Book Club #5: How to Win at the Sport of Business, by Mark Cuban

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Mark CubanMark Cuban is a man who needs no introduction.  He’s best known today as one of the sharks in the ABC Emmy-award-winning series, Shark Tank, but most people don’t know that in 2011 he managed to pen a thin book called How to Win at the Sport of Business: If I Can do It, You Can do It.

At 73 pages, it’s not a hefty read and is worth your time.  But we’ll give you a couple nuggets of wisdom he shares in order to nudge you towards picking up a copy.

Getting Paid to Learn

“In every job, I would justify it in my mind, whether I loved it or hated it, that I was getting paid to learn and every experience would be of value when I figured out what I wanted to be when I grew up.”

This is an attitude that everyone in our society could really use more of.  Instead of disdaining jobs and possibilities as “beneath them,” people could enjoy the journey more, realizing that they were being paid to learn.

What is he always asking himself?

“Always ask yourself how someone could preempt your products or service.  How can they put you out of business?  Is it price?  Is it service?  Is it ease of use?”

While it’s astonishing to see someone who wears t-shirts with 3 commas on them (to signify he’s a billionaire) be so dogged about continuing to grow, these points are all valid.  They belie a fundamental paranoia that Cuban tries to preach often on Shark Tank: imagine someone is coming for everything you have.

Why he might not invest in you…

“The reality is that most businesses, they don’t need more cash, they need more brains.”

Mark always talks about how much he loves “grinders.”  This is because he believes that it’s okay to grow slowly.  He feels that cash can “make you stupid” at times and it’s the thinking you do when you’re the leanest that can often be the most creative.

 There are plenty of great stories and other memorable lessons in the book.  You can find a copy of it here.

Apex is actively looking for Advisors to join our team. If you or someone you know would like to learn more, contact Doug Hubler at or 913-433-2303.

Case Study #5: Don’t Be Lopsided

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lopsidedIn 1994 Rick Day founded Daycom Systems.  It started by selling used telecom equipment, but over a 17-year period it became the largest Avaya-authorized telephone equipment dealer and installer on the US West Coast.  It did $23M in annual revenue, between 4 locations, with over 55 employees.

It was late 2007 when Rick decided to sell, for two reasons.  Firstly, Avaya had come from Lucent, which had spun off from AT&T, and he was not convinced of the long-term strategy of that company.

Secondly, he saw on the horizon what was then a novelty but what has since become an accepted technology: IP telephony (For the uninitiated, this is simply the difference between the old copper-wire phone lines vs. the phones most of us use today, which are powered by our internet connection).

In this brave new world, his company’s value as an added-value reseller would diminish in a race to the bottom as the industry became commoditized.  He turned out to be very right, of course.

Apart from these external reasons to sell, Rick also had identified an internal one: 85% of his business came from reselling Avaya products. He had tried, unsuccessfully, to diversify, but it was too late.  He had conditioned his sales and technician teams to love selling what they knew, so when he looked at branching into Cisco and Siemens he got a lot of pushback and realized he would have to double or triple his infrastructure in order to successfully add those categories.

Over time, Rick had used an executive search firm to intentionally build a Board of Directors entirely composed of people who had previously sold companies of their own.  He compensated them in phantom stock that would be realized in a liquidity event, as well as travel expenses for meetings, and when he notified them of his desire to sell, they went to work making the company as lean in operational cost and as fat in profitability as possible, to make them a desirable target.

The Board brought on a broker who identified 15 companies that might be interested in a strategic acquisition.  That list narrowed to 5, and then 3 who were willing to get involved in due diligence and extensive meetings.  After about 3-4 months in which all three were serious contenders, one company really distinguished itself in terms of culture, team, and go to market strategy, and after a final conversation confirming their seriousness, they submitted a Letter of Intent.

In this industry, companies go for 3-5 times EBITDA, and Rick estimated that he might have been able to get more if he had had more long-term contracts in place and if he wasn’t so dependent on Avaya.  He ended up getting 4X, and not a moment too soon, as the deal ended up closing in April 2009, during a major contraction in many businesses.

Rick ended up negotiating 40% of the purchase price in cash, 40% in a 3-year note payable with minimal interest (3-4%), and 20% in an earnout.  He stayed during the two-year transition, but he didn’t hit the earnout, which he attributes more to the difficult market conditions than anything to do with his acquirer.

Rick has since taken the time to get into all sorts of businesses, ranging from yachts, to finance, to salons, to business coaching.  You can learn more about him at his website, Business By Day.

Apex is actively looking for Advisors to join our team. If you or someone you know would like to learn more, contact Doug Hubler at or 913-433-2303.

What is a Letter of Intent? Part 2 of 3: Structure

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LOI listIn the first part of this series, we focused on the purpose of a LOI (Letter of Intent).  In this article, we’re going to outline a basic structure of one.

Long form or Short form?

A LOI can be short or long form, and there are advantages (and disadvantages) to both.  A short-form letter will usually focus on price, a few key terms, the length of escrow, and an exclusivity period.

It will be easy to negotiate precisely because it’s short.  The obvious downside is that it leaves some important issues to be resolved down the road.

On the other end is a long form LOI, which will often contain some “legalese.”  These make sense in complex deals because issues that can be deal breakers are identified ahead of time, before diligence and other time-intensive activities.

The major disadvantage is that in identifying some of these key issues so early on, both parties can get bogged down in deal points before the process has even begun, and so momentum is slowed, or in some cases, stopped entirely.

What an LOI must have:

  1. Price and consideration.  Will the purchase be all cash, or will it be in stock?  Will there be an earnout?  A promissory note?  A hybrid which includes all of the above or something entirely novel?
  2. Structure.  Is this an asset purchase, or purchase of shares?  Will this be a merger?  This is very important for tax purposes.
  3. Timeline.  When is this deal expected to close?
  4. Exclusivity.  This means that buyer has a certain period during which no other potential buyers can be going through this process.  This might also include a stipulation for how/when a seller can terminate exclusivity.
  5. Access.  The buyer is going to want access to employees, books, and records for due diligence purposes.  If the sale is being kept from your staff, you will need to structure a way for the buyer to gain the information he/she needs regarding your employees, as well as an explanation to the buyer of the reason for the secrecy.
  6. Prohibitions.  Anything that the seller may not do between the time the LOI is signed and closing, which could include selling real estate, fixtures, or firing key personnel.
  7. Encumberments.  Are there any third parties to be considered?  This could be leases, copier rentals, or key vendors that are part of the critical path of your business.
  8. Conditions for closing, as well as stipulations for how the acquisition agreement/process can be terminated.
  9. How disputes will be handled and in what jurisdiction.
  10. Deposit, if any.  If this is part of the LOI, it should stipulate that such a deposit be paid into an escrow account, typically a third party.  It simply will make things easier if things don’t conclude in a sale.

This list is not meant to be comprehensive, and some LOIs may exclude some of these or add others. What’s key is for you to see what we stated in our first article in this series.  The LOI is an outline of where the deal is going to go. It’s a roadmap and there’s every reason for the buyer and seller to take their time to agree on what this map looks like so that both parties can reach their desired destinations: sale and liquidity event.  

In the final part of this mini-series, our brokers will share some stories “from the trenches” regarding LOIs in deals they’ve done.

Apex is actively looking for Advisors to join our team. If you or someone you know would like to learn more, contact Doug Hubler at or 913-433-2303.

What is a Letter of Intent? Part 1 of 3: Purpose

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Letter of IntentYou will often hear us state in our blog articles Stephen Covey’s well-known maxim: “Begin with the end in mind.”  This very much applies to a Letter of Intent, and it’s one of the most important parts of a business sale.

It’s so important, in fact, that we’re doing a three-part series on it.  This article is going to focus on the purpose of the Letter of Intent, often referred to as the LOI.

What is it?

A LOI is essentially a “term sheet.”  It details a purchase price and any other terms or conditions that a buyer may stipulate in the purchase of your business.

Now, “Letter of Intent” does sound fancy, but there’s usually limited “legalese” in a LOI, and generally, it’s nonbinding.  This means that both the buyer and the seller retain the ability to walk from any deal should terms for a final closing not be agreed to.

Put another way, the LOI is a blueprint for the sale, so while it’s nonbinding, it’s a serious document.  Whatever appears in a LOI is generally considered to be a “good faith” negotiating point and if, as a seller, you don’t accept everything in the letter, you should definitely have it amended before signing it.

What’s the purpose of the LOI?

The LOI serves a purpose for both the buyer and the seller.  For the buyer, it provides exclusivity during a certain time period.  For the seller, the LOI is a serious and demonstrated interest in a purchase, and there is often a deposit that’s put down to accompany the LOI.  For both parties, it’s a prologue to a hopeful conclusion and gives the basic outline for the mountain of due diligence that awaits both of them.

Is there any reason you wouldn’t sign an LOI?

Simply put?  Yes, for the same reason you wouldn’t sell (remember, begin with the end in mind), namely, price and terms.

If you sign a LOI too early, before the buyer is better informed about your business, you may get a lower price and weaker terms.  They are building in risk into their offer.  Don’t be afraid to push back on a LOI, or counter with more information (like a certified valuation) which de-risks the business for them and indicates why you think the price and terms are too low.

You may also receive an “indication of interest” prior to an LOI with a valuation range.  In fact, if the buyer is aggressive and insistent on an early LOI, take a step back and be cautious.  Is this someone you will want to work with?

In the next part of this mini-series, we will examine the structure of a LOI.

Apex is actively looking for Advisors to join our team. If you or someone you know would like to learn more, contact Doug Hubler at or 913-433-2303