Don’t Forget to Plan Your Exit
The Single Most Important Thing To Do If You Want To Be Acquired, and Nine More That Wouldn’t Hurt
Simple question for you.
What are your ambitions for your business?
Simple, right? Why then do so many entrepreneurs and leaders of growing business have such a tough time answering it? It’s always the first question I ask of the leaders I work with. Most often the response feels as though it hasn’t been thought out; never even been considered. I usually get “I want to grow the business.” Of course you do, I get that, but saying you want to “grow” doesn’t tell me why you want to grow?
When I peel back the platitudes to get to the real underlying ambitions for growth, many are reluctant to be point-blank about positioning for acquisition. The reasons all seem to come back to this notion that if you build a good business acquisition will just sort of happen. While that is true, it does not mean that you want it or are preparing for it. The way in which you build, run, brand, monetize, and communicate your business goals has a lot to do with how likely you are to be acquired at the best possible valuation. Yet, many entrepreneurs feel as though having an ambition to be acquired compromises other goals. Not true! Creating value and a great company is something you have to do in any scenario of success. But fine tuning the company to get the most out of an acquisition means that you have to be deliberate and build that ambition into your strategy.
Which is why the single most important thing to do if you are planning to pursue a potential acquisition is to be transparent about it and build a company strategy that supports your ambition.
Spelling out your ambitions for an exit requires transparency and lots of preparation if you want to maximize the value of your business.
Just to be clear, acquisition is a noble and valuable strategy–for you, your people, your customers, and for the economy. Nearly every innovation metric, from patents per capita to speed to market, points to the fact that small businesses have a dramatic advantage over larger businesses. Innovation needs to be planted first in the protected space of uncluttered minds that are devoid of the many good and rational reasons why the new idea won’t work.
Acquisition of these business fuel a global economy of behemoths that are developing an insatiable appetite for acquired innovation. According to a recent report by EY (formerly Ernst & Young) 48% of executives and large companies (wallowing in cash reserves) expect to pursue disruptive acquisition deals. At the same time we’re seeing the emergence of a perfect storm of low cost cloud-based crowdsourcing and crowdfunding spurring new ventures. The long-term trajectory for M&A is clearly favoring paying a premium for innovative startups; simply put, for large companies it’s better to buy innovation than to build it, and for small companies it’s easier than ever to innovate.
So, what can you do to improve the chances of being acquired and making it the best possible outcome for yourself, your business, and your people? Here’s a list of the most important things to do from my own experience.
1–Plan for it, be transparent about it, and build a company strategy that supports your ambition.
2–Conduct a yearly audit of your books.
I’m starting with this because it’s table stakes. If you’re not engaging an independent CPA firm to conduct a yearly audit you will start off at a distinct disadvantage. Make no mistake about it, when you enter into talks with a potential acquirer it becomes all about the numbers. If you can’t talk with confidence about your financial situation and then back it up with consistent and reliable audit reports you will end up going down a rat hole of diminishing valuations and worse yet, give the impressions that you are a poor and ill-informed operator.
3–Prepare your culture.
Share your ambitions with your people. This one is tough for many entrepreneurs who feel as though sharing that an exit is part of their ambition is somehow selling short, being selfish. Not so. Look into how you can establish a shared success scenario; articulate the benefits of being able to scale ideas, products, and services through the platform of an acquisition. Don’t keep it in the closet, because people can’t support an ambition they do not know.
Founders don’t often last long after an acquisition. It’s not your mindset. My own experience after being acquired was that I went through a year of euphoria, a year of self-doubt, and a year of utter misery. I had prepared my company and my team but I had not prepared myself. I recovered (the topic of another post!) but I would have been so much happier if I had thought through what it would mean to me to spend three years working for someone else and navigating the politics of a multi-billion dollar business.
5–Be ready to deal with your customers.
Your customers are the near-term future of your revenue stream and the ones who can best attest to the value you are delivering. This is a touchy and sometimes treacherous situation. Customers don’t like acquisitions; they introduce risk and uncertainty. Be ready to explain to your best customers the why and the how. Rationalize the benefits for them. Expect that you’ll need to make personal commitments to stick around to make sure that they are treated well.
6–Develop the right Board of Directors and advisors.
Create a board of directors and select them wisely to reflect the types of connections to companies that you consider potential acquirers. Reach out to and participate in as many events as possible that are geared towards M&A. Talk to whomever you can get to listen to you about your value proposition; angels, VC, bankers, mentors. This isn’t meant to be an ongoing pitchfest to sell but rather a means to relentlessly refine your positioning to appeal to the right acquirer when the time comes.
7–Show sustained growth.
This one I just can’t stress enough. The first time we made the Inc 500 list acquirers came out of the woodwork . We were rather dumbfounded by it. Growth illustrates the ultimate empirical measure of success. If you’re growing then you’re doing something right. And, seriously, getting on the Inc. 500 or Inc. 5000 opens doors you didn’t even know were there.
8–Invest in Marketing and your brand.
One of the things that differs pretty significantly when it comes to growing a lifestyle strategy vs. an exit strategy is the degree to which you need to reinvest in your marketing efforts to create greater visibility for your brand and your products/services. To find out more take a look at the article I wrote about creating a footprint larger than your shoe size.
This is why you’re being acquired rather than being replicated by an acquirer. Detail your methods and the investment you make in order to innovate. Be specific, show how you’ve done it in the past, create a track record of unassailable success in innovation, be deliberate and mechanical in how you describe your innovation process.
10–Get a Mentor who’s been there before.
I so wish that I had done this. I had investment bankers I worked with but they had their own agenda. My advisors hadn’t been this route before, and I certainly hadn’t. A little guidance would have gone a long way to prep me. In large part that’s why I’m so willing to now do this for others and, in no small part, why I’m writing this!
This article was originally published on Inc.
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Tom Koulopoulos is the author of 10 books and founder of the Delphi Group, a 25-year-old Boston-based think tank and a past Inc. 500 company that focuses on innovation and the future of business. He tweets from @tkspeaks.
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