Case Study #36: Airline Software and the Value of a Patent

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Case Study #36: Airline Software and the Value of a PatentTimothy O’Neil-Dunne has been an aviation and travel insider for years and his most recent business, Air Black Box, was acquired by 777 Partners in early 2019. Along with his fellow co-founders, Timothy was able to create a way for airlines to sell more seats by using new software to access very old technology which is the domain of just a few companies.

Why “Black Box”?

It turns out that airlines are not really interested in hearing about the technology behind innovative software, nor are they interested in the larger philosophical discussions about how they can still make money when their flights connect with airlines that stand outside the big three (SkyTeam, OneWorld, and Star Alliance) airline alliances. So rather than force these ideas on the airlines, they leaned into this lack of desire to understand technology and just called it “Black Box.”

They also conformed to the way that airlines and airports prefer to see proposals: as a per transaction cost. What does it take to get a passenger on that jet bridge waiting to board the plane? That’s what they understand and that’s how they built all of their projects. One of which was creating a new airline alliance, the Value Alliance, which mostly includes low-cost carriers.

What many of us who use online websites to do bookings don’t realize is that the slick and shiny software we use is connected to very old legacy software and technology. While these software operators still benefit from being able to sell tickets to people like us who want to buy them, airlines really still lack the ability to drive more revenue by airlines networking and cross-selling with each other. That’s where what Air Black Box was doing really made a difference that went straight into the bottom line for its clients.

Invest in People

Early in the process, Timothy and his co-founders made the decision to make sure that his employees had a stake in the future of the business by giving them some ownership shares. One third of the company was then allocated in such a way that if there was a future transaction, his employees would get a guaranteed amount. Whereas any speculative part of the deal that required more work would be his risk (but also his reward). When asked why, Timothy responded that his staff were loyal and went above and beyond. They were the type that if you called in the middle of the night they would do their best to try to figure out how to solve a problem.

Ask for Help

While he did bootstrap the company with his own funds, Timothy was also happy to partner with the government to get some matching grant funds. They approached Innovate UK and made the case for how their UK firm could obtain some significant international business if they could get some seed funding at a crucial stage. That funding was important early on when Air Black Box only had one customer, Changi Airport.

Invest in Technology

Part of the value of Intellectual Property (IP) in a future sale is the competitive advantage you have over others because of your technology. The other part is the ability to gain from adversarial lawsuits. The patents obtained by Airline Black Box combined with their transaction revenues made them an attractive target for 777 Partners, which has a collection of companies in its portfolio that it helps to scale to a high level of success.

There are many important and valuable businesses that exist all around us. But they are invisible because we don’t know they play a role in our everyday lives. We deal with a lot of these off-the-beaten-track businesses here at Apex. Give us a call if you’d like to learn more.

More Key Questions for Buyers to Ask

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More Key Questions for Buyers to AskSome time back, we took a high level view of the types of questions that buyers in a transaction should consider asking sellers. We looked at questions like “why are you selling?” to “what will you (the seller) do next?” To complement those more cerebral questions, we’re adding a list of more specific questions that get right into the heart of operating any given business.

Describe an ideal buyer of this business.

Don’t think of this like an anxious single person would when asking “what’s your type” of their date. You don’t need to tick every single box in the answer to this question, but you probably do need to tick many of them. Also, don’t let fear swallow important follow-ups. If the seller says that this is ideal for someone who wants to grow a large business, and you were thinking about more about buying a lifestyle business, ask them, “Do you think this is a good lifestyle business?”  

Discuss the strengths and weaknesses of the local competition.

All good entrepreneurs know who their competition is. This is a chance for honest disclosure, not chest-beating. It’s also important to find out if the seller has any relationships with any of the competitors. The saying “keep your friends close but your enemies closer” has some resonance in business. Your competitors are monitoring the same things that you are, and information sharing that doesn’t include important business secrets, is a healthy part of directing and managing any business.

Can you tell me the demographics of the core customer?

Savvy business-owners can recite this without reference to additional materials. What’s important is to follow-up with the limits. If the core demo is 25-45, ask about why not under 25 and why not over 45, and/or if there are other products and services that appeal to those groups. This will show the buyer you’re thinking from a bigger perspective and also give you some important insights into the business.

Who is the most important employee and why?

As we discussed in a previous article, it’s important to have a collaborative attitude with employees. Often a key employee isn’t just extremely valuable to the owner and the business, he/she can be the glue that holds other employees in orbit as well. Lose that person, and you may lose others as collateral damage. Find out why this person is special and seek to preserve that relationship.

What was the one thing you never did that you think I should do?

Business owners have so much going on when they start their businesses that there are often projects and ideas they were never able to execute. So much is invested in hiring good people, putting together systems, and getting customers, that sometimes the stuff “I’ll get to one day” never gets gotten to. Why not ask? They might give you the starting point of the next great chapter of their company, the first with you in charge.

Who are the best and worst vendors?

Vendor relationships are key, and while you may have your own people you will want to use when you take over, it’s important to understand the history of who the company has dealt with in the past and why those relationships have been successful (or unsuccessful). As with all these other questions, ask them in a positive and open way, seeking clarity and information. Take note of any reservations or poor reactions, but even then, try to gently follow-up. What you want is information, not accusation.

Want more questions? We’ve got boatloads of them to assist you in your transaction. Give us a call to find out more today.

Key Parties in a Transaction

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Key Parties in a TransactionAll transactions end with a buyer and seller signing on the dotted line and checks and wire transfers making their way to their final destinations. But there are many key parties that help get a transaction to that finish line. In this article, we’ll identify those key players and how to make them a winning part of your transaction.

Accountants

Perhaps one of the most important parties in a transaction for both buyers and sellers is the accountant. For a seller, accountants provide accurate financial information, assist with due diligence, and assist with negotiating tax allocation. For buyers, accountants also help with the tax allocation negotiations. They also need to verify the financial information provided in due diligence as well as verify the assertions of the original valuation.

Attorneys

Transactions are legal transactions and hence need the legal paperwork that helps tie a civilized society together. That said, it’s important to find an attorney who is not a deal-killer, and unfortunately we’ve seen more than a few of those in our time.

How to spot a deal-killer? This is someone who lives and breathes fear. Rather than a positive and collaborative mentality that focus on how to move the deal constructively towards a finish line, a deal-killer imagines dragons around every bend in the road, and sows that fear into a client. Unfortunately, sometimes those seeds grow into deal-breaking obstacles. Remember that you are not the first, nor will you be the last, to enter into a transaction. There are always solutions to be found in legal wording to satisfy everyone. Again, what matters is mentality: collaboration or antagonism. Never pick the latter.

Bankers

No money, no deal. It goes without saying that if you’re not privately financing the deal, that you need to be in communication with your banker. They have a lot of regulations they have to deal with so if they ask for some information or paperwork, remind yourself it’s not because they are thrilled to dig into every part of your financial life, but because it’s often just a check box on a sheet that they are following.

Landlords/Franchisors

These can both be unexpected deal-killers and it’s important to deal with these parties transparently and openly from the beginning. As we have alluded to above, convince them that you are not an antagonistic counter-party, but someone who wants a win-win for everyone. Landlords often want to make sure that they have continuity and a clear vision of the future, whereas franchisors want to make sure that you fit their requirements and understand their systems.

Brokers

We would never claim that brokers are the most important parties in a transaction. The buyers and sellers are. But right after them are the brokers, both on the buying and selling side. Very often we are coaches and cheerleaders and researchers. We are the sherpas of a transaction. We are trying to get all parties to the finish line in a cordial and collaborative way. We are the voice of reason when someone starts to let emotions get the better of them. We are the voice of experience when someone asks about the next step in the process. We’re the voice of encouragement when someone feels overwhelmed by the due diligence process.  

All these parties are important in a business transaction, but we hope we’ve communicated that the most important thing you can bring to any transaction is a spirit of positive collaboration.  The deal started with positive hope for both parties, and there’s no reason it can’t end on that note. The right mentality is key, and that’s an integral part of all our transactions here at Apex. 

Corona Virus and Your Business

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Corona Virus and Your BusinessIt wasn’t that long ago that we were discussing the effects of an election year upon the business climate, and early in 2020 it seems that the dominant story is a flu-like disease that the world seems uncertain about in general. While it’s true that in many parts of the world consumers are still spending, shops are still open, and people are still going to work, at the same time stock markets have been swinging wildly, supply chains have been disrupted, and numbers of people have been quarantined.  What does this mean for business?

What has happened so far?

A number of airlines have made the decision to stop flying to certain places that are showing high levels of infection. At first this was just China, but now those concerns are spreading to Europe with northern Italy showing the greatest level of infections.

Major conferences have been cancelled. At the time of this article it looks as if SXSW in Austin will continue on as scheduled, though Twitter and Facebook have pulled out of the event. Facebook has cancelled its own F8 conference, opting for local gatherings and streamed content in its place. Shopify and Adobe are two other software firms that have cancelled their annual development conferences.

On the travel and leisure side, for the first time in many years, the final two days of Carnival in Venice were cancelled as the city was rapidly shut down by the regional and local governments. Giorgio Armani’s latest fashion show was streamed as the models walked in their outfits in empty rooms.

Like an Earthquake?

At this moment, the question seems to be whether this disease causes a fundamental change in global lifestyle and business norms or whether, like an earthquake, it is something that will pass. Indeed, after the ground stops moving in an earthquake the first things that need to be attended to are those who are hurt and wounded, but almost at the same time, the clearing and rebuilding begins, and that actually causes a rise in economic activity.  

It is clear that the media loves the sort of uncertainty that Corona Virus provides for them. Endless drama, speculation, and doomsday predictions. Much of the reaction in business can be traced directly to their reporting on these events.

Be Proactive

Business owners can’t really do much about how the media decides to conduct their business. They need to focus on the best way to navigate their businesses through this time of uncertainty, and there are some best practices that savvy entrepreneurs can adopt during the months ahead:

  • Educate your customers about the virus and how it affects them specifically in their interactions with you. If your business is customer-facing, consider having hand sanitizer available and send emails/social media updates informing them about how to minimize their risk of infection.
  • Talk with your vendors and bankers. Don’t wait until the Federal Reserve makes moves to start making moves of your own.  Consider expanding your credit line or restructuring some of your debt. Be more proactive on your receivables. Consider asking for better terms on your payables. Again, this is more about preparing for possibilities than panicking.
  • Take a look at where you can save. Even if you may have already gone through this exercise at the end of last year, take another look. Perhaps you can buy some more materials at a better discount, or pay annual rates for SaaS instead of monthly. Better to save money now when it isn’t on most people’s minds.

There have been global disease scares and realities in the past and there will be more in the future. Know that we here at Apex are here to help you through the uncertainty, whether you are buying or selling. And yes, we will have hand sanitizer for you when you stop in at our offices!