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Ready to sell your startup? Here are four ways to prepare.

How a serial entrepreneur turned his self-defense education business over for $1 million.

By Brian Eastwood  |  July 6, 2017

17-ScienceofSkill

Dan Faggella started and sold Science of Skill in less than four years. He built the company explicitly to fund his next venture.

A little more than four years ago, Dan Faggella was staring at a partially collapsed roof in his mixed martial arts studio in Rhode Island. Today he’s in San Francisco running TechEmergence, an artificial intelligence and machine learning market research firm.

In the years between, he sold the gym, built an online self-defense education and e-commerce platform called Science of Skill, and sold that company for more than $1 million. The sale has helped Faggella focus his time and energy on TechEmergence — and, more specifically, on AI’s disruptive potential — without having to seek additional funding.

“I didn’t want any rich people to own half my business before it even got off the ground,” he said.

Here are four tips about selling a startup from Faggella, a 2014 student in the two-day MIT Sloan Executive Education’s Negotiation for Executives program. Faggella said he drew upon the lessons he learned in the program — taught by Associate Professor Jared Curhan — when he negotiated the sale of Science of Skill.

Work on relationships
Since a broker works on more than one deal at a time, startup founders need to build a good relationship, Faggella said. Focusing on relationships represents one of the seven elements of effective negotiation, adapted from the book “Getting to Yes,” Curhan’s course focuses on.

This means letting a broker get to know you as a person and not just as an executive, he said. “If they don’t like you, they’re not rooting for you. There’s a shot that they won’t get as many buyers on the phone or hold the line as much as you’d like.”

In his case, Faggella made it a point to take his broker out to breakfast, explain his future goals, and convey that he trusted the broker to get the job done. Do this right, he added, and a broker will begin to believe in the dream as much as the founder does.

Emphasize legitimacy
Part of building a relationship with a broker is emphasizing the legitimacy of both your business and your asking price, Faggella said. In this case, he stuck to his goal of selling Science of Skill for more than $1 million, knowing that many founders may start with that figure, only to lower the price in order to close a quick deal.

“My goal was to focus on the legitimacy factor of the valuation,” Faggella said. This meant preparing a transparent offer, using common and authoritative methodologies to calculate a value that neither the broker nor the potential buyer could refute.

The idea of transparency also applied to what Faggella planned to do after the sale.

“I’m a guy with a bigger moral purpose on the global governance of AI and neuroscience, not someone who wants to get rich and buy a car,” he said. “I have a grand moral contribution, something I’m eager to do, but the key thing [to realize that] is to sell the business that I started it as an alternative to needing equity for my life’s work.”

Reduce your workload
As the head of a startup, it’s easy to focus attention on “turning the gears that make the engine run,” Faggella said; this can include sales, finance, advertising, and human resources. The challenge is that these “micro-jobs” add up.

“You want to be a director, not a doer,” he said. “If someone followed you around with a pair of binoculars, what are the things they would say you are doing?”

For Faggella, this meant delegating any tasks that could be construed as operational — having hiring conversations, for example, but leaving personnel decisions to other employees. It’s a gradual process, he said, but it shows that a startup is a well-oiled machine. It has the added bonus of improving work-life balance.

“When you get there, you are very buyable,” he said. “You’ve done something that 99 percent of businesses don’t do.”

Focus on the end goal
Beyond reducing their responsibilities, Faggella said startup founders need to focus their energy toward achieving their primary end goal, which in his case was raising the money to get TechEmergence off the ground. This is important for any founder looking to get out of the startup phase without collapsing, but it’s especially true for founders pursuing a sale, he said, as there are “400 other things to be done.”

When Faggella’s to-do list became overwhelming and he found himself struggling he distilled his work down to three major projects: Get his hours down, find someone to run 100 percent of sales, and sell the business for more than $1 million by a certain date. For other founders, he said, these goals may revolve around securing more funding, focusing on creative versus operational work, or getting more vacation time.

“Looking at the list every morning would help me see the straight line between those tasks and what I really wanted to do,” Faggella said. “When you get through these things, it’s the goal at the end of the rainbow.”