EXIT PLANNING: WHEN TO START?
If you’re wondering when you need to start thinking about exit planning, you might have some catching up to do. You should think about the exit from the very beginning. Start with the exit in mind. That doesn’t mean it’s a main topic in staff meetings or something you discuss with partners. It certainly doesn’t mean you put a “for sale” sign on your company. You aren’t publicly for sale. For the emerging company, aggressively shopping the company too early can be fatal.
Laying the Foundation for Successful M&A
When I say “start with the exit in mind,” I mean that, first, you work on building a great company (duh), because that solves a lot of potential problems down the road. It also means that you think very carefully about how you can become relevant to the logical acquirers in your market. Whether you sell before generating revenue or after crossing the hundred-million-dollar mark, strong relationships with buyers reduce friction and increase valuations.
Here’s why. When I get involved as an angel investor or board member, I ask the CEO to figure out the most likely acquirers and to develop a strategy for getting to know them. Emerging companies need the support of larger partners. They need to operate under the halo of big names. This isn’t just about M&A; it’s also important for growth. If you help a partner win a customer, they will come back around and help you. If your dev team works well with their dev team, seeds of future collaboration will be planted.
How to Plant the Seeds of Collaboration
So how do you go about creating beneficial relationships with potential acquirers? You figure out how these two companies—yours and theirs—can win together. You figure out how to add value and grow revenue. When you’re a startup, no one believes you are going to be around in two years, so if you can sell alongside Microsoft or another big name, frankly, you’re just going to win more.
Go to LinkedIn, go through your rolodex, and figure out who you are going to talk to and how to frame the business proposition. Then, find a way to broach the topic clearly and simply, for example: “”Hey, we have an idea about how we might do some work together, let’s talk about it.”
If you’re lazy and you don’t take a very effective approach, or you’ve gone to the wrong person, you will be gently redirected to the “partners” section of the website where initiatives go to die. But if you’re compelling and energized, and if you bring clear value, then you will get a meeting with the giant to discuss how you can clamber up on their shoulders.
Of course, there are also best practices for corporate hygiene and M&A preparedness, but those are topics for another day.