by Ryan Blair
I want to insert a note here on the importance of making sure your employees are well taken care of after your exit. I made the mistake, when selling one of my companies, of not doing the homework and contract negotiations necessary to look after the very people who had helped to make the company successful. I was so focused on the exit, that I didn’t take the time to understand that the new company was going to have a different approach from mine, including wanting to consolidate the operations. Suddenly, many very talented and loyal people who had been with me from the beginning found themselves out of work. It was heartbreaking.
As appealing as exit strategies can sound to entrepreneurs who are just starting out and who are facing the toughest phase of their business, it is essential to remember that few businesses should be started with the sole purpose of selling. Exiting through cash flow should be every entrepreneur’s dream. This means that your company is profitable and generates enough cash to pay its shareholders (in this case, you) a distribution of cash, sometimes referred to as a dividend. So if your company was successful enough to generate $100,000 in profit every month after taxes, and you own 80 percent, you earn $80,000 per month—for the rest of your life!
I highly recommend that you set up your business from the very first day with the idea that you are going to stay with it for the rest of your life. And before you consider leaving, ask yourself first if there is a way to reinvent yourself within the company.
When I was fund-raising for ViSalus, I met with Brian McLoughlin, a venture capitalist from Global Retail Partners in Los Angeles. We were discussing what the term sheet would look like if Global Retail Partners decided to put money into ViSalus and buy some of our personal shares. During the conversation he asked me, “If you get all this money, what are you going to do next?”
I said, “I’m going to build ViSalus.”
Brian smiled. That’s the commitment every venture capitalist is looking for. He said, “Good, because the entrepreneurs who are the most successful are the ones who stick with their businesses.” For example, the two founders of Google, Larry Page and Sergey Brin, brought in Eric Schmidt after a painstaking search for a CEO, and picked the right guy to replace them in the duties they weren’t right for. Eric helped take Google from less than $100 million to more than $200 billion in value. In short, Google made a great choice.
I took Brian’s advice, stuck with ViSalus, and turned the company around, taking the company from $600,000 a month to over $12,000,000 in fifteen months. April 27, 2011, ViSalus received the Turn Around award from Direct Selling News.
Now, if you have considered the alternatives and still come to the conclusion that it is time to exit your company, it’s essential that you make sure your business is in good financial order.
In one acquisition I was considering, I pulled out because the company I was seeking to buy was not in financial order. I lost confidence in the business and retracted my offer during due diligence. This cost both parties lots of money, but for me, it wasn’t worth the potential liabilities. Now when I advise entrepreneurs setting up a company, I tell them to follow all the requirements necessary to take it public eventually. Maybe one day they will take it public, or maybe one day a public company will want to buy their company. Either way, if your house is not in order, people will not want to buy it, especially not at a premium.
It is essential that you keep solid accounts of everything and have maintained good records of business matters, taxes, permits, and the like. Unfortunately, not everyone does this. I have seen countless entrepreneurs who would like to sell their businesses, but they are completely unable to produce tax records or payroll information for a year or two prior, or they are unable to answer even basic questions about their accounting procedures. This is unacceptable. It does not position you well for continued prosperity after the handover, and it certainly does not make the business appealing to potential buyers, because there may be substantial liabilities that aren’t disclosed. This lack of organization will cost you far more time and money down the road when a buyer pulls out or offers to buy you at a discounted value. You have to make sure that every single aspect of your business is ready to be audited. In fact, most professional investors will require audited financials.
Believe me, I understand that when a company is first launched, the owner often does not have the time, knowledge, or understanding of some of these areas to be able to keep solid records on them all. I know I didn’t at first, and that’s understandable—it can be incredibly overwhelming. But at some point that has to change. If loose management becomes the established pattern for the company, any buyer is going to be leery of what else has been mismanaged. The most important hire for most entrepreneurs is their CFO, because the CFO’s role is to enforce financial discipline and make sure the business model is being followed. This is one of the most important—and expensive—lessons I have learned in my career: hire a great CFO!
The next thing to consider is who will be taking over for you. This is especially important if you plan to maintain ownership of the company, because your ability to retire will depend on that person’s ability to keep the business profitable.
You will want to make sure that you choose someone who is intimately familiar with your business. This often means hiring from inside the company, though not always. This is usually why in family businesses, the retiring parent will hand over control to a child. The reason isn’t just nepotism. In many cases, the children have grown up around the company. They’ve watched the operations for decades, they know the employees by name, and they’ve heard business discussions around the dinner table since elementary school. That kind of deeply ingrained knowledge and understanding also leads to a sense of loyalty to the business. No one wants to be the person who undid Mom’s life work or ran Grandpa’s company into the ground.
Don’t let emotion or feelings of obligation crowd your thinking. You want to make sure that whomever you choose truly “gets” not only the product and marketplace of your business but also the culture of your company. You will never be able to replicate yourself perfectly, but you will want to choose someone with similar beliefs, philosophies, priorities, and principles, which is why a detailed understanding of how your company does business is so important.
Large corporations often hire new CEOs from other companies but usually from the same industry. When someone new is brought in from outside the company to assume the helm, the CEO’s offerings are always supplemented by the insider knowledge from others, but he or she must thoroughly understand your company.
No matter what your long-term plan is, start engaging with prospective strategic partners early on. Use some of their services in your own company, and reach out to them with partnership ideas; this builds relationships and trust. It also enables you to learn how the other company works and lets you understand the entire landscape of the industry in a better way. SkyPipeline had a working relationship with NextWeb before we merged, which was helpful because, even as competitors, we had a mutual respect for each other. They admired our sales and marketing, and we admired their operational capacities. When we joined forces a year later, the transition was much smoother because that relationship was already in place. The same was true when we sold Path Connect to Solution X.
Don’t make the mistake of putting on an overly aggressive front when meeting with your competitors. You should be a strong representative of your company, but don’t overdo it in the hopes of impressing or intimidating them. I did that very thing in a meeting once, and it drove my small local competitor into the arms of a much bigger competitor. Their resulting merger hurt us a great deal. I will never forget the dinner I had with the owner of my number one competitor at SkyPipeline. He was open to a merger, and I jumped right in about how I was going to launch a marketing campaign to go after every one of his customers if he didn’t do a deal with me. At the end of the meeting, our COO, Mark Ozur, pulled me aside and said, “I can’t believe you. You need to learn how to build
rapport and not be so competitive.” He was right.
I should point out, though, that the exit scenario is not always a rosy one. Remember that you are still largely beholden to your investors and their expectations. I know of entrepreneurs who have had their investors’ money tied up for eight or nine years without any returns, which obviously leaves the investors less than happy. In situations like that, the CEO is sometimes given the ultimatum of getting returns quickly or stepping down to make way for someone who can get the job done.
If you are in the position in which you have not yet made good on your investment promises, you should not consider leaving until you have or until you are forced out. It all goes back to some of those most fundamental lessons in business: you must be a good guardian of your investors’ money.
As you make the decision about exiting, look back over your career to consider what you’ve built and what kind of legacy you are leaving behind. Are you satisfied with all you have done in the company you’ve created? The jobs you’ve provided? The contribution you’ve made to your community? The charitable works to which you’ve contributed? What about the satisfied customers for whom you’ve provided a quality product or a needed service? How about changes you’ve brought to the industry or advancements you’ve helped champion? In short, can you evaluate your efforts, understanding that there will always be growing pains and a learning curve, and say with peace, “I did my best”?
Imagine the gratification of a CEO or a founder of a company like Phil Knight, seeing his Nike products on people’s feet as they walk down the street. Most consumers couldn’t pick Phil Knight out of a crowd or sitting at a restaurant, but people do know that they love his shoes. He created value in our society. He created something remarkable and greater than himself. Warren Buffett remarked in an interview that he likes to buy companies that really contribute to society in some way. He likes to see the contribution. If he finds himself consuming the product, then he’s looking at a good company to buy.
I’ve bought and sold three companies and I have no regrets because the experience taught me a very good lesson: if you don’t have to start all over again—don’t. When I left SkyPipeline I had to find a new team, test new marketing ideas, persuade new investors; it felt like starting from scratch without the family I was comfortable working with. Sure I had more money, but I realized that my true wealth wasn’t in my bank account; it was in the team I had been cultivating and developing for years. As a result I swore I’d never lose a team like that again.
The truth is that some entrepreneurs never quite see the opportunity beyond where they are today. They turn their efforts into a glorified job, just like what they had before they left the corporate world to try things on their own. They have created their own Death Cycle in which they are forced to show up and deal with a management structure that is ineffective and unmotivated employees who are not right for the job. To me, this is about the most disappointing result of an entrepreneurial effort. Don’t allow yourself to slip into that rut.
When Blyth bought ViSalus, we made a dozen millionaires on the spot, and laid the foundation for many more to cross that threshold over the next several years. Just knowing that a company I helped to grow could so drastically change those lives was an incredible reward. That’s always been one of my dreams—to build businesses that support families, create value, and make positive changes of some sort in people’s lives. Sure, I occasionally dream about one day getting a call from Microsoft to tell me they want to give me a billion dollars for my business. That’s in the back of my mind, but I don’t build the business in such a way that the Microsoft scenario is my only measurement of success. I build companies with an eye toward contributing to the end user, the customer. And when you do that, you create a lot of value, and make a lot of money.
I sat down with the managing partners from the hedge fund Del Mar Assets the other day, and they asked me what other investments I had going besides ViSalus. I briefly explained the ten or so companies I had active investments in.
One of the partners said, “We’d like to invest in your next deal. How do we put some of our capital in your companies?” And I said, “You can’t. I don’t need money. I don’t have an exit, so I don’t give up equity.”
Ultimately, your goal is to be able to say the same.
EPILOGUE: ON TO THE NEXT ONE
A few years ago, I was driving down a street in Montreal, having just come from breakfast at a little French-Canadian café, when I stopped at a red light and checked my BlackBerry. I was relishing the incredible travel opportunities and sudden fame my work had brought me. There were a few e-mails from people I knew who had seen my recent appearance on the Donny Deutsch show and were writing to congratulate me—and then I opened a message that threw me for a loop. It was very short, saying simply, “I am proud of you. You should know that your grandmother is very ill.”
Staring at that tiny screen, I was mystified. It didn’t seem to be from any of my siblings or my mom. Was it some distant relative? Who would be writing me something like that? And then I scrolled down and my eyes fell on the most unbelievable word in the signature: “Dad.” My dad had sent me an e-mail. The man who had been gone from my life without a trace for nearly fifteen years—no Christmas cards or calls on my birthday or child support checks to my mom—just a complete void from the day he’d disappeared. And now he was writing to congratulate me.
I pulled my car over as a torrent of emotions swept over me. I had waited more than half my life for this moment, to reconnect with him, and now the opportunity was sitting in the palm of my hand. During the intervening years I had passed through all the stages of hurt and anger I’d felt toward him—not just for what he had done to my mom and to me, but for what he had done to ruin himself and the life he had built. As time passed, I had finally been able to let go of all of that, and I wanted tell him that I forgave him and loved him, but I’d never known how to reach him. Until now.
Less than one minute after his message arrived, I was typing out a response that was almost fifteen years in the making. I told him that I owed some of my success to the character traits he’d taught me as a child, especially the work ethic and how to channel ambition. I told him I wanted him to sleep peacefully at night knowing that I was grateful for the lessons he had given me. And I told him that although I would never forget what he’d done to my mom and me, he would always be my father, and I’d always be his son.
After that day, I began to write the first half of my life story, called Faith of the Dots. The title was inspired by a speech Steve Jobs gave at Stanford University about how our lives are a series of unrelated events until we connect them.
For Faith of the Dots, I started with a list of two hundred of my most vivid memories as a mnemonic device. As the chapters accumulated, I realized that the return of my father was the event that would enable me to become a father myself and embrace fatherhood with a sense of responsibility. I wouldn’t repeat the vicious cycle of abuse. I wanted to forgive the man who had been so evil to me and my family, and to remove the emotional scar tissue as well as the behavioral patterns he burned into me. Most important, I wanted my son, Ryan Reagan Blair, to begin his dots unbound by his father’s—and his grandfather’s—limitations. I wanted him to start his life free of the ghosts that haunt our family’s past and to be proud of his name, because I hadn’t been.
But somehow I never felt a sense of completion from the reconciliation with my father. There was still a piece missing.
This year, after my stepfather died of cancer and as I was dealing with the loss day after day, I realized that I had never closed the wound from the disappearance of my biological father, not even after he contacted me that day in Montreal. I was still thinking of myself as someone who had no father.
The truth is I’d had a father all along, but I never made the connection that Bob was my real dad because I got him when I was already seventeen years old. I’d come to live with him when I was no longer innocent
. Even though it hadn’t occurred to me, Bob always knew he was my real father. He knew that he’d raised me and that someday I’d come around to realizing it. He knew that although I’d looked like a man when he met me, with gang tattoos and battle scars, I was still a thirteen-year-old boy on the inside. I had no self-confidence and a ton of negative internal programming to overcome.
My stepfather set about reprogramming me. He dared me to dream, and he believed in me until the day I could believe in myself. Bob, true to form, lived elegantly and he died elegantly, on top of his game. When we laid him to rest, he gave me something more valuable than any of his other gifts: he gave me closure on a wound I could never have healed on my own, but opened up one that almost sent me right back to where I started.
As I mentioned in Honor Your Deals, I made a commitment to Bob on his deathbed, I promised him that after he passed, I’d take care of my mother. At the time I didn’t know what that promise meant. Or how it would be put to the test.
Exactly ninety days after we lost my stepfather, I woke one morning with a clear mind. I’d finally caught my breath. It was March 2011, and this book was going into production; the publisher was printing our first set of copies to be released to a select list of celebrities, friends, and influencers. On my way back from a trip to Miami where I had been partying like a rock star (literally, with rock stars) I stopped at our ViSalus headquarters in Michigan to meet the 50 some new employees we’d hired to handle my company’s sudden growth.
