Discover Shane Neman’s tactics for leveraging competitor deals and safeguarding payouts in high-stakes exits.
Weekly Pilot Briefing
This week’s podcast from Built to Sell introduces us to Shane Neman, who built a technology company centered around the nightclub industry. While the entire episode is worth a listen, I found three main topics are worth highlighting.
First, Shane makes an interesting point about the ease of selling a business to a competitor. He notes that whereas a strategic buyer may have to figure out how your company integrates into theirs, and what the value of that is; a direct competitor inherently “understands your business” and can easily value what your business is worth to them. Obviously marketing your company to competitors comes with some risks, and should be approached carefully, but don’t discount the value that can be found in researching your competitors and identifying who might be a good future acquirer for your business.
Second, Shane explains the value of conducting a “Quality of Earnings” analysis, even if you are not ready to sell your business today. He explains that understanding where your business is generating the strongest margins, recognizing where your recurring revenue is coming from, and identifying what customer concentrations exist can really help you streamline your business, maximum profitability, and value. There is nothing more important as a business owner than understanding your numbers.
Third, and finally, Shane highlighted his mindset on what valuation he was comfortable accepting to walk away from his business. This is a great exercise for you to do right now, no matter what your exit timeframe looks like. I always ask my clients what is your number? What would make you sell your business today, or at some point in the future? Most people have a number in mind, but don’t really understand where they came up with it, or if it is reasonable. In Shane’s case, he explains that he felt good exiting knowing that he was getting 8 times free cash flow, meaning that he could get today what it would take him 8 years to earn through normal operations. This makes a lot of sense to me and is a great way to look at the value of selling your business now versus later.
If you want to figure out your individual and personalized “number”, I highly recommend that you take the Freedom Score assessment, available on our homepage, or at the link here: https://www.flightplanstrategies.com/freedom-score. This assessment will walk you through determining how much value you need to monetize from the sale of your business and ensure that you will be able to meet your future lifestyle and retirement goals. So, please do take a few minutes and identify your Freedom Point!
About This Episode
What does it take to turn nightlife into big business? Med school dropout Shane Neman cracked the code on the nightclub industry, transforming its back office into a finely tuned, revenue-generating machine. From pioneering one of the first SMS platforms for small businesses to setting up his companies for top-dollar exits, Shane shares the technical strategies that turned his ideas into high-value assets.
In this episode, you’ll learn how to:
Conduct a Quality of Earnings (QoE) analysis to reveal hidden value
Maximize leverage by structuring deals with competitors
Safeguard your payout with smart seller financing
Optimize diverse revenue streams for a higher selling price
Get a behind-the-scenes look at Shane’s journey in the business of partying—and discover his no-nonsense tactics for setting up a business that buyers can’t ignore.
About Our Guest
Shane Neman
Shane Neman is an entrepreneur and investor, serving as Chief Investment Officer and General Partner of Neman Ventures, where he has invested in over 50 startups, including Impossible Foods and Kraken.
With a Computer Science degree from NYU, Shane founded JoonBug, a multimillion-dollar events platform, and EZ Texting, a leading SMS marketing company acquired by CallFire in 2013. He is also the author of Nightlife Lessons, sharing insights from his tech and nightlife ventures.
Shane resides in South Florida, where he continues to drive growth and innovation across various industries.
Definitions
Due-Diligence: This is a comprehensive appraisal of a business or investment undertaken before a merger, acquisition, or investment. It seeks to validate the information provided and uncover any potential risks or liabilities.
Earn-out: This is a financing arrangement for the purchase of a business, where the seller must meet certain performance goals before receiving the full purchase price. It reduces the buyer’s risk and aligns the interests of both parties post-acquisition.
Escrow: An amount of money that is held by a lawyer for a period of time after an M&A transaction. An escrow is set up to deal with any disputes that may arise after the transaction closes.
Quality of earnings (or “Q of E”): When an acquirer has secured an exclusive position to purchase your business via an LOI, and the transaction is over $1 million or $2 million in value, the acquirer will often hire an outside CPA firm that specializes in reviewing financial documentation, to provide an analysis of your historical EBITDA compared with the values provided in your CIM. A Q of E report can often be a milestone, enabling an acquirer to consider a major portion of their due diligence completed.
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