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Hot Take #3: The Exit Podcast and the Magic Box Paradigm
Adam Landis breaks down startup M&A in a must-listen podcast
Last week I was looking at various references to the MBP and I stumbled on a great podcast on startup M&A called “The Exit.” BTW - in this poke-around-the-web I also found a research paper on startup M&A from the HEC Paris business school - the paper references the MBP 27 times! It was interesting to see the parts of the book the research team leveraged. The paper may be the topic of a future hot take (but I’ll have to brush up on my French).
But I digress. The Exit podcast featured a discussion with Adam Landis the founder of AdLibertas and centered on how he created the environment for AdLibertas to be acquired by Branch. It doesn’t sound like Landis used an investment banker or M&A adviser, but instead, took to heart what I say in the book, that: you, a good attorney, and a copy of the MBP may be all that’s needed and rolled his own transaction. Adam is not alone, I get emails all the time from founders who followed the MBP and became their own M&A adviser.
You should listen to this podcast with Landis, it’s excellent. We’re going to unpack why, and of course, fill in a bit more MBP color.
Why is it Always “Exit?”
As we so often need to do, let’s talk about the title. Once again the featured word is “exit.” The “sales process” and “exit” mindset are so deeply ingrained in the startup M&A conversation that they just can’t be avoided. An endless conversational whack-a-mole. As we know from the MBP, startup acquisitions should be approached as “entrances” not “exits” – they are an opportunity to take your vision to the next level by placing you on a larger stage an enabling you to make a bigger impact. Funnily enough, the way Landis speaks about his acquisition is very “entrance-y” in nature - he talks about joining Branch’s team and the big things they envision building together (and to be clear - it’s not *his* title - it’s the title of the podcast series more generally. A podcast series that seems quite good, title aside).
The MBP Aha Moment: Narrative
Around minute 14:00 Landis speaks to the zeroing in on the core value of their platform and its potential value to strategic partners generally. What I like about this realization is that he moved from thinking about his company as a standalone entity and towards thinking about what-about his company could be interesting to potential strategic partners (“PSPs”). He marries this shift in thinking to his discovery of the MBP book. He then makes a critical admission that was not only true for him, but is also true for most entrepreneurs: they don’t really know how to structure PSP conversations. Landis’s tldr summary of the MBP is quite interesting as he zeros in on the discussion of a startup’s three core narratives: #1 your narrative for investors, #2 your narrative for customers, and #3 your narrative for PSPs - and that narrative #3 is quite different from the other two. In the first two narratives you have to have everything figured out - it’s “your story” to use his words. However in #3, your narrative for PSPs, you have to help them build “their story” and find a way to enhance that story. Once Landis oriented himself this way the “conversations started to make more sense to him.” This is right on. Until you understand how to have the conversation you’re really just spinning your wheels.
The Importance of Air Game
Around minute 15:30 Landis goes on to describes how effective his thought leadership strategy was for gaining attention. Again, this is something we preach in the MBP and it’s often a hard concept for many entrepreneurs to internalize. Seeding the market not only positions you as a leader, but it’s also how you create your own luck. In Landis’ case his acquirer wasn’t a company he would have thought of as a likely PSP. Not one he likely would have put on a list to approach directly. It was they who found him via his air game content. They even went on to develop collaborative thought leadership. If you want to put your big idea creation engine into hyperdrive, create joint thought leadership with PSPs!
The Big Idea Changes the Conversation
Landis goes on to articulate something really important - when the conversation is in the context of a Partner Big Idea (“PBI”) it becomes strategically important to the PSP - and as such - it moves from a “zero sum” form of conversation (Landis calls this kind of conversation “transactional”) to something much more collaborative and positive.
MBP Approach to Valuation
At around minute 17:15 Landis shifts to discussing how the MBP changed his strategy for maximizing value. At the moment this potential acquisition conversation was heating up their business was in serious transition and their revenue was “tanking.” Traditional valuation frameworks (multiple of revenue, or EBITDA, or…) just weren’t going to work. The value of his company was going to need to be derived from the value it would create for the PSP. This is the MBP way - if you’re playing the game correctly the PSP cares a lot more about the big idea than they do about your independent performance - and Landis says just that. Landis makes another important point - that valuation was one of the last things they and the PSP discussed. As the MBP says - you want valuation to be determined at the culmination of the idea creation process, not at the start.
The Tortoise Beats the Hare
When the acquisition is driven by a powerful PBI it moves fast. It may seem at the start that following the MBP is the slow way to go about things, but it’s not the case, once the PBI takes hold the ground starts to shift and the PSP starts to drive the transaction forward. As it says in the MBP “the PBI starts to create its own weather.” In Landis’ case the PSP set up a very aggressive process to get the deal aligned and closed - in 30 days!
Sometimes It’s Just the One
Landis kicks himself for potentially not testing the market more aggressively. From what I can glean from the podcast I think it would have been exceedingly difficult to replicate the depth of engagement he had with the PSP at hand. A powerful PBI with strong executive sponsorship is a tough thing to spin up in a hurry. I think he was smart to get the deal-at-hand done. Landis goes on to articulate the “entrance” we discussed at the start. A big part of his decision making was around this as the next chapter he wanted to open up - this was the magic box he wanted to get to the top of the mountain.
Landis #1 Tip for Entrepreneurs