“Damn the torpedoes, full speed ahead!!”  There may not be a more iconic statement of the American can-do spirit. Bellowed by Admiral David Farragut on August 5, 1864 while exhorting Union naval forces in the attack on Mobile Bay, his words still resonate nearly 160 years later as a unique national expression of resolve in the face of a challenge. Today, it’s not surprising to hear this catchphrase—or some likeness of it—in sports, politics, and, most especially, the business world. After all, highly successful people achieve great things with smarts, pluck, and sheer force of will.     

In nearly 25 years as a mergers and acquisitions (M&A) advisor, I met a lot of those people and never failed to marvel at their vision, their leadership, their ingenuity, their mettle and moxie. Farragut’s spirit was alive and well within their thriving businesses. Yet, when it came time to sell their company, some of those same entrepreneurs failed to get a deal done. How could that be? Where was the disconnect? What went wrong?

Put simply, many of those owners misunderstood Farragut’s achievement. They focused on his bravado without grasping the fundamental strengths that gave voice to his famous battle cry. As it turns out, Admiral Farragut’s victory can teach us a great deal and, for business owners contemplating a sale, five key lessons stand out:

Lesson One: Experience Matters. As Farragut sailed into Mobile Bay, he came with over 50 years of naval service including substantial combat experience. His opponent, Admiral Franklin Buchanan, was no less accomplished. He had helped found the United States Naval Academy, served as its first Superintendent, and commanded in significant combat operations over his own distinguished, five-decade career. Put simply, the commanders were supremely well-matched with real life expertise in naval warfare.   

Most business owners are not similarly “battle tested” for their business transition. Too many wrongly suppose that the knowledge, skills, and leadership they leveraged to build a great business will serve them well when they sell that business. As they proceed with a once-in-a-lifetime transaction, that belief can put them at a significant disadvantage to an experienced acquirer. For many business owners, acknowledging what they don’t know and getting help is often more important than what they do know.

Lesson Two: Hope Isn’t a Business Strategy. When the attack began, Farragut had a decided advantage with a fleet of 18 vessels and 5,500 men going up against a significantly smaller Confederate force of four vessels and 1,500 men. Importantly, intelligence reports gave Farragut a clear-eyed understanding of this mismatch and how to exploit it.  His actions were rooted in reality.   

Some business owners fail to follow this example. They trumpet the strengths of their business while ignoring the buyer’s need to understand the whole business. Ultimately, smart business owners recognize that hyping positives and hoping that a buyer will miss the negatives doesn’t work. They approach buyers with a comprehensive, integrated business case that is supported by their numbers, highlights strengths, and addresses any weaknesses. They don’t fool themselves into thinking they can fool a buyer.       

Lesson Three: Pick the Right Fights. Because Mobile Bay was vital to Southern supply lines, the defensive plan was extensive. It included Buchanan’s ships, three strategically positioned forts, and a naval minefield (the “torpedoes”) laid out to funnel ships toward the largest fort. Facing tough choices, Farragut bet that the torpedoes would be ineffective after being submerged for so long. He ordered his two gunboats and twelve wooden ships to proceed through the minefield and engage the Confederate fleet while remaining largely clear of the forts and their 90 cannons. In just three hours, the Union fleet had complete command of the waters in Mobile Bay without taking meaningful damage from the forts—a resounding proof that the daring minefield run had been the right fight.

When it comes to transitioning their business, too many entrepreneurs are tempted to pick the wrong fights. To be clear, selling a company is a demanding process requiring hundreds of choices. Some of those choices involve concepts like working capital adjustments, escrows, indemnifications, and quality of earnings processes that are totally new to a business owner, but well-established in the M&A market. They are transactional equivalents of the Mobile Bay forts, so it’s important to recognize them and maneuver prudently. Just like forts, market standards may incur some “battle damage,” but they won’t go away. If there is any doubt, schedule a trip to Mobile and visit Fort Morgan and Fort Gaines. Their continuing existence demonstrates that, with plenty of winnable fights that can drive real value, fighting time-honored transaction norms is a losing proposition.

Lesson Four: Build—and Trust—a Team. Although Farragut avoided the forts, he didn’t ignore them. Two days earlier, Farragut’s squadron landed 1,500 soldiers who were tasked with cutting off Fort Gaines and eliminating its ability to reach Confederate commanders as the battle began. To further thwart enemy response, Farragut heeded General Edward Canby’s advice by placing an army signal corpsman aboard each attacking ship. This decision not only coordinated inter-service actions it yielded an unexpected benefit; Union naval commanders used the Army’s superior signal methods to expedite their orders to the fleet throughout the fight. Undoubtedly, teamwork and trust in expertise truly helped carry the day.

If business owners achieve success primarily as action-oriented “doers,” Farragut qualifies as a world-class entrepreneur because his leadership genius extended well beyond battle day actions and fortitude. He opened himself to the possibility of a great victory by jointly developing an integrated battle plan, by listening to General Canby, and by trusting his commanders who used their delegated authority to harness the ideas and skills of army signal corpsmen in the heat of battle. In short, Farragut got the right people for the job and let them execute. Unfortunately, micromanaging business owners who don’t trust expertise abound. They can learn much from Farragut’s leadership at Mobile Bay.    

Lesson Five: There Will Be Costs. Almost as soon as the battle started, a torpedo sank the Tecumseh, one of four Union ironclad monitors and one of the largest ships in the engagement. Despite this significant loss, Farragut resolutely pressed on, embodying what President Eisenhower would later say about battle leadership, “plans are worthless, but planning is everything.” As Farragut issued his famous order, he understood that the plan had changed, but he also accepted a fundamental truth of warfare—there is no such thing as a costless battle.

In the “battle” of deal negotiations, too many business owners miss this key lesson. It’s understandable because they are used to taking risks. I’ve seen owners willing to risk $100 million deals over truly minor negotiating points. That may not make sense to an outside observer, but sometimes entrepreneurs are so wed to their vision of how things should work that any loss is unacceptable. They should tread carefully. In that mindset, it’s easy to lose sight of the bigger picture and forget the old truism that “perfect is the enemy of good.”           

Whether on the battlefield or in the boardroom, a fighting spirit is a double-edged sword. Used wisely, it can gain great victories. Used rashly, it can invite terrible defeats. Some time ago, an owner “damned the torpedoes” while willfully ignoring each of Admiral Farragut’s lessons in an attempt to make a very good deal even better. To his dismay, the buyer backed away.  When the owner decided to sell a few years later, the same buyer was the prevailing bidder….at a discount to their original offer. As the owner left the closing table with fewer dollars, one has to wonder what was going through his mind. If he was a student of history, he may have heard echoes of Sir Winston Churchill’s warning:

“Those that fail to learn from history are doomed to repeat it.”

 

M&T Emerald Advisory Services and Wilmington Trust Emerald Advisory Services are registered service marks and refer to this service provided by Wilmington Trust, N.A., a member of the M&T family.

The information provided herein is for informational purposes only and is not intended as a recommendation or determination that any tax, estate planning, or investment strategy is suitable for a specific investor. Note that tax, estate planning, investing, and financial strategies require consideration for suitability of the individual, business, or investor, and there is no assurance that any strategy will be successful.

Wilmington Trust is not authorized to and does not provide legal, accounting, or tax advice. Our advice and recommendations provided to you are illustrative only and subject to the opinions and advice of your own attorney, tax advisor, or other professional advisor.

The information in this article has been obtained from sources believed to be reliable, but its accuracy and completeness are not guaranteed. The opinions, estimates, and projections constitute the judgment of Wilmington Trust and are subject to change without notice.