Dec 032010

Selling a Line of Business

Selling a Line of Business

It’s been a couple of years since Return Path decided to focus on our deliverability business by divesting and spinning out our other legacy businesses. That link tells some of the story, and the rest is that subsequently, Authentic Response divested part of the Postmaster Direct business to Q Interactive.  Those three transactions, plus a number of experiences over the years on the buy side of similar transactions (Bonded Sender, Habeas, NetCreations), plus my learnings from talking to a number of other CEOs who have done similar things over the years, form the basis of this post.  The Authentic Response spin-out was also partially chronicled by Inc. Magazine in this article earlier this year.

It’s an important topic — as entrepreneurs build businesses, they frequently end up creating new revenue opportunities and go off on productive tangents.  Those new lines of business might or might not take off; but sometimes they can take off and still, down the road, end up being non-core to the overall mission of the company and therefore candidates for divestiture.  Even if they are good businesses, the overall enterprise might benefit from the focus or cash provided by a sale.  Look at the example of Occipital building the Red Laser app, then selling it to eBay to finance the rest of their business.

Here are some of the signs of a successful divestiture:

  • Business is truly non-core or relies on starkly different competencies for success (e.g., one is B2B, the other is B2C)
  • Business is growing rapidly and requires assistance to scale properly (either technology, or sales)
  • Business has its own culture and operations and “a life of its own”

Conversely, here are some of the reasons why a divestitures of a business unit might stall or fail:

  • Lack of a very compelling story as to why you’re selling the business unit
  • Stand-alone financials of the unit are too hard for the buyer to determine with confidence
  • Operations of the unit too tethered to the mothership
  • There is some problem with the leadership of the unit (there is no stand-alone leader, the leader isn’t involved in the divestiture, the leader isn’t squarely behind the divestiture)
  • Business performance weakens during the process

I have a couple points of advice to entrepreneurs in this situation.  The first is to clarify for yourself up front:  are you selling a true line of business, or are you selling assets?  If you are selling assets, you need to clearly define what they are, and what they aren’t, and you need to make sure all legal details (contracts, IP, etc.) are buttoned up before the process starts.

If you are selling a true line of business, beware that buyers will not be interested in doing any hard work, or if they feel like they have to do hard work, the price they pay for the business will reflect that in the form of a steep, steep discount.  The financials must be understandable and credible on a stand-alone basis.  The business must be completely separated from the core already.  The business must have its own management team, completely aligned with the decision to sell.

You also have to be extremely cognizant of the human aspects of what you’re doing.  Every culture is different, and I’m not advocating one style over another, but selling or spinning out a business is very different than selling a company.  There’s going to be a big difference in reactions, perceptions, hopes, and fears between the people in the core who are staying, and the people in the business unit that’s going.  Having a heightened awareness of those differences and factoring them into your communications plan is critical to success, as a poorly managed effort can end up harming both sides.

In terms of valuation expectations, don’t expect to get any credit for synergies.  You have to present them and sell them, and they may make the different between getting a deal done and not, but they will most likely not impact the price you get for the divestiture.

Finally, remember that buyers understand your psychology as well.  They know you’re selling the business for a reason (you need to raise cash, you’re concerned about its future performance, it’s become a distraction or has the potential to suck scarce resources out of your core, etc.).  They will completely understand the costs you carry, whether financial, opportunity, or mental, in continuing to own the business.  And they will factor that into the price they’re willing to offer.  Of course, as with all deals, the best thing you can do to maximize price is have multiple interested parties bidding on the deal!

Apr 012009

Senders No More

Senders No More

February marked the official end of Return Path being in the email sending business, even a little bit. Of course we still have corporate email servers, and we still have basic retention email marketing programs for our customers and prospects (with explicit permission of course!), but after a 9 1/2 year run, we no longer have direct consumer email-based relationships.

As we announced last fall, we recently divested all of our businesses other than our deliverability and whitelisting business — Postmaster Direct (list rental), Authentic Response/MyView.com (surveys), and ECOA (change of address). Those were great businesses, but they increasingly diverged over the years from each other and from our core deliverability business, so it made sense for them to belong to different companies in the end.

Besides diverging from each other, being a bulk sender of email had both advantages and disadvantages for us as a company. On the one hand, it was good for us to see firsthand what some of the issues are that impact our clients. We were, in fact, our own clients, one business unit to another. But on the other hand, being a bulk sender carried a real business risk of compromising our position as a trusted intermediary between senders and receivers. It was always a fine line to walk, and while we never got in trouble for it, we were always concerned — to the point where for a long time we didn’t allow our other business units to apply for our whitelist, Sender Score Certified, even at “arm’s length.” At least we weren’t an ESP!

But now that risk is gone. We are senders no more. Be sure to read our CTO’s description of what it was like to send a transactional privacy policy notification to 20mm addresses, most of which hadn’t been mailed in months or years.

Jul 262008

Why Do People Behave Like Jackasses Online?

Why Do People Behave Like Jackasses Online?

I won’t disclose the name of the person who did this, but here’s the chain of events:

  • Person registers for our Postmaster Direct service to receive targeted offers via email.  This is a closed-loop, double opt-in registration process (so the person had to register and then click on a confirmation email)
  • Person receives a handful of relevant, targeted offers from us
  • Person finds my name on our corporate web site and messages my wife on Facebook to tell her that her husband is a dirty spammer who needs to learn a lesson, and would she please make him and his company behave?
  • Person finds my blog and comments on it saying “don’t give return path any email addresses, they spam the crap out of you. I’ve already filed a complaint with the BBB. If this doesn’t work, I’ll have to use some unorthodox means of getting their attention.”  As if said person hadn’t already used unorthodox means of getting my attention
  • Person finds a few other blogs on which I am mentioned, and posts similar negative personal comments
  • I politely email Person back, asking him if he had tried to unsubscribe (which works) or contact our customer service email (which is manned and emptied out daily) or email me directly if he felt so inclined to remove himself from our database, remind him that we are double opt-in, and somewhat less gently tell him I thought he was out of bounds for messaging my wife on Facebook
  • Person emails back, much softer tone, says he never tried to unsubscribe because he’s never had success doing that in the past
  • I email back, ask for all his email addresses so I can add him to our suppression list
  • He emails back, tells me that he doesn’t want to stop getting our emails, he just wants them at his Hotmail account instead of his work (.gov) account

Perhaps sometimes the anonymity of a keyboard isn’t a good thing.

Filed under: Technology, Weblogs

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Jan 042007

Book (Not So) Short: Raise Your Hand If You’re Sure

Book (Not So) Short:  Raise Your Hand If You’re Sure

I couldn’t get the catchy jingle from the 80′s commercial for Sure deodorant (you remember, the one with the Statue of Liberty at the end of it – thanks, YouTube) out of my head while I was reading the relatively new book, Confidence: How Winning Streaks and Losing Streaks Begin and End.  Written by HBS professor Rosabeth Moss Kantor, Confidence is one of the few business books I’ve read that’s both long and worth reading in full.

The book has scores of examples of both winning and losing streaks, from sports, business, politics, and other walks of life, and it does a great job of breaking down the core elements that go into creating a winning streak or turnaround (Accountability, Collaboration, Innovation).  Kantor also puts a very fine point on the “doom loop” of losing streaks and just how hard it is to turn them around.  The book also has a good crisp definition of why winning streaks end — arrogange, anyone? — and has consistent, but not preachy recipes for avoiding pitfalls and driving success.  All in all, very inspirational, even if many of the roots of success lie in well-documented leadership qualities like those expressed in Jim Collins’ Built to Last and Good to Great.  The book is good enough that Kantor can even be forgiven for lauding Verizon, probably the most consistently awful customer service company I’ve ever dealt with.

But even more of the roots of success and disappointment around streaks are psychological, and these examples really rang true for me as I reflected back on our acquisition of the troubled NetCreations in 2004.  That company was in the midst of a serious slump, a losing streak dating back to 2000, at the peak of the original Internet boom.  Year over year, the company had lost revenues, profits, customers, and key personnel.  Its parent company saw poor results and set it into the doom loop of starving it for resources and alternating between ignoring it and micromanaging it, and when we acquired the business, we found great assets and some fantastic people (many of whom I’m proud to say are still with us today), but a dispirited, blame-oriented, passive culture that was poised to continue wallowing in decline.

I can hardly claim that we’ve turned the business around in full, or that I personally made happen whatever turnaround there has been, but I do think we did a few things right as far as Kantor and Confidence would see it.  Her formula for a turnaround (Espouse the new message, Exemplify it with leadership actions, Establish programs to systematically drive it home throughout the organization) is right in line with our philosophy here at Return Path.

First, we accelerated the separation and autonomy of a fledgeling NetCreations spin-off unit, now our Authentic Response market research group, and let a culture of collaboration and innovation flourish under an exceptionally talented leader, Jeff Mattes.

But that was the easy part (for me anyway), because that part of the business was actually working well, and we just let it do its thing, with more support from HQ.  The turnaround of the core list rental and lead generation business of NetCreations, the original Postmaster Direct, was much tougher and is still a work in progress.  In the last six months, we’ve finally turned the corner, but it hasn’t been easy.  Even though we knew lots of what had to be done early on, actually doing it is much harder than b-school platitudes or even the best-written books make it seem.

The one thing that Kantor probably gives short shrift to, although she does mention it in passing a couple times, is that frequently turnarounds require massive major amounts of purging of personnel (not just management) to take hold.  As one of my former colleagues from Mercer Management Consulting used to say, “sometimes the only way to effect Change Management is to change management.”  Sometimes even very talented people are just bogged down with baggage — the “ghost of quarters past” — and nothing you do or say can break that psychological barrier.

Boy, have we learned that lesson here at Return Path the hard way.  I’m extremely grateful to our team at Return Path, from the old RP people who’ve seen it all happen, to the old NetCreations people who are thriving in the new environment, to the new blood we’ve brought in to help effect the turnaround, for playing such important roles in our own Confidence-building exercises here.  And I’m super Confident that 2007 will be the year that we officially turn the old NetCreations/Postmaster losing streak into a big, multi-year winning streak.

Anyway, I realize this may redefine the “short” in book short, but Confidence is without question a good general management and leadership read.

Aug 132006

It’s a Sad Day When the Lawyers Take Over

It’s a Sad Day When the Lawyers Take Over

With all due respect to lawyers, of course, Google’s recent decision to start making a legal fuss when people in the media use the word “Google” as a verb is NUTS.  Someone, get Marketing on Line 1 — and make it snappy.  Steve Rubel wrote about it, as did Jeff Jarvis, and the source material is here.

For the record, anyone who wants to use any of the following words or phrases as a verb, noun, or any other part of speech, may do so at any time:  Return Path, Sender Score, Authentic Response, Postmaster Direct.  Oh, and then there’s ECOA, the service we pioneered in 2000 that *is* occasionally (in some very small circles) used as a verb!

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