Be patient, even if you have offers

Welcome back to another edition of The Wise Exit!

I’m Brian Dukes, a Managing Partner at Exitwise. 

In today’s newsletter, I’ll cover: 

• 3 lessons from Spencer Jan’s (double) exit from Solo Stove ⛺  

• 4 ways to calculate the value of your company 💲 

• How do you know when it’s time to sell? 🤔

Let’s dive in!

Featured Founder

Name: Spencer Jan

Co-founder: Jeff Jan (brother)  

Education: BA in Mandarin Chinese and BA in International Studies  

In a nutshell: Solo Stove was started in Spencer’s garage with $15k in 2010. In the first year of business, the brothers made $500K. In 2019, a private equity firm bought a majority stake for $100M+ and a year later, with a much higher valuation, they sold most of their remaining stake. In 2021, the company went public and raised $219M through an IPO, with a valuation of $2.1B.    

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Spencer and his brother Jeff started Solo Stove as a side hustle, after experimenting with other e-commerce businesses. They sold smokeless stoves for camping enthusiasts, eventually expanding to other smokeless products for camping and the backyard. 

M&A Lesson 1: Know when it’s time to delegate

Spencer and his brother had built a successful business, with profits in the low-7 figures, a popular product, and a reputable brand. But they were doing everything themselves and it was taking up too much of their time. So, they decided to sell.  

They assumed that their 7-figure profit would generate interest, especially since they had no employees, but their investment bankers told them it wasn’t a very sellable business. 

Many buyers look for companies that are running smoothly with a team, infrastructure, and processes in place – they want to invest in businesses that already have established leadership. 

Deciding they needed to take some time to re-configure the company, they recruited their first employees to help with operations and eventually hired a CEO and CFO. This allowed the company to run day-to-day without them and grow their EBITDA past $5 million. Then it was time to sell. 

M&A Lesson 2: Recognize your inexperience

At one point Jeff said to Spencer, “The root problem isn’t our people, it’s us. We need to find somebody to replace us.” They were self-aware enough to see that their team was lacking leadership and operational expertise.  

Both of them were interested in business strategy and marketing, not in leading a team.  

They had met John Merris while seeking advice on building a sales team and, during their conversation, could see how he would be the perfect leader. Within weeks, John had been given the reins to lead the company as CEO. This was an essential step to getting their company ready for sale. 

M&A Lesson 3: Be patient, even if you have offers

After re-configuring the company in preparation for a potential sale, there was pre-emptive interest from acquirers. Potential buyers wanted to get ahead of the deal before the company went to market, and to lessen the competition (and the price). 

The brothers were offered significant 8- and 9-figure deals, but they held firm, opting to take the company to market. Relying on their banker’s advice and connections, they shopped the company to several private equity firms that the banker knew would be interested.  

And it worked: this allowed them to gather more competition, attain the highest price, and find the right fit.   

Featured Blog 📰

You’ve likely seen surprising M&A transactions in the news: maybe it’s a company that didn’t meet the valuation potential the market thought it had or one that surpassed all expectations. 

Where do these valuations come from?  

Although there’s no one-size-fits-all methodology, there are four commonly accepted frameworks that can help you understand how these numbers are chosen. I hope this blog post better informs you on what your company is worth. 

Read the blog post: 4 Ways to Calculate the Value of Your Company 

M&A Tips from Brian Dukes 💡

How do you know when it’s time to sell?  

I’ve worked with many great founders who are considering whether it’s time to sell their business. 

And I hear a few things over and over again: they want more out of their life, whether it’s more time to travel or more time with their family. And they’ve lost interest in the hustle. 

This is when I know they’re ready to talk. I love helping these founders find their way to the next stage in their life. 

For more M&A tips from someone who’s been there, follow me on LinkedIn.

That’s all for now. 

Tune in next Wednesday for another set of M&A lessons, and have a great rest of the week. 👋

Best,

Brian Dukes, Managing Partner