Chapter 38Managing Stakeholders When You Can't Sell

There are mainly three classes of stakeholders you have to manage when you couldn’t find a buyer, they are the following ranked based on the order of importance, your cofounders, your board, and your employees.

The most important people to align on are your cofounders. Now is the time to get real and figure out what everyone’s personal situation and goals are. Everyone is in different life stages, perhaps you want to continue operating independently but your cofounder wants to cash out and do something else. The best thing to do here is be transparent and honest about what you want to accomplish and try to find alignment amongst the cofounders. In my situation, when we could not find a buyer in 2022, both Borui and I felt comfortable continuing running the business as we had positive cash flow and the team was excited about working on a new professional product. In 2024 however, when we were waiting on the eventual offer, both of us knew that if we couldn’t sell this time around, we were too emotionally scarred to continue on and would likely pursue other endeavors. The great thing was that we were in constant communications about our situations and goals during these difficult times, and it was great that we managed to figure out the alignment and work towards an endgame. There were heated discussions and debates, but things never got acrimonious and never spilled over to the team or the board. We each stated what we wanted and we reasoned and eventually aligned. I’m grateful that this relationship worked out between Borui and I. As I know, there were other founders who were not lucky when they went through the M&A process and even when things were going well, the cofounder relationship soured that blew up the deal or caused all types of damage, and I think the number one reason was because the cofounders were not transparent with each other, or could not resolve conflicts and find compromises. This would be the biggest and most important relationship you manage during the M&A, and especially when things turn tough.

Next, you have your board members who you have to manage, and they likely include your key investors. The bottom line is, if you have institutional investors, they have seen this game played out a hundred times and if there is no deal, they have already marked this investment as a loss and are just interested in recuperating their loss by taking back the existing cash balance of the company. If your company is burning cash and you have no M&A offers, you would be under a world of pressure to return any existing cash to your investors in order to maintain your reputation in the VC world, even if your investors do not have a majority. This would mean either buyout your investors and continue operating independently, or return the investor leftover cash and wind down the business. You could try fundraising or doing a recapitalization, but that would be an even tougher lift than doing an M&A now that you experienced M&A first hand. So your best leverage here when it comes to managing your investors is to try to turn your business to cash flow positive. Only if your company earns more money than it burns, would you have the right to continue building the business and retry the M&A market in a future date. So if your goal is to continue operating independently with the investors tagging along, then make the necessary cuts first.

Finally, it’s managing your team. Ideally, you have kept the circle of confidantes as small as possible, so that when you receive no acceptable offers, there is only a handful of key executives who would ask you what happened from the interviews or due diligence. Ideally, before they even get involved in any of the process, you already set proper expectations that a transaction is almost always an outlier event and the most likely scenario is the status quo of remaining independent. Nevertheless, there is always a greater likelihood of these key employees leaving if a deal does not materialize. Nevertheless, as the leader, your job is to rally the troops and lead in the mission with or without the M&A. Give them the confidence that the future is bright and greater things can still be accomplished without an acquisition offer.