It might be because you realize you’re in over your head. Or you’re ready to retire. Or perhaps you feel like you’ve taken your startup as far as you can, on your own. For whatever reason, the decision to sell your business is never an easy one. How do you find the right buyer? And what should you do if you decide to stay on after the sale? How does selling your business impact your employees?
Jim Louderback found himself asking these same questions. As a veteran in the tech media industry, Louderback was the former editor-in-chief of PC Magazine and also served as vice president and editorial director of TechTV, giving him unique insight into the world of startups, especially as he became the CEO of web video network Revision3. In 2012, he sold Revision3 to Discovery Digital Networks for $35 million, stayed on with Revision3 as general manager and recently resigned in September 2014 to focus on writing a book about being a first-time CEO.
If there’s anyone who understands the potentially awkward situation of what happens after a startup is acquired, it’s Jim Louderback. We recently discussed how selling your business can impact company culture and team morale, and how to attract a sale in the first place.
Q: When you sold Revision3 in 2012, what convinced you that Discovery was the right buyer?
JL: We initially worked with them on a partnership, so they could distribute some of our videos on their website. As we worked with them we realized that we actually looked at the world the relatively same way. We had built the No. 1 nonfiction web original video company, and we were really No. 1 in the world for web video. So we were talking to Discovery, and they said, “Well, we’re the No. 1 nonfiction television company in the world.” And we’re like, ‘Wow, we really are quite similar!”
Something I never wanted to do in building a company was to build it for somebody to acquire. I know that some people go at it like, “We’re going to build a company that’s going to be great for Google, or Facebook or Cisco.” I always thought that the right thing to do was to build a great company and then hopefully you find somebody who would want to buy it.
As it turns out, I probably could have done much better if I had tried to build [Revision3] with Discovery to begin with. And the really interesting thing is that, afterward, we do strategic planning every year and we come up with six or seven words that represent our company, our values, and who we were. It’s funny because we sat down with the Discovery guys and put those words out, and they said, “Five of those seven words are words that we use to describe Discovery.” It was one of those things where we realized, “Wow, we really are a match made in heaven!”
Q: Early on, you ran the content for a startup that sold to Microsoft co-founder Paul Allen’s venture company and it didn’t turn out so well. But you learn a lot more from your mistakes than you do from your triumphs, so what did the Paul Allen sale teach you? Did that experience inform you on the Revision3 sale?
JL: The thing that I really learned when we went through the sale to Paul Allen’s Vulcan Capital was to keep an open mind. You’re now part of an organization that has a different point of view than you did, so you shouldn’t just slavishly stick to your point of view because you think it’s right.
One of the lessons I didn’t learn as well as I should’ve is, don’t just do what the company wants without thinking it through. Paul Allen had us build 10 hours of live television coverage of tech and tech investing. He wanted a tech version of CNBC; this was in 2000. And then in 2001, the dot-com bomb hit and we shut it down. And I wasn’t the one who specifically would’ve said to him, “This is a dumb idea, don’t do it.” But as it turns out, it really wasn’t that smart of an idea and we all said in the back of our heads, “Well, we don’t think this is going to be a success, Paul, but we’ll do it anyway! Because Paul Allen wants it!”
And certainly, when Discovery bought Revision3, that was in the back of my mind and we certainly talked through stuff, but Discovery wasn’t the company to come in and say, “Now, you need to go do this!” They were really good about saying “We’re going to keep you separate, keep doing your things the way you’re doing it. In the end, we want to learn from you, we want to turn you guys into us.”
Q: Since you were a first-time CEO, what was it like to stay on after the sale? Did it feel strange to feed into this larger media company?
JL: It was fine for me, because I had been at larger companies and I had some sense of how to operate within a larger company. Once you’re bought by a larger company, a lot of that autonomy is gone—you can’t do everything you want the way you want it. Yeah, we had a board and I certainly had to run things through the board on strategic issues, but even some of the smaller things—well, you can’t just give that person a raise, you have to go through the compensation committee. And I’ve been there before, but some of the people I worked with were like, “What?! We can’t just do that?”
If you haven’t been through that [corporate setting] first, it’s almost jarring.
Q: Right! It’s definitely good to be small, nimble and make decisions quickly like that. What was that like, managing those expectations of your employees, and changing processes and procedures?
JL: There were a couple of folks who didn’t really take to it. You have to expect that when you go through this; you will lose some valuable team members who don’t want to be part of something that’s more bureaucratic—and we certainly did. I expected it and it happens, so you have to plan for it.
There were a few other companies who had sold to YouTube about nine months before we did, and their turnover hadn’t been that high. Ours was a little bit higher, but in part, that was because we were in San Francisco and Silicon Valley, where there’s so much more opportunity. And they were in New York and Los Angeles, and there are so many more startups going on here.
Q: So it’s because of the talent poaching? Or competition?
JL: Well, once you get bought by a larger company, you lose the brass ring—you lose the prospect that you might sell for billions of dollars and everybody would become millionaires. That brass ring no longer exists once you sell your company. Now they can and do provide options, but you’re never going to have that potential to make millions and millions. You have all these startups in the Bay Area that all have that potential. Very few of them are ever going to get there, but they all have that potential.
Q: For startup founders and business owners, what would be your best advice to those looking to sell their businesses?
JL: First of all, you’ve got to find somebody who wants to buy your business. [Laughs] It’s not easy to finds someone who wants to. But let’s say you do have someone who wants you—the key is to find someone who has shared values, where your companies are aligned, where your mission and your vision are somewhat similar. And if you’re choosing between a couple of options, certainly look for the one with shared values, where they really believe in what you’re doing.
And I think, even so, even when you have that, realize that things will change. Because in the end, they bought you.