Eric Sink: Things I Learned Selling My Business To Microsoft

Eric Sink is the author of Eric Sink on the Business of Software and Version Control by example. He is the founder of SourceGear, a source control system vendor. He also founded the AbiWord project, and lead the team that built the SpyGlass browser, now known as “Internet Explorer”. He’s the first to have coined the term “Micro-ISV”. This is his talk about selling Teamprise to Microsoft in 2010 at BoS USA 2010.

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Transcript

Joel Spolsky: Our next speaker, most you will know him well from his blog, from his company, Source Gear, from being “not a legend”…I don’t even know what that means…and for inventing the term MicroISV. Ladies and gentlemen, please welcome, Mr. Eric Sink! [Applause]

Eric Sink: Thank you. Can everybody hear me? All right. So, they said everybody else was doing the wearable mic, I like the hand-held. I’m used to it. I don’t know why. I may have to fiddle with my hands a little bit to do this stuff though. So, I want to check and make sure this works. All right. Now this goes back.

The AV guys told me that no one has used the laser pointer? How can that be true? I’m going to be doing this the whole time.

So, yeah, I want to talk about some of the things I learned last year when we sold a division of our company to Microsoft. And, I have to apologize right up front, there’s a number of things that I can’t say. You know, you sign all these papers saying, “We’ll never tell anyone anything.” But, you know, there’s some lessons learned that I can share. I hope they’re interesting.

Give you a little background, Microsoft sells a bing A-line suite they call, “Team Foundation Server”. And, like most of their products, they did a Windows version only.

And we came along, and we thought, “Why don’t we do integration for the Eclipse and the Mac and Linux and the IBM Mainframe and all the kinds of stuff like that. So we did that. We did that under a business name called “Teamprise”. And, we actually never planned to sell it to Microsoft. Partially because, when we started the company, they promised us they would never buy it. And I guess their customers kind of trusted them and they kind of changed their mind. And, so, after a long discussion last year, we made the sale.

And I want to talk to you a little bit about what I learned doing it. I’m going to mix in some stuff that way, not everything is specific to Microsoft. When you’ve sold a small company to a big company, it’s like, I find myself a member of a new club, and I can talk to other people in the club who have done it. And it turns out that all big companies do this the same way. So we would share, swap stories a little bit and people would be like, “So did this happen to you?” And I’d go, “Yeah. This was the same thing.” So, there’s an awful lot of commonality here, in whether you’re dealing with Microsoft or another company that size. So, the first thing is really obvious: and that is, you’re really outnumbered. Now, I should point out, I did not ask my graphics guy to draw the Microsoft people as zombies. He just did.[Laughter] Go figure what means.

So, you know you’re outnumbered and, yet, the impact, felt impact, of being outnumbered is really spooky. The very first meeting we had with these people was in a conference room and it was just Corey and Eric. Our company is wholly owned and run by two guys: me and Corey. And there were 14 Microsoft people in the room. And I made a joke about it, about how outnumbered we were. And they said, “Oh, it’s not just this 14. There’s a whole bunch more people working this deal. This is just all that would fit in the room. And at first I thought, “He’s just talking. He’s just trying to scare me. And by the end of the deal, I realized, “He’s right! There’s dozens of people involved in doing a tiny, little acquisition like Teamprise.” It takes dozens of people on their side to do it. It’s amazing. I don’t remember half of their names.

The really funny thing is that some of them have completely indistinguishable job functions. This, I wasn’t prepared for at all. You’d meet somebody and you say, “What do you do? What’s your part at Microsoft?” “Well, I’m from the HR team and I’m the guy who makes sure that all the new employees that are coming in from your company have the right hair color.” And you meet another guy, and they tell you the exact same thing. And you go, “You know, he told me that’s his job. What’s the difference?” And sometimes, they’ll admit to you, “Well, I do curly hair and he does straight.” [Laughter] And then, sometimes, they’ll just look at you and say, “The complexities are just far too difficult for a small-company mind like yours to understand, so don’t worry about it.” Anyway, dozens of people, you have no idea what’s going on. There’s also this incredible structure that’s always imbalanced. Like I said, it’s just Corey and Eric. We have no investors. We have no debt. We don’t answer to anybody. If they pushed really hard, they’d find out we need our wives’ permission to do anything.[Laughter] They know exactly who they have to convince, because the org. chart is really simple.

If you can convince Eric and Corey to do the deal, it’s done. Now, based on my experience with Microsoft, during this negotiation, this is a picture of their org. chart. [Laughter]

[Shows picture of chaos]

At no point, during the deal do you have a freaking clue who’s in charge. Nobody on their side is in charge. You are never talking to the decision-maker. And, by the end of it, I’m not sure there was one. So, you’ve all seen The Matrix? 1997? Most of you probably repressed the fact that they made two sequels to that. They were really awful. I try to forget about them. But, sometimes, I picture the decision-maker at Microsoft like, “The Architect”, that dude in the room with the white beard. He’s really like just a renegade program. I don’t know. I don’t know what, who’s in charge at Microsoft and I never met whoever made the decision.

There’s also this thing about indirection. When you’re talking to somebody at a big company during a deal, you are NEVER talking to a person who’s allowed to do anything. You are never talking to somebody who’s speaking for himself. They always make a decision, and then send a proxy out. So, if you don’t like what they’re saying, “Well, Joe told me this. I can’t do anything about it.” There’s always this level of indirection buffering you from reality, and you’re never, ever talking to anybody real. I have to believe that’s intentional. They never said so, but I have to believe that.

They will designate a primary point-of-contact for you. Let’s call him, “Fred”. The primary point of contact will be this business guy. He works in the M&A group, or, in the case of Microsoft, one of their 75 M&A groups. He’s a trained negotiator. He’s not a product person. And he will be the primary person who you talk to as you work through the deal. I’ll talk a little bit more about “Fred” later.

OK. So, let’s talk about lawyers. [shows picture of dead body lying in road] Anybody know the difference between a dead lawyer in the road and a dead skunk in the road? Skid marks in front of the skunk, yes. [Laughter]

Lawyers are a big part of a deal like this. About the only advice I can give is: make sure your attorney is expensive enough. I don’t know how else to measure an attorney’s capabilities other than to say, he needs to have done this kind of deal before. Intellectual property is a big issue. You want somebody with some experience in software. But lawyers, for me, are like a completely different breed. I don’t really understand them. Our lawyer, I think we got a good one. He’s actually really annoying. I decided that obnoxiousness is not the worst quality in an attorney, so we went with that. His hourly rate is somewhere north of $500/hour. I have to assume that that’s the ballpark you need to look for if you’re trying to sell a small company to a big company is get somebody who will charge you $500/hour. More to the point: get someone who routinely charges $500/hour. We weren’t sure we were talking to the right guy until he told us that, simultaneously with our deal, he was handling the sale of the Chicago Sun Times. So, I kind of felt good about that because that was a little bigger deal than ours.

Lesson learned here: one of the things that we screwed up on, get more than one lawyer.

Or, more to the point, make sure your lawyer is bringing in associates. Ours turned out to be a horrible bottleneck. You don’t want your deal…I mean, you don’t want to spend your time on your deal waiting on the other side because they move like a glacier and you move really fast. You never want your deal waiting on your lawyer. That really sucks. And that happened to us. One of the first things our lawyer said was, “Well, I want to keep the legal fees down for you guys. You’re a small company, I don’t want to charge you too much. So I’m not going to use any associates. I’ll just handle it.” Yeah, it would have been a lot better if he had dragged a few associates in, because some of the stuff, no matter what the rate is, I just wish that we had somebody, one of his people, involved a little more often.

Something that I learned during the deal that I never knew anything about, is what a “data room” is. I’ve never seen this in any M&A books, so I’m just going to explain it, because I think it’s kind of cool. In the olden days, the way an M&A job was done, when a company’s buying another company, there was this obligation to disclose a bunch of stuff. And that disclosure is handled really carefully. And the way they always did it, is with an actual data room. It was a physical room, guard at the door, sign-in sheet, and everybody who goes in and out is logged. The company that puts things into the room gets, like, certificates, “You put this in the room.”, so you can prove that you actually disclosed it. And you go to a company that specializes in doing these data rooms. In this case, the company that we use is a company called, “Merrill Corporation”. It’s actually not Merrill Lynch. Anyway, they do data rooms. And that’s mostly what they do. Nowadays, what Merrill does is what’s called a “virtual date room”, which is an FTP site with a log file. And the rumor is they charge about $35,000 for this service. So, go to www.merrillcorporation.com, I believe it is, and it’s a fascinating little business. Actually, our lawyer told us that our deal was…what did he say…”Yours is on the low end of deals big enough to use a data room.” You know, really, really small deals don’t necessarily always use one, it’s kind of a formality. That’s another criteria for looking for a lawyer: find the lawyer who has done a deal with a real data room, instead of a virtual one, because that means he’s been doing it for quite awhile.

So, anyway, when you do your deal, you are required to do all these disclosures. This is another thing I really didn’t quite understand before we did the deal: the paperwork at the end of the deal will say, “I have disclosed everything to Microsoft that Microsoft might need to know in order to evaluate this deal.” You have to have disclosed everything. You can’t keep any secrets. One of the things that was really frustrating about it was that we had to do it multiple times. So I just say that to prepare you, if you ever go into a deal like this, because I got really frustrated about it. We did the preliminary due diligence, you know, that room with 14 people in a conference room, they called that “preliminary due diligence” and they grilled us all day. And we told them everything. Actually, they gave us a list of “Bring the following documents when you come”. So, we brought them a dead tree. And THEN they grilled us all day about the tree, and we gave them all of this information. Then, you enter this discussion period, where you’re exchanging e-mails for months and you give them all the same information again. But because of the way their org. chart works, and, in often cases, you’re giving it to different people at Microsoft, and so, you just have to do it again. And then you start what’s called the “due diligence” process. The first thing your lawyer tells you is, “Nothing you’ve said to them so far counts. You were required to give them all of this information and we have to assume that you’ve given them nothing, to date. So absolutely everything you’ve told them, has to retold to them, but now more officially, in an FTP site, with a log file. So, you end up doing it all three times, at best.

During the due diligence process, another thing that I learned is…I am routinely careful about intellectual property issues. I understand open source licenses. I know the difference between a copyright and a trademark, and things like that. I mean, I feel like, for not being a lawyer in IP, I know an awful lot about IP and I’m very careful about it. I was not ever anywhere near careful enough for this deal. It’s really kind of spooky. First of all, they want legal assignments from everyone who ever breathed on the code. It’s like, everyone who has ever worked at the company is going to have to sign a piece of paper saying, “if by chance, I did anything on the Teamprise work, or anything that I ever did got copied and pasted into the Teamprise code, I assign rights to Microsoft.” And it gets really silly.

We have like tech writers and things and secretaries and accountants and everybody had to sign something. Then, during the due diligence process, most companies and Microsoft did, they will have a contractor review the code for them. And, you know, I’m thinking, “Oh, great! They’ll get some dumb contractor to review the code and they’ll, you know, there won’t be any problems. They got a contractor who was smart. I mean, they crawled through everything, every single line of code. We had already made a practice of everytime we ever used anything open source, we properly attributed the license and the code, we keep a list. They found two or three things that we had missed. I mean, it was wild. So, be really, really thorough about the way that you do your IP, if you’ve ever think you might sell that IP to a big company because it’s spooky how much work they do.

Just as an example, the whole process ground to a halt one day. I came in in the morning and a rumor had floated around that a piece of code that we owned that we got through a contractor…there was a rumor that that contractor might have used a university computer to do his work. And that freaked out everybody, because not only do they wants assignments for anyone who breathed on the code, they want to know that every piece of hardware used to write the code was owned by us, or a contractor. And, so, they freaked out. They were like, some university could have claims on this code. Now, it turned out to be no big issue at all, but that’s the kind of thing that comes up that I was fairly unprepared for. So, as I said, you have this obligation to disclose and in tension with that, you will have the fact that this is a negotiation, and you will constantly be asking yourself, they’re asking, “Do you really need this information, or are they asking for it because it will help from a negotiation position?” The answer to that is that you won’t know, I didn’t. Your attorney should know, if you’ve got a great attorney.

Unfortunately, we got our attorney involved after the preliminary due diligence process, so we had kind of, already, pretty much lifted up our skirt and shown them everything by the time that he, the attorney, was involved. So by default, you end up having to give them everything anyway, even if it hurts your negotiation position, because it might be information they need to evaluate the deal and you can’t keep any secrets. And, anyway, strange set of circumstances that I never thought about. Ok. So, I have a copy here of the deal between Southwest and AirTran last week. I don’t know if anybody saw that in the news. This is the complete agreement. I throw this in because the next thing that I think I want to hammer on is that a small company selling to a big company will focus on “the number”. You tend to think of it as, “How much money am I getting?” And it turns out that you need to think of it as a far more complex situation than that.

There’s a whole more to the deal than the number. In our case, the final agreement was way over 100 pages long. And every, single aspect of that 150-page document, or whatever it was, is negotiated and all of the details end up becoming your deal. They’re not, it’s not all just a number. It’s like, “Ok. We settle on the number. Now we need to argue about everything else.” What is “everything else”? I could fill five slides with this, but I just threw in some. I mean, everything from relocation to staff transistion, you know, the escrow timing and amount, legal provisions that your lawyer will want to argue with, tax treatment, transistion services, which means after the deal, it’s likely that the company buying your stuff wants you to continue doing some things because they’re not quite ready to own it. So they own it, but they can’t manage it, so they need transistion services. All that is negotiated, it’s crazy. Definitely go into any kind of situation like this with believing that it’s way more than just a number.

Ok, so, a little digression here. Those of you who have either a significant other, or a friend, or parents, anything like that…healthy relationships. Healthy Relationships 101: don’t bottle up your emotions and don’t leave unresolved conflicts. Really helpful stuff, you know, I’m 42 and it took me a long time to learn some of this stuff. I’ve done plenty of screwups along the way. And, you know, it’s interesting, eventually you come to an understanding. But regardless of what type of relationship it is, it functions best with lots and lots of honest and forthright communication. Healthy Negotiation 101 is just shut up. So, you will bring your habits about relationships into a negotiation, and this is not a relationship, it’s a game. And if you bring the tendency to want to express your feelings, in a healthy way, and to get closure on every little detail, you will kill the deal. You absolutely cannot do that. This was one of the bigger struggles for me and we, my partner and I as well as a third guy, our VP of sales, was in the loop on the discussions and every one of us, at one point or another, wanted to call Microsoft and vent about something, or explain something. And, it always comes down to, you’ve got to ask yourself, “Am I saying this just to make myself feel better? Is this about expressing emotions? Or is this really going to help the discussion move the way I want?”

You bring bad habits in. So, one of the biggest things that I found during a discussion like this is just the importance of managing your emotions. So, a little self-disclosure, you know how, every now and then, you see one of those news stories about a guy who was trapped on a mountain and one of his arms was pinned and so, he cut his arm off with a spoon and climbed down the mountain one-handed and rescued a wounded bear on the way, you know, that kind of thing? That’s not so much me.

The one time, my first and last time going to the blood bank to give blood, I passed out and 20 minutes later, I found myself in the director’s office of the blood bank and this young woman said, “Sir, Mr. Sink, I just want to say thank you for coming and being willing to give blood. I mean, we just, this is a big need and we appreciate your willingness, but please don’t ever come here again. And don’t think that we’ll forget about you after what happened, just don’t ever come again.” So, I mean, I’m not the toughest guy. I’ll just say that. A little toughness helps a lot in a negotiation like this and I definitely had my ups and downs with handling the emotions of this whole situation.

And, the truth is, we kind of got off easy. Our negotiation was tough. There were some situations that were incredibly uncomfortable for me. Microsoft’s negotiators were really aggressive. However, in talking with other people who had done similar deals, I ended up thankful that there wasn’t any actual nasty stuff. I mean, I would have to say, I can’t point to a time when they did something that I would call unethical.

Hearing stories from other people, it was like, you know, side deals are happening. I look back on it and it’s like, “Why didn’t Microsoft try to pay off Corey to try to influence me, or something like that?” Things like that happen in deals, but we didn’t have to experience that so I was thankful for that, even though it was still pretty tough. You know one of the ways that I know the emotions go up and down was really hard to handle is that, a year down, my perspective is really different. I mean, if you had asked me a year ago, when this was going on, I would have vented…because I couldn’t do it on the phone to Microsoft, so I had to vent to somebody and my wife got really sick of hearing it. It was a lot of ups and downs and a lot of the emotions will be directed at “Fred”. Fred is the primary person that will be talking to you and if there’s bad news to deliver, he’s the one to deliver it and you end up kind of hating him. You know, I know in general Fred is probably just a normal guy but, I mean, Fred got married during our deal and I remember thinking, “Who would marry a guy without a soul?” [Laughter]

So you constantly find yourself saying, “Man, if we just talked to the guys at the other side and explained our point of view, they would understand.” No, they won’t, so don’t think that. Another important thing is, in terms of managing your emotions, is realize that this will have a tendency to take over your life. In my case, I have to say, I think this is another thing that I just didn’t handle really well. The low point was the time that I took a phone call about the deal in church. And afterwards, you know, that afternoon, I’m like, “I talked to my lawyer in freaking church. I just can’t believe I did this.” But, yeah, I took a call in church. My phone rang once when I was in the vet office with my dog getting a check-up and I actually walked out on my dog and left her there. The final week of the deal I was at the office until 12:30 every night doing legal work and stuff like that. It takes over your life. And, fight to keep your life. One of the ways of handling your emotions is to take care of yourself, whatever that means for you.

Fight to keep the things that make you you, because that’s going to be important for you to keep control of things.

So, in general, the deal kind of crushed my life and there was a recovery time involved in just trying to get over it. So, remember when you’re talking to Fred, that this is probably a major life event for you. It is probably the first negotiation you’ve ever done of this size. All right, this thing just stopped working. Oh, there we go. Cool. All right. That’s good. I don’t think my laser pointer is working here. You know, in contrast, Fred does this all the time. You know, this is a once-in-a-lifetime event for you, maybe, and Fred’s done three of them in the last 12 months. Right after the deal is done, Fred has moved on. He’s off making the next company miserable. This is his job. He’s really good at it. He’s way better at it than you. So, just keep all that stuff in mind. This is what he does for a living. All right.

So, in July of 2006, in my blog, I wrote a blog post about negotiation and one of the things I said was that, “The one thing that really strengthens your position is the ability to walk away from the deal.” I got tons of negative feedback on that post. All kinds of people. I mean, a few people were like, “Hey, man, that’s really cool.” But a whole bunch of them said, “I don’t get it. I mean, how do you do the deal if you walk away from it. That can’t be right.” In some cases, I tried to explain it to them. I found out that it’s kind of like explaining C pointers to somebody. It just doesn’t work. I mostly could not explain it to the people who couldn’t quite get it. I’d try, and in some cases I’d say, “Well, you know, it’s the ability to walk away from the deal. You don’t actually walk away from the deal, because then the deal would be dead. But it’s that ability, you have to have the ability and you have to show it.” And it turned out I was so wrong about that part. You actually do have to walk away. And when I talk about the emotions going up and down, this was one of the worst parts. You get to a point where you have to walk away. You either have to accept the offer, and it’s not just a number, it’s a whole bunch of terms and some of those terms may be unacceptable to you. You either have to accept what’s coming from the other side, or you have to walk away. And when you walk away, the deal is dead. It’s not a good feeling.

So, and good luck trying to sleep right after you walked away from the deal. It’s hard to express, but it’s a nasty, nasty thing to have to do. One of the key questions is, how many times do you have to walk away? In our case, it was two. One of them, the deal was dead for almost two weeks – total radio silence for two weeks. Me laying on the pillow, you know, the deal is dead for two weeks. You know, like I said, I talked to some other people who have done this.

One guy – five times – walked away five times, and that’s spooky. If you walk away zero times, probably not enough. You know, I can’t say you should always walk away, that’s bad advice because you might be walking away from the only offer you ever got. But zero feels like too few, that’s conventional wisdom. And you’re always going to ask yourself, “Could we have gotten 20% more if we’d walked away one more time? You know, was two the wrong number? Should there have been three?” You’ll never know. So, it’s one of the hardest things about negotiation of this kind is the need to walk away. I’ve got a couple more slides after this, but I’m going to close this presentation somewhat the same way that the deal closed: anticlimatically and with somewhat of a whimper.

I always figured that the closing of the deal, would be this big thing. We would all fly to somewhere and there would be Dom Perignon and it would be big. And really what happened is that you turn over everything to your lawyer and the other side turns everything over to their lawyer and the lawyers do it. And you’re sitting around that morning, waiting for your deal to close and you have no involvement at all. We never met in person to close the deal. I just got a call from my lawyer saying, “It’s done.” And I was like, “If there were going to be champagne drinking where would it have happened? I don’t know. The deal’s just done.” And the worst part was, in our case, there was the signing and the closing of the deal and then we couldn’t tell anybody because the announcement wasn’t for two weeks later. So, the deal’s done, we can’t tell anybody about it, there’s no champagne and you just kind of sit around and say, “Now what?” I mean for six months, all I’ve done is legal work, and all kinds of stuff like that and, “Anybody remember what I was doing in March?” So, yeah, it just felt really anticlimatic when the deal was finally closed.

So, you know, just in case, I wanted to use all my extra time to start thinking about how I was real important, and a big-time software guy from the big city like Joel here in New York, life got me back to reality in small town real fast. The couple hours after the deal was done, the bank called and our wire transfer was received and they just called to confirm that. We thought it’d be appropriate to use a locally owned bank, you know, just trying to be good citizens of Champaign-Urbanna, so we chose a bank that was headquartered there. It was nice that they called and confirmed the wire transfer was received and an hour later, the Vice-President of the bank called again and said, “You can’t put this much money in my bank! What am I supposed to do with it?” I said, “Don’t you have a mattress somewhere you can just stick it under?” So, I learned a lot about banking.

Finally, the announcment happened. Microsoft generated 232 published articles about the deal. As I wrote on my blog, “I couldn’t get 232 articles without committing a felony.” We got one article: the Champaign-Urbanna News Gazette did a piece. We were below the fold; the top story that day was about a farmer who complained about the weather. You read a little farther down, you read about the largest corporation in the world buying a company in Champaign-Urbanna. That’s my story. Thanks for being here. [Applause] Joel?

Audience: Did you have any other offers or anybody else that you were talking to?

Eric Sink: I’m glad you have a mic so I don’t have to repeat the question. Is everybody going to have a mic?

Audience: I don’t know. I think everybody has a mic.

Eric Sink: Cool! No, we didn’t. I’m not going to say we never pretended like we did. But, no, this was primarily a discussion between us and Microsoft. We built this company to run it, not to sell it. And we were pretty unprepared to sell it.

Audience: Did they have any other companies they were thinking of buying instead of you?

Eric Sink: No idea.

Audience: They didn’t tell you they did. sp2: They didn’t tell us they did. No, as far as I know, there was nobody else, but there’s a lot of things they wouldn’t tell us about there. Sir?

Audience: How did they make contact with you and how did that go?

Eric Sink: The question was, “How did they make contact with you and how did that go?” Pretty informal, I mean, it wasn’t like one single overture. They contacted us and said, “Hey, we’re getting pressure from our customers, you know, it seems like you guys are well-regarded, but every now and then one of our customers says, ‘Please don’t tell me I have to go write a check to a company in central Illinois, you know? I mean, get serious, this should be part of your product.'” So they finally said, “Ok, we should have a talk.” So, that was it.

Audience: Can you tell us about the transistion process for the key staff?

Eric Sink: “How did it go for the transistion process for the key staff?” Three, was it three, of our best engineers became Microsofties. And that was, actually, one of the most painful parts of the deal. One of them, I had been working with him for…you know, he was a teenager when I hired him. Now he works at Microsoft and, yeah, that was kind of weird. But, they’re all still there. They all seem to like their jobs. My business partner, they wanted him. We loaned him to them for a year, and he’s almost on parole. For whatever reason, they never expressed any interest in me.

Audience: [Inaudible]

Eric Sink: “Did we use corporate finance services or who did we get advice from?” No, we didn’t. You know, considering we did this solo, like a couple of mavericks, it turned out ok. I don’t know who we would ask. The problem I have with anybody who is in that business, is that they’re all self-motivated. I would want to find somebody who, “Hey, can I just hire somebody that I can pay by the hour and no percentage of the deal”, and something like that. I don’t know enough about that landscape. It’s not like we called an M&A firm or anything like that. Pretty much, we just handled it ourselves and, once we got our attorney involved, of course we got some great advice from him.

Audience: So did you have a relationship with the product team inside Microsoft that your product connected with, and, if so, did that help or even hurt you?

Eric Sink: “Did we have a relationship with the Microsoft product team?” Sort of. Yes. Bear in mind that I, the Teamprise side of the company was the side of the company that I didn’t really work on. I mean, I was on the other side – probably why they didn’t ask me to come join them. Yeah, there was definitely some level of relationship between the Teamprise guys and the product team. I don’t think it hurt them. We also had some relationship between our guys and the Microsoft field people, so there were a number of contacts there. Strangely enough, the deal didn’t actually involve anybody that we already knew, most of the time, so it was mostly people that we did not know that we were talking to. Just the sheer size of Microsoft makes it work that way.

Audience: [Inaudible]

Eric Sink: The question is, “Do the code assignments actually have to say “Microsoft” or can it just be a more general code assignment?” Actually, let me think. I think there might have been only one case where we actually had to go back to an old employee and that was because we were missing a piece of paperwork. In general, if you have good assignments from your employees and contractors to your company, the acquiring company is likely to accept those. There was one case where we screwed up our paperwork and we didn’t have it and there was another case where, the way their lawyer said it was, “They wanted the belt and the suspenders on this one.” And so they asked us…we had to have another guy do an assignment…an assignment to Microsoft and an assignment to a fake European corporation, that we created to employee him and another assignment from the corporation to us and another assignment from the corporation to Microsoft, so it was five documents for one guy.

Audience: What if they say, I’m not doing this assignment?

Eric Sink: “What if an ex-employee says, ‘No, I’m not going to do that.’?” I don’t know.

Audience: Was it worth it?

Eric Sink: “Was it worth it?” Yeah. Yeah, I think so. I think, I think the deal worked out well for everyone involved. I can say that it worked out well for us and I feel guilty about the fact that I think it worked out well for Microsoft. Back here? Somebody had their hand up? Oh, asked and answered.

Audience: What one thing would you do differently?

Eric Sink: “What one thing would I do differently?” Probably would be get the attorney involved earlier, which is kind of a stupid mistake on my part, because I’ll be the first one advising entrepreneurs to use an attorney for real stuff when you need to. And, for whatever reason, when we got started with the discussion, me and Cory and John, the other guy, we were all like, “We don’t need an attorney yet.” I don’t think it hurt us, but it was a stupid mistake.

Audience: How did it work for Microsoft?

Eric Sink Who cares? No, I’m just…I think it’s working out well. The nature of the Teamprise business is that a lot of our customers are really big corporations who move really slowly. We just sent out a survey to some of those customers last week and asked them, “Hey, it’s been almost a year, how’s it going for you?” In general, nobody’s throwing anything at us, but not everybody’s made the switch yet. I mean you give somebody a, you give a major corporation a year’s notice to do something and that’s just not enough time. I think it’s working out well for everybody and I haven’t heard any nightmare stories. I have heard of a few problems where people were having trouble getting their license codes migrated and stuff like that, but this stuff gets resolved. I don’t think anybody got screwed in this.

Audience: Did think that they did anything with the product that you wouldn’t have done or, like, in a year, what have they done with the product?

Eric Sink: “What have they done, in a year, with the product?” Primarily, they just put their name on it and finished the release that we were doing. The guys that were working on, I think it was, Teamprise 4.1, I don’t remember the version number, these guys continued what they were doing, they just did it for Microsoft. And that’s really the big thing, is that Microsoft needed this product to show up on their product chart. They needed it to be on Microsoft’s hit list and they got what they wanted. They also got control of the product, but so far they haven’t done anything we wouldn’t have done. No, they threw, in addition to the three they got from us, I think they hired two more, something like that.

Audience: Did your employees, the three that transitioned to Microsoft, did they physically have to move to a Microsoft location or?

Eric Sink: The ones that became Microsoft employees, yes. They physically moved. They were gone in a day. It was something that Microsoft wanted. They wanted no transition time. After the deal was done and it was all very anticlimatic and I got the phone call, I just walked two doors down and said, “Dude, you don’t work here any more.”

We made the decision to keep our employees informed, to the level we could, throughout the deal. And Fred hated that we did that. They really, really didn’t want us sharing anything. But, for us, it would have been a major change of character for us to not be open with our employees about that kind of thing, so we did. We trusted them, we gave them the information. We told them to please keep it quiet and so they weren’t in the loop on every little detail, but we kept them informed.

Audience: So how has your life changed?

Eric Sink: “How has my life changed?” I don’t know how much I’d say it’s changed. It’s one of those questions that you should probably ask someone in my personal sphere. You know, “How has this guy changed? Is he a jerk now? Was he a jerk before?” I’ve probably bought a couple things that I probably wouldn’t have bought. Shortly after the deal, I bought about an $8,000 guitar. So, yeah, I didn’t go nuts. In general, I don’t know. I don’t feel like my life has changed dramatically, other than the fact that I get to write code again. There was six months during that deal that I accomplished basically, nothing other than the deal. Just kind of getting my life back in that regard has been good.

Audience: Was there any seen or unforseen consequences on the other side of the business?

Eric Sink: “Was there any seen or unforseen consequences on the other side of the business?” No, I don’t think so. I mean, there were a couple of cases of shared code, where we had some code that we used on both sides. We sold that to Microsoft and they granted us a license back. It wasn’t too hard. Green?

Audience: Is there, what advice would you give us if we thought that maybe a Microsoft or a big company called tomorrow? Like, what would you do to prepare for that event, if you suspected you might get a phone call?

Eric Sink: “How do you prepare for the event, if you expect you might get a phone call?” Well, some of the things that I said, some of the practical stuff like, really have your books in order, really have your IP in order, stuff like that. You know, if you honestly thought that you were going to get a phone call tomorrow, what would you do today? I’d say, go out and see a movie – it’ll be your last. Seriously, to go into a situation like this, if you’ve never done it before, it’s just all about getting a support system. Make sure that, particularly if you’re a wimp like me, make sure that you’ve got people you can talk to through the deal. Make sure that you’ve got lawyer support that you’re comfortable with. Make sure that you’ve got the resources you need for what could be a marathon. You know, this isn’t usually a sprint. It’s all about just making sure that the support system around you is solid.

Audience: You sound like you’re sad you lost this teenager guy you hired and then that turned into, “Yeah, you don’t work here.” It’s like you just signed over this person like you own them. And I’m wondering, if they didn’t want to do it, if they didn’t want to go to Microsoft, would that have been a deal-breaker?

Eric Sink: The question is, “Did I sell Shawn?” No. Yeah, just kind of told him he’s only three-fifths of a person. No, seriously, the key engineers could have vetoed the deal. These guys had a choice. That was a strange part of this, that we, you know, I said at the beginning, there’s only two people to convince? Well, in all honesty, they had to convince the developers that they wanted to come on. They had to make sweet enought offers to get them to come along. These guys had to see it as an opportunity. Everybody that we assigned to the project hates Microsoft. And now they work for Microsoft. We told them this in advance like, “It’s not going to be easy to convince these guys and they’re like, “Fly them out. We’ll convince them.” I’m like, “Yeah, I don’t think you know what you’re getting into.” So these guys came to me beforehand and said, “What should we do?” and I said, “Well, I don’t know how much I’m supposed to talk to you, but I don’t think I can get sued for saying, ‘Be honest.’ Tell them what you really think.” And they went out there and, man, there were some fireworks after that weekend. But, it worked out. But, no, we didn’t actually have the opportunity to just sell those guys. They had to buy into the deal.

Audience: How did you come up with a price? Did you use Corporate Finance advisers?

Eric Sink: “How did we come up with a price?” I’m trying to think if there’s anything I can say that won’t be painful. “Did we float the first number or did they?” We did.

Audience: What was it?

Eric Sink: I think we’re done here. [Laughter] [Applause]

Eric Sink

Eric Sink is the author of Eric Sink on the Business of Software and Version Control by example. He is the founder of SourceGear, a source control system vendor. He also founded the AbiWord project, and lead the team that built the SpyGlass browser, now known as “Internet Explorer”. He’s the first to have coined the term “Micro-ISV”. This is his talk about selling Teamprise to Microsoft in 2010.

More from Eric.

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