When Peter Rahal sold RxBar, the Chicago-based protein bar company he created with co-founder Jared Smith, to Kellogg's for $600 million in 2017, he didn't have an emotional crisis.

Instead, he says he stayed objective about the process--ensuring that his feelings about the company he built from scratch didn't get in the way. "I didn't have any remorse or feel sad," says Rahal. "I didn't cry or anything.... I was grateful to be able to sell a company."

That's advice he would recommend to anyone exploring the possibility of a sale. Rahal will touch on his experience founding, growing, and selling a brand that grew into a health food phenomenon at Inc.'s Fast Growth Tour on May 21 in Chicago. There, he'll be joined by other speakers, including Ripple Foods co-founder Adam Lowry and designer and CEO Kendra Scott.

Inc. spoke to Rahal recently about his decision to sell and what other entrepreneurs can learn from his experience. His responses were edited for clarity.

How did you know it was time to sell your company?

Rahal: As founders, our focus was always to build a great business. But in the back of our minds, we always knew if we did everything right that the company would be attractive, and someone would want to buy it.

We were very intentional. Our decision-making process involved asking ourselves lots of questions: Who is going to pay us what we think the business is worth? Who is going to provide the best operating model? Who are we aligned with from a values and culture perspective? Through that process, we realized Kellogg's was the best fit.

How long did the whole process take?

Rahal: Nine months.

How do you recommend entrepreneurs go about determining the right price for their company?

Rahal: It's not just about the number. Understand the terms of the deal, like escrow and clawbacks. [Editor's note: Escrow refers to the process of asking a third party to hold an asset until both parties have fulfilled their contractual agreements; a clawback is money already paid to an employee or vendor that may be returned, occasionally with a penalty.] 

The second thing is understanding that it's a marketplace. You want to create a market. You're selling a company and you want to generate demand for it. If you're going to one potential buyer, it's harder to negotiate. But if you're going to multiple buyers that would be a good fit, the potential for competition can buoy the price. 

And the truth is all that matters. Be honest; that's everything. I've found that people perfume the pig--that is, they will make it smell and look good. But in reality, all that perfumery gets discovered. For example, the opening page of our deck included a section called "Here's why we want to sell." Everyone wants to know that, and usually, people hide it, or they make up some bullsh*t answer, and save it until the end. We were upfront.

Be very thoughtful about everything, because the truth is going to come out at some point, and there's nothing wrong with it.

Who would you advise entrepreneurs weighing a sale have on their team? 

Rahal: A good investment banker--the broker who facilitates the auction of the process--is No. 1. Also, talk to someone who's gone through the experience, like a founder who has sold a company. This person could provide great context, and that experience can help you think through it.

You should be really thoughtful and take the time to think through the pros and cons. Then take a step back and ask: What do I want to do with my career? Especially if you're CEO. As CEO, it's your job to do what's in the best interest of the stakeholders of the business--the shareholders, customers, vendors, suppliers, and consumers. This is a really important decision, and it's not urgent at all. It deserves a lot of time and thought.

What else should entrepreneurs know if they are thinking about selling their companies?

Rahal: I think the most important thing is just to keep focused on your business and build a great business. Don't over-engineer an exit. If you're a buyer of a company, you just want to buy a great business, and you don't want any surprises. The better you build a business, the more marketable it will be and the better transaction you'll get.

You don't want your growth strategy--whether to open up another store or launch another product line--to solely be in the service of trying to get a bigger valuation. It needs to be in the service of your customers and actual business. Don't cut corners or stretch something because you think it's going to add a zero to something.

Published on: May 20, 2019