Prepare your exit on day one. Shepard, Pepperjam CTO, recently published an article in Entrepreneur magazine, called “Planning Your Exit Should Begin When You Launch”. In this article, Shepard discusses how important it is for entrepreneurs to start thinking about partnering early on with those they believe will ultimately want to buy their business.
Shepard bases a lot of his thinking on the fact that a large percentage of startups end in acquisitions. He notes that in 2017, “mergers and acquisitions accounted for 93 percent of the 809 ventures capital-backed exits, yielding a total of $45.6 billion in disclosed exit value.” He points out that, according to a Silicon Valley Bank survey, over 50% of all startups are “hoping for an acquisition”.
For this reason, entrepreneurs should be thinking about who may potentially acquire them from day one. Startups will want to build their companies in such a way that they will be attractive for acquisition at a later date.
To make your startup attractive for acquisition means thinking about such details as the ideal customer profile, ideal employee profile, and ideal buyer profile. This will help build the most attractive acquisition friendly company possible.
Building Successful Strategies
Startups must understand who their customer is and why their product is attractive to that customer. Having the right kind of employees with the right kind of training and know how is key. Hiring the best talent is certainly a way for a startup to make itself more attractive for a future acquisition.
Once you understand your customer and have the right team, focus in on companies that are most likely to be interested. Next, construct an “optimal buyer pool”. To find the optimal buyer pool, you need to find businesses that serve similar markets and then make sure that your product, as well as your business model, both address an overlooked need within the exiting customer base. Shepard believes that if you combine all of these variables together, your company will be more attractive for an acquisition.
Let Innovation Drive You
Another key point Shepard makes is that startups will want to provide products or services that potential buyers are currently not providing to their customers. He states that, “Disruptors should seek out companies that are truly driven by innovation. Perhaps those that have already established or partnered with innovative labs or accelerators.”
Startups need to understand where they could fit within a larger organization. Understanding this will help entrepreneurs make their company more acquisition friendly.