Editor's Eye on Baltimore: When to Sell - A Conversation with Greg Cangialosi, Former CEO of Blue Sky Factory

Posted July 21, 2011

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Greg Cangialosi

How do you know when to sell? What should your market look like? When is it too early, and of greater concern, when is it too late? How can you improve the odds that your value is recognized by suitors? I recently had lunch with Greg Cangialosi to explore his insights from the recent sale of his company, Blue Sky Factory.

How do you Know? So how do you know when it's time to sell? This is a question is on the minds of many entrepreneurs and it's one of the hardest to answer. Greg broke down his thinking for me.

Birth of an Industry. "Every market has cycles." What often happens is there is new technology that meets an existing need differently. For Blue Sky Factory, that was the use of email for marketing purposes. If that new technology gains market acceptance, a new industry is born. This isn't particularly a novel way of thinking, but what Greg underscored is that by watching not only his industry but that of other technologies, he sees about a ten year cycle where "new entrants and new models begin to fragment the market" and then the market goes through a maturation process.

Darwin Reigns. The initial effect of a maturing market, according to Greg, is "pricing pressures." "The game [becomes one] of how to differentiate."Having watched many entrepreneurs over the years, there are a limitless number of ways to think about how to differentiate your business from that of others. The approaches run from assuming that a slick marketing campaign will hide crappy products, to simply reacting to each threat to an existing client. Greg started Blue Sky Factory's differentiation by deciding which customer segment to focus on. He didn't want to be the low cost provider in any market, so "we set out to identify what service components we could offer as the mid-market continued to fragment." Simply put, "we differentiated on services."

The Revenue Chasm. As Blue Sky settled into executing their service based market offerings, Greg began to look at his competition differently. Rather than simply focus on service/product differentiation, Greg realized that his competition was fragmented by revenue level as well. "There were lots of businesses doing under $2M and a huge gap to those doing $15M, with few players in between." He suspected that to be able to truly compete, he needed to break out of the hoard of lower revenue companies. By breaking out, it also allowed him to think differently about the next stage in the evolution of his market. For this thinking, Greg started to listen to his clients differently.

Customer Needs. When Greg focused his conversations beyond gauging customer satisfaction of his current solution, he learned something interesting. Some of Greg's customers were talking about "a move toward integration of all marketing applications... a desire [to have marketing, sales and related] data flowing seamlessly in the enterprise." These customers, Greg recognized, "were heading to an integrated solution," which for the time being didn't exist. But the future was clear: single solution vendors were dead; the customer would reset the market. So, now what?

Darwin Redux. For Greg, his options were clear. His industry was on borrowed time under the existing "single solution" model, so one either raises money to build or buy an integrated solution, or one finds a platform in process of development and becomes a part of another's vision. Remember the myriad of under $2M revenue shops? From Greg's perspective, they have little play in such an industry consolidation. They're on the wrong side of the revenue chasm. So why did Greg pick "sell" over "raise" for Blue Sky Factory?

Kindred Spirits. Greg had to decide whether he wanted to increase his risk and fund his bet on how the market would consolidate, or whether the risk of executing in a consolidating market and changing model should be shifted to an acquirer. Greg picked the latter. While Greg had a valuation in mind, he instead focused on indentifying organizations that shared his vision on where the market was heading, a process that Greg calls "an alignment on market strategy." Greg felt that where the market vision was shared, his valuation had the best shot of being realized (he wasn't wrong). With WhatCounts, Greg was confident that they shared a common vision for an integrated product for the middle market, and Greg saw exactly "where Blue Sky Factory fit in both now and in the future." Neither side was stretching to make the fit appear to work.

10 Year Itch. This spring, while Greg was pulling together files for the due diligence process, he came across the initial filing for Blue Sky Factory's URL, dated March 23, 2001, the URL that started it all. He paused when he was that date, then he pulled out his letter of intent that cemented the business terms with WhatCounts. It was dated March 23, 2011. He had been a part of the email marketing business cycle for ten years to the day. When I asked Greg what was in store for the next ten years, he simply smiled. It will be interesting to see how long he will sit still and what ten year market he will ride next.

The Take Away. Greg is looking less stressed than I have seen him in recent months. But given my conversation last week with Charlie Maskell regarding the emotional side of selling a business, I was curious about Greg's take on the emotional component of selling a business. "It was every bit a roller coaster ride." Greg described it as living in three worlds at once. There is, first, thinking about "living in the future, after acquisition." Second, there is "keeping the company operating." And third, there is worrying about "Plan B", "what if the deal doesn't happen." One of Charlie's greatest concerns last week was not mentally selling the company before the wire hits. When I asked Greg about their performance as they headed into the sale, he complemented his team, "we had our best three sales months right before closing." "Our team nailed execution." When companies continue to execute, that momentum carries over to closing the deal. Running your company as if there is no sale is also the best "Plan B." While Greg spoke of "a line you hit when selling your business that is a point of no return," that line was much closer to when the wire hit his bank than I have seen before.

Greg can still be reached at: gregc@blueskyfactory.com

For comments about this article or thoughts on future conversations, let me know at: nfowler@rosenbergmartin.com

With more than 25 years experience in law and business, Newt Fowler advises many of the Greater Baltimore region's entrepreneurs and technology companies, guiding them through all aspects of business planning, technology commercialization, and M&A and financing transactions.