Be open with employees about your motivations from the beginning. Our employees were not surprised by the sale of our company, because we had been clear about our goals from the beginning: to do great work, carry ourselves with integrity, and make as much money as possible.
As a part of our series about “Five Things You Need To Know If You Want To Build, Scale and Prepare Your Business For a Lucrative Exit, I had the pleasure of interviewing Sandeep Sood, CEO of Kun.ai.
For most of the past twenty years, I’ve been building quality agencies that attract quality teams in order to build quality products. I sold my first agency, Monsoon, to Capital One in 2015. I spent the next three years understanding how products are built inside of a large corporation. We are using that experience to do even better work at Kunai.
Thank you so much for doing this with us! Before we dive in, our readers would love to learn a bit more about you. Can you tell us a story about what brought you to this specific career path?
In 2001, I was in San Diego visiting my girlfriend at the time. I was taking a little time off because my previous startup had just failed…mainly bumming around at the beach. One afternoon while I was at the beach, my girlfriend calls from her office. She was a marketing person at Wells Fargo. Their Intranet site had just crashed, and she was wondering if I could take a look. I walked into their corporate office, wearing board shorts and flip-flops, and sat down at one of their terminals. Someone had forgotten to close a bracket in the HTML code of the site. They were over the moon that I fixed their site, and I walked out of the office with a monthly website maintenance contract. That was how my first consulting business started.
Can you share a story about the funniest mistake you made when you were first starting? Can you tell us what lesson you learned from that?
After being in business for a few months, I stumbled into a huge project opportunity with HP. After a few meetings, they were interested in moving forward! I was beyond excited. There was just one problem: they needed to do conduct an ‘on-site review of my offices and server space’. Being young and foolish at 22, I decided that I would transform the one bedroom apartment into an office. I emptied all of my personal stuff out, borrowed office equipment from friends, and printed signs with my logo on them. A few days before the office visit, I realized how stupid I was being, so I called them and came clean. “We don’t have a server room. We don’t even have an office. But, I know we can handle this project, and we’ll get the space we need to make sure your work happens in a secure environment.” After the longest pause in the history of my life, they decided to move forward with us anyways. That project funded the next five years of my business.
Can you please give us your favorite “Life Lesson Quote”? Can you share how that was relevant to you in your life?
“Life shrinks or expands in proportion to one’s courage.” — Anais Nin
Every time I am fearful of making the next bold move in my life, I try to remember that my life gets richer each time I leap into the unknown.
Ok super. Thank you for all of that. Let’s now shift to the main part of our discussion. Can you tell us a story about how you were able to build a business from scratch, scale and sell it to a bigger firm?
We had been in business for about five years when the Great Recession started in 2008. We lost half of our clients in two weeks. My partners and I sat around at a restaurant with uneaten meals sitting in front of us, fighting back tears, trying to decide whether or not to shut things down. The night before, I had filled out an application for an executive MBA, thinking that I’d go back to school and start over. Over the course of that meal, something changed inside of all of us, and by the end of lunch, we had decided to fight on and figure out how to save the business. We worked our asses off for the next few years, and we’ve been fundamentally different people ever since.
Based on your experience, can you share with our readers the “Five Things You Need To Know If You Want To Build, Scale and Prepare Your Business For a Lucrative Exit”. Please give a story or example for each.
There is no comprehensive list of five things that you need to know; every business and situation is different. However, here are five things that helped me:
- 1. There is a myth that you should never think or talk about selling your business. It is a myth pushed by people who either got lucky with a billion-dollar business or who have never started a business at all. Once you have a profitable, sustainable business going, it is smart to begin talking to partners and buyers about an eventual sale.
- 2. As an owner, it is your responsibility to separate yourself from the day-to-day operations of your business as quickly as possible. You should be working on the business, not in the business. This is how you create the systems that will scale your operation. It is also how you best prepare your business for an exit.
- 3. Don’t be afraid of asking customers if they are looking to acquire a company like yours. The best buyers will be those who already value your product or service. Monsoon was sold to an existing customer (Capital One), and the sale would never have taken place if we shied away from the conversation.
- 4. Research other company sales in your space. Reach out to the entrepreneurs and ask them about their experience with a buyer or selling in general. Capital One acquired another agency before ours, called Adaptive Path. We talked to them extensively before agreeing to terms with Capital One.
- 5. Be open with employees about your motivations from the beginning. Our employees were not surprised by the sale of our company, because we had been clear about our goals from the beginning: to do great work, carry ourselves with integrity, and make as much money as possible.
In your experience, is there a difference in approach for building a service based business versus a product based business when you have the intent to eventually sell the business. Can you explain?
People don’t spend as much time thinking about branding in a services business. This is a mistake that will hurt your shot at being acquired. Build a brand that is bigger than anyone’s personality or name. Invest in a niche where you can become a significant fish in a decent-sized pond. Think about your brand the same way any product company would — do people recognize the brand instantly, and do they feel something when they do?
How does one go about the process of finding a buyer?
There are two primary places you will find buyers: through your customers and through third-party brokers. The first place is best; you will have buyers who understand why your firm is valuable. However, brokers can be invaluable. They can help you package your company up, they can introduce you to several potential buyers, and they can help you understand how much you are worth. Do both.
How can one decide if it is better to build a business in order to exit, or if it is better to stick around for the long term and let the company bring in residual income, or if it is better to go public?
I’ve never understood why you need to choose one of the above. No matter what your goals are, your best shot at a good valuation is to build a sustainable, profitable business. Once you do that, you get the privilege of deciding what option fits your life the best.
Can you share a few ways that are used to determine a good selling price for the business?
Ignore 409A valuations and other ‘standard’ way to establish an objective value for a company. Instead, research other businesses like yours to find out how much a buyer was willing to pay for them. A good broker can help you do this quickly.
You are a person of great influence. If you could inspire a movement that would bring the most amount of good to the most amount of people, what would that be? You never know what your idea can trigger. 🙂
That’s a very kind question. I want to invest time and money into helping people from my country (India) understand the richness of their cultural heritage and mythology.
How can our readers follow you on social media?
- @sandeep_k_sood on twitter
Thank you so much for joining us. This was very inspirational.