Thirty years ago, Warren Buffett’s wingman, Charlie Munger, treated me to lunch at the bougie downtown LA Jonathan Club to “discuss our future.”
My tiny company Inman News was writing and editing Munger’s California Real Estate Journal. Along with being a gifted stock picker and mega investor, Munger owned legal publications and a real estate magazine in Southern California.
I fantasized that Charlie wanted to buy my little business. I loved my work, so looking back, I am not sure why selling the company meant so much to me. It’s always about validation, right?
Charlie liked my enthusiasm and technology focus and told me that he was interested in rolling my company into his.
A few days later, I asked about the consideration that I would receive for this merger.
Charlie said I would get to come work full time for him and bring my fledgling assets along. Meaning he would pay me nothing.
This was a case of a head- on collision between optimism, fantasy, and realism, something every entrepreneur understands too well.
Charlie had sized up my tiny enterprise pretty well. At that stage, it was not worth much despite my confidence that I was building something meaningful.
Three decades later, I did sell Inman News to Beringer Capital. I was very happy with the outcome. Beringer got a thoroughbred, and I still own a chunk of the business and sit on the board.
What happened from the Munger days to now? Company value is a complicated thing: It’s a mix of dollars and cents, a viable business model, the product, the management team, brand, a growth trajectory, customer loyalty, and focus. And timing.
It is not your mission statement, the values you post on your website, your long-term strategic plan, or your company mindfulness.
That’s why I discourage entrepreneurs from reading most self-help business books. The authors rarely understand how it truly works. Instead, read non-fiction business books like the recent exposes on Theranos, WeWork, Facebook, Amazon, and Tesla. Many lessons.
At the top of the list of selling a company successfully today is integrity. It becomes a practical consideration. The due diligence on an acquisition today is TV-like forensic. So if you cut corners, fudge numbers, or break the rules, expect to be busted. It will kill the deal or deflate your valuation. Don’t put your biz up for sale if there is too much rot in the basement.
Also, if the business is too much about you, then expect a lower valuation.
Personality may matter in the beginning — people and investors need a leader to follow. That changes when the business matures. If it doesn’t, growth is often stunted.
A friend of mine, who represents social influencers, says even in that goofy all-about-me world there are limits on the long-term value of a single personality. A lesson for real estate agents.
Years ago, John Baker, a prized COO who worked for me at Homegain, another company I started, said, “When this company is less about you, you will create more long term value for yourself.” He was right.
Are there exceptional outcomes that don’t follow these old school principles? Yes, but they are rare, unless you are building the next Instagram or WhatsApp and have the IP, patents and giant audience to go with it.
Get rich schemes are just that, schemes.
In the end, you must push and push and push until you are exhausted to get a business off the ground. For a mighty exit, you must have growth and a scalable business model with a skilled team, like I had with Inman CEO Josh Albertson and his crew.
And then you must get lucky in order to sell it.