EVERY founder should plan with the exit in mind. Whether that’s getting acquired, merely successful, going public, or otherwise, most startups struggle to bring on board resources and capital because they never think through and communicate what the FUTURE means for everyone.
I don’t care if you want to get acquired or stay private, what matters is which of those two things you intend to do because each of those decisions, in particular among the many, are VERY different businesses and trajectories.
Without knowing this, how can you possibly get the right advisors? How can you conceivably attract a team of people who want to accomplish the same, if that accomplishment isn’t clear? And it needs to be, because some people just want a stable job, other people want to change the world, some want to raise capital and get crazy wealthy for the right… they aren’t the same goals.
What matters is the outcome. The mission and the conclusion.
You’re out, some day. Some day. Right? Some day, you’ll retire so no matter what, some day, you’re out. What does your out look like? When will you be satisfied?
“Never” is a completely fine answer. Some people work their entire lives because they work on their passion.
IPO is another great answer. Getting acquired is wonderful. So too is making $10,000,000… or even $1,000,000. Maybe the outcome is just getting paid well, or merely sufficiently.
Maybe the outcome is as clarified as only, “employing 1000 people.” That’s an awesome objective.
It actually doesn’t matter what it is but it has to be clearly clarified.
Why? Because it matters to others.
I’m sure you’ve noticed a lot of vitriol or strong opinions about raising money or bootstrapping.
Thing is, neither is right nor wrong nor better or worse (on the surface). They are both completely different ways in which to resource a business and what matters most to being able to succeed with either is actually a question of what it means for everyone not you.
For example, venture capital investors require an exit. An acquisition or IPO. Period.
If you don’t want to do that, the business can’t do that, or you just don’t think it’s possible, fine. Great even. Therefore, venture capital wouldn’t be a path to pursue.
What matters MOST (entirely really), to them is what’s in it for “them.” If you’re going to build a wonderfully successful business, make $20,000,000 a year, and employ 10 people. AWESOME, really awesome. But that then dictates WHO is interested in helping in every respect: as advisors, as employees, and as investors.
And it’s really valuable to appreciate that that isn’t a bad thing. That comment is directed at all the people who tend to get frustrated with Investors or argue that every advisor should help every business. Such expectations are unreasonable to others.
Some people want to own part of what you’re doing as a business. Some want to own part of what you’re doing as an investor. Those aren’t the same things. Some just want a job. Some want to help lead a successful company. Some want to save the world. Everyone is right to serve others in whatever manner suited to them 🙂
Begging the question, what will the outcome be? Because when you move on, as one way to look at it, or we decide that we’ve succeeded, we’re all going to need to know what that looks like. After all, we can’t work to get there if we don’t know where we’re going.
A good trick to figure this out?
1. Know the Market
The savviest founders have both broad and deep knowledge of their given market.
You’d track and monitor everything if you could. Wouldn’t you?? Knowing all the competitors, larger players, investors, and potential threats. Knowing their moves, media, and marketing.
Most founders think of doing this work to figure out what to do. What I want you to think about is how doing this work helps you see the future and the writing on the wall.
Perhaps shifting industry trends point to consolidation (as it is in payments or commerce) or perhaps it’s driving toward deconsonsolidation… is that a word? Whatever means opposite of consolidating, as it is with media.
You want to know that, and the implication even further in the future, if you’re going to not only build a business that can succeed in that, but one that is oriented to what that future will mean.
For example, knowing business valuations, and multiples, is really the only way you can think about where your investments in creating a valued business might steer you. You’d hate to miss the mark thinking you’d be happy to get acquired at $10,000,000 to find that nothing really gets acquired in your space for less than $50,000,000.
2. The Ooops
Just as the usually neglected work in raising capital is the due diligence and paperwork interested investors will go through, the usually neglected work when steering toward our outcome is the same: the right company type, the due diligence involved, the housekeeping and accounting, HR, the paperwork all in place as expected.
You can do it later, sure; my point is that what you’ll need to do it in order to accomplish that outcome will vary depending on your outcome. And it’s silly to at least not be aware of what it will take. Ooops.
The biggest Ooops of all? Having gone through a few exits, businesses tend to have crappy culture and communication in place around what’s happening. They do this, usually, to keep things under wraps as it’s happening but none of that prevents a company from STARTING OUT with everyone appreciating the goal.
Instead of what typically happens, one day, “hey everyone, so we’re getting acquired! Should be business as usual, for now…”
The anxiety, wondering whether they will have a job, hoping they’ll get some more money in the deal… that’s a reputation killer if just thrust on people.
Instead of that, build a culture and team that is excited for THAT to happen and is working toward accomplishing it so that when it does, it isn’t anxiety, it’s enthusiasm.
3. Hopefully clear from two, plan for due diligence
When and if you get to your finish line, the actual work begins.
The investor/buyer/PE firm/bank… whatever it is, will dig deeply into the business. Due diligence is the work that helps mitigate downside risk, and while I’ve never really explored it for acquisitions and exits, it’s not much different from what you’ll go through with investors when raising capital.
Here’s the trick, due diligence works both ways! There are some awful people who will mislead you, propose terrible terms, give bad advise, and more. Some don’t know better and some absolutely do; regardless, the point is it happens. You want to protect your future and know/plan to look into THEM.
The entire process is a massive focus of people, resources, and transparency. Be prepared, and be wary of interested parties who won’t share in kind.
4. Maximize value. No?
This is where and why you’ll often see me sharing perspective on the notions of customers, revenue, and profitability in startups. It’s not that those things are bad or wrong; the point of view to appreciate is that those things don’t necessarily actually mean VALUE and certainly don’t always mean traction or evidence of having figured it out.
Those are cash flowing businesses and while cash flow is ABSOLUTELY King (you have to pay the bills!), it’s not the same thing as value.
Value maximization includes things like that competitive analysis and knowing how you won’t just fail because of competitors, despite having customers. Value is establishing a beach head market share, a piece you own in which others will find value – that can be a brand, an audience, intellectual property, a process, a technology, or yes, customers and revenue. The point is that it’s established.
And more importantly, this value has to be sustainable. That future for you has a more distant future in whichever direction the business goes and if *that* future will die because *they* can’t sustain it, the value of your venture is essentially ZERO.
When entrepreneurs build companies, they often fail at the start without knowing it: starting up with the exit in mind.