The founder's dilemma: How to play the final sale
You're sitting in a conference room negotiating the sale of your company, still haggling at the 11th hour over a price. But wait: Should you even be there to begin with?
Jerry Yang and David Filo apparently thought so. They flew up to Seattle last weekend to meet Steve Ballmer and Kevin Johnson at the Sea-Tac airport in a failed last-ditch attempt to reach a deal with Microsoft.
Mitch Kapor
(Credit: Mitch Kapor)This is the part where you're supposed to intone that it's not personal. (Cue The Godfather theme.) Yahoo's co-founders had their numbers crunchers nearby, but listening to Microsoft's blustering CEO belittle their demand to put a higher price on their life's work, could it really remain all business?
"It's too big of an issue, too big of a decision to make as a founder," said Mitch Kapor, who founded Lotus Development Corp., which was sold to IBM in 1995. "The CEO makes the ultimate recommendation to the board of directors, but it's not like selling something on eBay."
"At some point in the discussion," he continued, "the principals do have to sit down for a private conversation. But that neither ought to be the main flow of things or the final definitive meeting. These companies are too big and there are too many points of view to consider. If you're not fully embracing everyone on your side, you're probably not making the best decision."
Marc Cuban, who sold Broadcast.com to Yahoo in 1999 for $4.9 billion in stock, says that the range of emotions will hinge on myriad factors. But in an e-mail exchange, Cuban had a black-and-white reaction to any suggestion the give-and-take should get left to a trusted lieutenant.
Mark Cuban
(Credit: CNET)Are you serious? "Your life's work? That is easily the stupidest thing you could (do). (Yang and Filo) did the exact right thing sitting with Steve."
Maybe so, but Cuban also allowed that the emotional ups and downs involved in finalizing a sale will vary depending upon who's doing the negotiating.
"As far as the range of emotions, it depends on the individual person's goals for the company. If the company is you, it's one approach. If it's purely a business, another. If you have goals outside of the office, another."
Marc Fleury, the creator of JBoss, an open-source Java application server, sold his company to Red Hat in 2006 for $350 million in cash and stock. On the surface, at least, he had no problem hearing that Yahoo's co-founders sat in the room for one last meeting.
"I don't think that was the mistake," he said. "However, deals are finicky because so much depends on people. You are looking at a random sequence of events with a random output, where all the emotions come in. It is not a mistake; it is just the nature of the beast. Deals are 'stochastic' and not just the result of well thought- out machines."
This is why so much high-priced talent on Wall Street gladly volunteers to play the role of the dedicated heavy--if that's what it takes to fetch the best price--in any negotiation.
"That's part of the sales pitch of the investment bankers. They say, let them be the bad guy," says Scott Heiferman, the founder of Fotolog (bought last year by France-based Hi-Media Group for a combination of cash and stock worth $90 million) as well as iTraffic one of the first online ad agencies, which was sold to Agency.com for about $50 million in stock and cash.
Scott Heiferman
(Credit: Meetup.com)"But there's nothing necessarily wrong with a (founder) who has perspective," added Heiferman, who is also co-founder and CEO of Meetup.com. "You've got a vested interest so why shouldn't you have a principal at the table? Still, I do understand the argument that it might be too loaded for you with not seeing clearly because of all the blood, sweat, and tears that went into the company."
Crunch time will do that. And for lot of founders, he says, it calls into question what they want out of the company in terms of a legacy.
"I would suspect that Jerry Yang was thinking about the legacy that is Yahoo in the long term," he said. "The importance of any company to (a founder) should give you the guts to say, 'No, that isn't the right deal.' In other words, it means something to you. It's not just a notch on a bed post for some investment banker."
That still may not be enough to shield Yang and Filo from getting an earful from investors unhappy about losing Microsoft's buyout offer. Then again, most of them never were faced with the sale of a company they started.
Charles Cooper has covered technology and business for more than 25 years. Before joining CNET News, he worked at the Associated Press, Computer & Software News, Computer Shopper, PC Week, and ZDNet. E-mail Charlie. 
But your theme is valid - Yahoo blew its fiduciary responsibility to their shareholders bad. They should have sold in a heartbeat, just as Legg Mason pressed them to do. Under SEC regs, the shareholders have the ammo now to bring a class action against Yahoo and wring value out of a company which has been mismanaged since day one.
If Yang and crew think they had headaches dealing with Microsoft's offer, they ain't seen nothing yet. At least that's my forecast - a shareholder revolt lead by Bill Miller and crew, who will strip the company bare and rightly so. Just my two cents.
If they had sold out, they would be in limbo for years
More like this and the CNET future would be better.
Who is in a better position? Gee, that is a tough one.
Both MS and Yahoo would have been in a world of hurt had Yahoo sold out. The greedy investors crying now would have been really crying in 4 years.
Yahoo made the correct decision for Yahoo. That is what matters. Yahoo is considerably better off now than 6 months ago and are looking even stronger given the recent forays in partnership.
The idiots who lost money last week are idiots. They didn't have a clue what they were doing. The long term investors are happy because Yahoo's stock price is considerably higher than it was in January and is looking like it will steady increase now that it had a fire lit under it.
This is a rare example of Ballmers incompetence not destroying something. Of course, had Yahoo sold out, his track record of ruining everything would still be intact.
That Ballmer and MS wanted to buy Yahoo is just another example of how MS has lost its way and has no idea how to try to get its relevance back in a world were the desktop isn't quite as important as it once was.
The only shareholders that need to be complaining are MS shareholders.
- by christianhgross May 11, 2008 2:53 PM PDT
- >The founder will have the best interests of his/her company at heart. Shareholders are only looking for a fast buck. Who is in a better position?
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- by The_Decider May 12, 2008 6:27 AM PDT
- It is his company.
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(10 Comments)Yes shareholders might want a fast buck. BUT as the nature of the beast is, Yang has around 10% of the company. Thus while he might be a shareholder he is not the majority and hence has to do what the shareholders want. Jerry Yang acted completely wrong!
> maybe i'm wrong in my thoughts but doesn't thie company belong to the shreholders now??no matter who started it.
If Jerry Yang owned 50.1% of the company he could do what he wanted to, but he doesn't and hence its NOT HIS COMPANY...
Yahoo is in a much better position for growth without Microsoft. If MS had bought Yahoo, nothing of value would have come from it.