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.

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.

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.

"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.