money might be distributed or quarterly. However, that’s not guaranteed because the executives, founders, and employees can be getting paid compensation that could zero out the profit, making nothing available for distribution. The solution is to give yourself some protection and make sure they can somehow guarantee distribution legally.
3 - You will be taxed. When choosing equity, make sure that there is a requirement to distribute at least enough capital to cover your tax liability, because in those types of entities you’re going to get taxed on your relative share of the taxable income.
4 - You can take part in an exit capital transaction when they sell the company or when they monetize their events in some way. If they’re going to sell the company for $10 million and you’re entitled to 2%, you can get $200 of profit.
5 - The equity may get diluted at lower valuations. If the company is not doing quite as well as they projected, they might have to raise capital which can dilute you disproportionate to the value you bought it originally. If you exchange your services for equity and you own 2% of the company, maybe you can be diluted down to 0.2%. It’s a risk.
Treat Equity Like An investment
If you find yourself in a situation where equity seems like the best solution, my advice is: treat equity for services the same way as if you got paid in full and then made an investment. That’s actually what is happening.
Ask yourself, “If I get $60,000, would I invest all this money in this company?” A determining factor is whether you need the cash or not. This will tell you a lot about your risk profile and whether it will be the best option for you. One thing that is also valid is to do the hybrid. Consider taking a discount on your fees for a portion of equity, so you can get paid enough to at least cover your costs.
If you’re not an investor or don’t have investment experience, one thing to keep in mind is: you’re just providing services to this company, which doesn’t mean you know the industry enough to evaluate it as an
Episode 173: International Deal Lessons with Wendy Pease
For almost 20 years, Wendy Pease has worked with hundreds of companies to help them communicate across more than 200 languages and cultures. As a young child, she lived in Mexico, Taiwan, and the Philippines. Through these experiences, she fell in love with the languages and cultures of the world. She came to understand that people around the world are similar. Although how they communicate can be quite different and miscommunication can lead to trouble.
She bought a small translation company in 2004. The previous founder focused on high quality written translation and spoken interpretation services. Through that acquisition, Wendy became an expert in multilingual communications. Since then, Rapport International has grown substantially.If you’re looking for a way to get better international deals and don’t know where to start, Wendy Pease is the right person to help.
Acquiring VS Starting A New Company
If you’re new to an industry, finding a buyable company can be a huge win. Acquiring an existing company means you already have an active base of existing customers. It costs up to seven times more to acquire a new customer than to retain an existing one.A good way to think of acquisitions vs starting a new company is to look at it as just buying your ideal customer. Wendy already had a love for translations and a deep understanding of why cross-cultural communication requires delicacy in business. What Wendy was really buying was their book of business and an avenue to pursue her passion. Often, people assume buying a business means using all of what comes with it but that’s rarely the case. You might not need their accounting team, because you already have one. Or, you might not need their offices because you want to work remotely. So it's not so much that you're buying the whole business framework, as much as you are buying their customers.Wendy made a great point about what went into her decision to buy a business that the success rate of new businesses is low. In contrast, the rate of success of a business continuing after two years is high. She’s right! The business failure rate in the U.S. within the first year is nearly 20% — 18.4%, to be exact — according to a LendingTree analysis of BLS data. Wendy also explained that she was tired of not being able to control her work schedule. Becoming a CEO means creating or adapting the structure of a business to suit your needs including your own schedule. Major changes like shifts in timezones, location dependence, or expected timelines are something you want to be sure you’re on the same page as your team about before acquiring a small business with intentions to change their expectations.Wendy gave us multiple great reasons to go the acquisition route. Some of these may be worth considering if you’ve been thinking of founding a new start-up or growing your existing ventures.
There’s a lot of potential for companies to do international business. But it’s still a small portion that does - less than 1% of US companies export. To internationalize your business, it only takes small modifications on your website. The most important thing is to translate to other languages to bring in additional visitors. Wendy pointed out that 90% of buyers are more likely to spend time on a website if it’s in their language.
The state and federal governments offer free support to companies that want to do international business. Such as grants to help you do an international trade show, help to translate your website, and also free stretch strategic advice.
There are resources to help when you’re getting into a deal situation, such as the Department of Commerce. In this department, it is possible to find people at your state trade offices who have been to other countries to share their business tips.
Lessons From Report International
It is very important when cutting a deal with somebody in another country to dedicate yourse
Episode 172: Why Deals Fail And How To Prevent Failure In Deals with Bill Flynn
Bill Flynn has collaborated with Alan Mulally, pitched Steve Jobs, accomplished much, failed often, and learned many valuable lessons from thirty years of studying the science of success. Creating efficient businesses is only one of many ways to make the world a better place. In this episode of the DealQuest Podcast, Bill Flynn shares some insightful ways to prevent deal failures.
Why Do Deals Fail?
While it seems like the deals fall through at the end, they usually start to fail from the beginning; you just didn’t know it. Most deal failures are traced back to poor preparation and the inability to remove prospective fail points - a fail point is any point within the deal process that has the potential to affect a satisfactory outcome or the quality of the deal.
Deal success is fundamentally about good integration planning and execution. Integration in an M&A deal refers to adopting one culture, one set of processes, and one long-term goal for two individual firms. Critical integration aspects are culture, management, talent acquisition, and goal setting.
A good integration plan outlines exactly how and when the acquiring and acquired companies’ significant resources, assets, and processes will be combined to achieve the deal’s goals. Appropriately done, integration starts at the deal-planning phase and kicks in after the deal is announced.
If executed well, you will see the structure of the deal put in place and integration already beginning. If the process looks challenging, it may be because the deal was ill-conceived - and deals can fall apart in this phase. However, several other factors contribute to deal failure, ranging from acquisition doubts to working with the wrong client and many more.
What Happens When Deals Fail?
History tells us that corporate marriages do not always last forever; even a deal that appears now to be very fitting may not be so in ten years, particularly as the world economy or new technologies develop in ways that dramatically change markets. A split–or corporate divorce–need not be a bad thing: divisions that their large corporate owners unloved can go on to be a massive success with different backers or even as independent companies. However, once a split does become inevitable, special attention is needed over issues such as staff and governance to ensure an amicable break-up.
How To Prevent Failure In Deals
Not all deals go how we want them to. It’s necessary to learn from past events and make daily improvements to your skillset. For Bill Flynn, there are some ways to prevent deal failures, including:
A high-quality communication plan is crucial to the success of a deal; this can be done in-house or by external parties - public relations advisers. Having a good communication plan can help build a good business relationship, negotiate effectively and increase your team’s morale and efficiency.
A PR Adviser creates a plan to bridge the trust gap between a business and its would-be clients or customers. The expert works on increasing the company’s credibility within its given industry and its overall reputation. The importance of a PR Adviser is underestimated in deals; they help prevent poor communication. Poorly handled communications during mergers and acquisitions can lead to disgruntled employees, distrustful customers, and a confusing brand message.
Effective communication is often a reflection of a well-prepared and well-aligned combined management team. The case for synergies should be clearly articulated in the due diligence phase, and the integration plan should be written by the time the deal is announced.
Overcoming Acquisition Doubts
Several research studies have shown that most deals fail on the merger level. The failures are almost always from the cultural level. You have to make sure there’s an excellent cultural fit. Find a way to do things gradually, and understand the cultural differences.
Episode 171: Win-win or Win-lose with Mike Lander
Mike Lander is a successful entrepreneur and an expert negotiator based in London, UK with a proven track record of buying, growing and selling businesses. He has a valuable perspective on dealing with commercial deals. He worked on both sides, as a procurement director in MSP organizations and as an entrepreneur. Mike has negotiated hundreds of deals. He is the ideal person to give negotiation lessons based on his experience.
Mike shares that one thing to always keep in mind when in a negotiation is the true motivation of the counterparty. He believes that most deals, in the early stages, are win-lose by their nature, as you’re not creating more value for both parties.
If measured from a long-term view, deals can be a win-win if one party really grows their business or establishes clients. When trading, you need to look at the risk profile. It doesn’t matter the size of the organization when doing business. To become a win-win deal, the important thing is how big that client is going to be as a percentage of your profit in the future.
Negotiations Take Time
In any kind of deal, the important thing is the attention to detail, as well as your ability to listen and capture what’s going on. If you are in an hour-long trade, perhaps the counterpart will pressure you to close the deal at the end of the meeting.
The best alternative is always to take a break to reflect on what’s been discussed. In this break, go back to the agreed-upon points to make sure you agree. As in the heat of the moment, they can go unnoticed. The question often arises: who should make the first offer? But there is no rule, and it depends on each deal. What makes somebody a skilled negotiator is to know the situation and feel.
Be careful with the last minute cheapskate. If you’re negotiating with a company for a while and there’s no tension in the deal, don’t be surprised when they try to pay cheaper than agreed.
Choose a Business Framework
Mike shares that having a framework for your deal negotiation is essential. Without one, you can’t negotiate. He uses the simple four-step process that allows anyone to negotiate anything:
1 - What are the goals of each side or the interests of each side?
2 - How long is it still going to take to close the deal?
3 - Which issues come up during the deal, who raised it and what’s behind it?
Lessons From Mike Lander
In the industry, Mike Lander notes that negotiation frameworks have changed very little in the last 15 years. When three or four buyers may be interested in your company, the challenge that presents to most entrepreneurs, no matter what scale, is how do you negotiate the deal properly. He advises having people who are in the deal space who know how to run a process, and especially, know how to create tension. If you don’t engage the right professionals to help with the deal, you might have no money in your pocket.
An important part of the negotiation is negotiating commercial terms that don’t stretch your working capital too far. In Mike’s experience, he shares that it’s necessary to have deep insights into your sector and client issues.
As a procurement professional, Mike says everyone thinks their work is only about price. But that is not true, anyone can buy cheap, but you can’t buy quality and high-quality delivery and timely delivery. As a buyer, it is necessary to create value for your organization.
Building Relationships For Negotiations
It is necessary to see negotiations as the beginning or the continuation of relationships. In the industry you are in, you need to realize that you will see your counterpart again and again. Be careful and strive to have an ongoing relationship. If you don’t see it that way, you may even win the negotiation, but you will lose the relationship.
I believe that my success comes from the relationships I’ve built over the years. And also because I’m always catching up. In 2015, I d
Episode 170: Elon Musk & The Poison Pill with Corey Kupfer
I want to talk about something different in this episode. It’s something in the news right now and frankly not a level that we do deals at, but it’s still a deal. This is just more educational in general. What I want to talk about is the Twitter thing that’s everywhere. I’m sure we’ve all heard Twitter is in the news. If you haven’t - Elon Musk of SpaceX and Tesla has already bought off 9% of Twitter stocks, and he’s talking about buying more and potentially taking over the company. The situation between Elon Musk and Twitter is what we call a hostile takeover in the business industry, and as expected, it does not sit well with Twitter’s board.
A hostile takeover was more prevalent in the 80s when we had many corporate raiders. Although hostile takeovers still happen, we’ve heard less about them in recent years because of the poison pill concept. One of the things that inspired me to record this solocast is that the Twitter board adopted a poison pill to prevent Musk or, theoretically, anyone else from taking over the company.
What is a Poison Pill?
A poison pill is a defense strategy used by a target firm – in this case, Twitter – to prevent a potential hostile takeover. For example, in Twitter’s case, the board announced it had approved a shareholder rights plan in the event of an entity or a person acquiring more than a 15% stake in the company without the board’s approval.
Elon owns 9% presently. It will trigger the shareholder rights if he or anyone else hits 15%. If this happens, all the existing shareholders get to buy additional equity at a reduced price, which dilutes the hostile acquirer’s equity. Generally, the poison pill allows existing shareholders to purchase freshly issued shares in a company at a discount, making any possible buyout too expensive for the party planning a hostile takeover. I also shared other examples in this episode, ranging from the poison pill involving Netflix in November 2012 to the one involving the Men’s Warehouse in 2013 and the poison pill involving Papa John’s in July 2018. Check out the episode to sip all the tea!
The Truth Behind The Poison Pill
One of the issues with poison pills is that they could be challenged. The board has a fiduciary duty to do what’s in the best interest of the shareholders, and I’m sure the Twitter board had to do a full discussion on all the reasons why the takeover isn’t beneficial for their shareholders. They would have to conclude that the takeover of Elon Musk would not be better for everybody, even though he was offering a price higher than the company’s stock price.
In theory, if he’s willing to pay that, the stock price will go up, which would benefit the shareholders. They have to work harder to show there are more downsides to the potential acquisition. People, including Musk, could challenge the board’s decision as a breach of their fiduciary duty and try to show that it’s not in the company’s best interest.
There’s something here similar to what we do for clients, called jurisdiction choice. Most of these public companies are from Delaware for good reasons. Delaware statutory law favors the majority owner in these kinds of shareholder derivatives – lawsuits where the shareholders may sue the board for a decision they think is not in the company's best interest.
Lawyers also prefer to maintain operations in Delaware because it has a rich history of over a hundred years and cases in this category. We recommend Delaware to any client trying to own a majority stake because it protects companies, founders, and majority shareholders against those claims.
What does that mean in terms of the poison pill? What it means is that these things are hard to challenge because:
The companies are likely in Delaware or similar states
The firms have become more sophisticated in making sure they properly justify these decisions, so it’s hard to meet those standards. Not impossible, but w
Episode 169: Benefits Of Business Coaching In An Organization with Steve Preda
Steve Preda is an entrepreneur, investment banker and business coach helping GOOD companies become GREAT. He began his career as an accountant, starting on the numbers side and gradually moving to the people side. In the last 20 years, he’s been working exclusively with small to medium-sized businesses. Steve ran an investment banking business between 2002 and 2012 in Hungary and Romania.
If you’re looking for a way to make your business self-managing with tremendous growth, Steve is your man. This is your episode. Come with me!
Are You Struggling To Get Your Business On Track? Try This
Everyone gets confused when they are starting a new business. Maybe you don’t know where to start. Or you have your ideas mapped out, but you don’t know how to proceed. One of the ways you can solve this is through business coaching. A business coach is an expert who knows how to grow successful businesses. They help you identify your goals, pinpoint obstacles, and develop strategies to overcome them.
Benefits Of Working With A Business Coach
Like any other relationship, it takes two to tango. Business coaching will only be effective if both parties have clear and aligned goals - the client should be willing to grow, and the coach should be the right person.
Coaching benefits businesses in so many ways; let’s take a look at some of these benefits.
Aside from fast-tracking your business growth, they’ll help you find your hidden potential. Business coaches are entrepreneurs with several business experiences, and this is a plus because they’ve seen and done it all.
It’s very easy to lose yourself in your business, and you can quickly go off track. A business coach performs regular check-ins to ensure you’re on the most effective path to your destination.
People tend to stay in their comfort zone. This rule also applies to business strategy. As a business owner, you sometimes stick to things you believe work for you. While this is not always a bad thing, you can get so comfortable and never bother to observe habits and patterns that have helped others achieve success. Business coaching gives you many insights and exposure to new ideas and habits.
I have so many interesting things to say about this episode. You wouldn’t want me to spill the beans here, would you? Why don’t you check out the podcast to learn more about business coaching and all it has to offer new business owners!
Here’s A Takeaway For Business Owners
As a small business owner, maybe you can’t afford Harvard MBAs on your management strategy team. That’s okay, and it doesn’t mean you’ll go out of business. All you need to do is have a framework that helps you simplify things. Steve was kind enough to share the customized framework that has worked for him, and he calls it the PINNACLE.
Preda’s pinnacle has five principles, namely:
People: You need to have the right people in the right seats and find a way to make your A-lists happy.
Purpose: This is all about strategy and alignment - making sure everyone is moving in the same direction.
Performance: It’s all about setting goals and making sure everyone is executing the plan's vision.
Playbooks: This is about documenting, defining and optimizing the business to enhance optimum growth.
Profit: All other four principles enhance profit when you get them right.
Before jumping on any kind of deal, you need to have a deal-maker mindset. Let’s see what Steve’s got to say about that.
Having A Deal-Maker Mindset
According to Steve, it’s all about the growth mindset. It comes down to asking yourself the hard questions. Ask yourself why you’re in the business in the first place. Are you in the lifestyle business? Do you want to grow your business? Have in mind you need to know why you’re growing the business. Have your purpose straight - a clear objective.
It’s easy to get distracted; focus on the business. Educate yourself and free up your time. Firstly, your te