This week at Built to Sell News, we’re reporting on:
- How to transform a distributor into a valuable business (listen now)
- How unique IP impacts the value of your company
- A ticking time bomb that may be lurking in your customer contracts
- The ultimate trophy for the golf enthusiast
🚚 How to Make a Distributor Valuable
This week we released a Built to Sell Radio interview with Miles Faulkner, who built Blended Perspectives, a $30 million reseller of Atlassian software like Jira and Confluence. Faulkner’s story provides a blueprint for how to punch above your weight when selling a business that distributes or resells other companies’ products.
Distributors are usually not worth very much because an acquirer reasons that without a point of differentiation, a distributor is vulnerable to a price war. Rather than acquire a target company, a savvy potential acquirer of a distributor could temporarily lower their price for whatever is being distributed and woo most of the target company’s customers without acquiring the company.
™️ Develop Your Own IP
Driven to create a more valuable reseller, Faulkner set his sights on creating a product of his own: the Marketplace Analytic Research Service, or MARS. This tool is designed to guide Atlassian users in selecting the most appropriate aftermarket apps to supplement their Atlassian software.
While Blended Perspectives still made the lion’s share of their money by reselling Jira and Confluence licenses, MARS provided Blended Perspectives with a unique selling proposition, separating it from the multitude of other Atlassian resellers, in the process, enhancing its appeal to prospective clients. MARS also rendered Blended Perspectives an attractive acquisition target for Contegix, a larger reseller of Atlassian products.
At the time Contegix acquired Blended Perspectives, observers may have wondered why the larger firm didn’t simply lower its prices temporarily to absorb Blended Perspectives’ customers. However, for Contegix, the acquisition was not just about growing market share: Blended Perspectives brought a differentiating element to the table.
By owning MARS, their intellectual property, Blended Perspectives was more than just a distributor in the Atlassian ecosystem. This point of differentiation gave Contegix a compelling reason to acquire the firm far above what would typically be paid for a distributor, underlining the value of creating unique products and services in a highly competitive marketplace.
📜 Scrub Your Customer Contracts for “Change of Ownership Clauses”
Faulkner also shared a critical lesson that almost derailed his acquisition at the last minute. Blended Perspectives sold to large organizations like banks who insisted they sign a standardized vendor contract which often included a “change of ownership” provision buried deep in the legalese.
The clause stipulated that if Blended Perspectives were considering a change of ownership, they needed to first seek the permission of the customer or risk voiding their contract. Since the contracts were a big part of what made Blended Perspectives valuable, the legal clause almost derailed the deal. Faulkner had to scramble at the last minute, contacting his best customers to reveal they were contemplating a sale and grovel for their permission.
Vet any long-term contracts with customers and make sure they do not include “change of control” language. If you are asked to sign a change of control clause, see if you can get your customer to change the clause so your obligation is to simply notify your customer of a change of control within 30 days of closing a sale.
📣 Quote of the Week
” It’s a catch-22 because unless the deal takes place, you don’t really want to tell your customer you’re looking for a change of ownership.”
– Faulkner explains the potential challenge of signing a change of ownership clause with a customer.
🚧 Mind the Bumps
A change of ownership clause in your customer contracts is the kind of speed bump you want to avoid during diligence. Ideally, you want to lubricate the process of handing over your business to the new buyer, which is why we recommend recording your Standard Operating Procedures in VidGuide. VidGuide allows you to curate a comprehensive video playbook that outlines the nuances of your business operations. Handing your VidGuide account to an acquirer simplifies the transition process and ensures the continuation of your systems even after you’re no longer at the helm. Schedule a free, one-on-one demo today.
📽️ Clip of the Week
In this clip, Faulkner elaborates on the significance of developing intellectual property (IP) in MARS, showcasing how it played a crucial role in setting Blended Perspectives apart from other resellers and made Blended Perspectives an attractive acquisition target.
🏆 The Ultimate Trophy for the Golf Enthusiast
After successfully selling his company, Faulkner treated himself to a custom-fitted set of golf clubs which he describes at 1:20:00 mark of the episode.
Do you know a recently exited founder whose story is worth sharing? If so, we ask you to nominate them.
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This Week’s Contributors
Colin Morgan, Executive Producer of Built to Sell Radio, John Warrillow, Host of Built to Sell Radio, Daphne Parsekian, Copy Editor, and Denis Labataglia, Audio Engineer.