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Most entrepreneurs and certainly all investors would like to see \u201ca positive liquidity event\u201d\u00a0 (a good sale of the business) someday.\u00a0 Boards of directors should be aware that one of their duties could be to evaluate offers from potential buyers, or even to initiate efforts to sell the business for the benefit of all stakeholders.<\/p>\n
So, that\u2019s the reason for this insight.<\/p>\n
An exercise for you and your board<\/strong><\/p>\n I perform the following exercise with my boards no less than once every several years in planning sessions attended by the board and senior management, sometimes augmented with an industry consultant or expert from the outside.<\/p>\n Here is how we do it:\u00a0 We use a white board or projected PC spreadsheet visible to the The brainstorming session<\/strong><\/p>\n Then we begin a brainstorming session, in which we fill in the ten rows with the names of ten potential purchasers of the business, looking deeply for strategic and emotional candidates (see last week\u2019s insight.)<\/p>\n The important \u201ccolumn two\u201d<\/strong><\/p>\n [Email readers, continue here…]\u00a0<\/em> <\/span>Once the names are filled in column one, we return to the list and use column two to have the group do its best to divine what it is about our company that would most attract the buyer if the potential buyer had perfect knowledge of our business and its resources. This could be our intellectual property, our geographic reach, our superior product, our management team, or perhaps our dominant position.<\/p>\n Final, quick completion of the exercise<\/strong><\/p>\n Then I guide the group to focus upon column three, ignoring the obvious gain our company would make in liquidity (cash) to shareholders.\u00a0 We list what our company would most gain in new resources from this acquirer.\u00a0 Would it be more cash for expansion, new intellectual property, better distribution, completion of drug trials, or more?\u00a0 And finally, I have the group put a number in column four, estimating the likelihood of such a sale ever being consummated with that potential buyer, with \u201c10\u201d the absolute highest and \u201c1\u201d unlikely to occur.<\/p>\n The magic of the exercise<\/strong><\/p>\n Not only will group focus upon the possibility of a liquidity event, it will begin to focus upon a number of possible buyers.\u00a0 But it is in revisiting column two of the chart that the most insight occurs.\u00a0 Without exception, when performing these exercises, the group quickly notes that at least four of the ten candidates, if each had perfect knowledge of our company and its resources<\/em>, would want the very same thing in our firm from an acquisition.\u00a0 Whatever that is, it shines as the true core competency of the corporation, whether previously expressed or even recognized by management and the board.<\/p>\n What to do with the information<\/strong><\/p>\n There are two near-term outcomes from the exercise. First, the board and management should see that it is in the company\u2019s best interests to redirect resources such as manpower and money into the resulting evidence of true core competency revealed by the duplication of entries in column two (\u201cWhat they want\u201d), in order to build value more effectively and quickly than in any other area of the enterprise.<\/p>\n Second, it is a blueprint for the CEO to reach out and introduce himself or herself to the CEO of the target company, never discussing more that just an introduction, not to even mention a business transaction.\u00a0 Awareness is the principal goal.\u00a0 Future conversations may take a more nuanced direction, but not driven by our CEO.\u00a0 Let the other person, by then comfortable and more knowledgeable, make the first move.\u00a0 Or, if we are at that time “making the run” for a sale, then the CEO can drop the hint that the company might be “in play” or the object of another firm’s attention.<\/p>\n Occasionally, the insights gained from this exercise comes as a complete surprise to the board and management.\u00a0 And that is most rewarding to see.<\/p>\n","protected":false},"excerpt":{"rendered":" Most entrepreneurs and certainly all investors would like to see \u201ca positive liquidity event\u201d\u00a0 (a good sale of the business) someday.\u00a0 Boards of directors should be aware that one of their duties could be to evaluate offers from potential buyers, … Continue reading ![\"\"](\"https:\/\/berkonomics.com\/wp-content\/uploads\/2011\/09\/List_companies-300x126.jpg\")
entire group.\u00a0 We draw and label four columns and ten rows.\u00a0 The columns: \u201cName of candidate buyer\u201d, \u201cWhat they want\u201d, \u201cWhat we want\u201d and \u201cLikelihood\u201d.<\/p>\n