3 Factors Potential Acquirers Consider Before Buying a Startup
Like a broken record, entrepreneurs love to talk about their tangible achievements - their impressive tech-stack, well-known group of advisors and how much capital they've raised.
But guess what? When you talk to companies that are in the process of purchasing a startup, expect to be surprised.
Jim Hornthal, co-founder of LaunchPad Central, insists you need to have regular conversations with customers so you can figure out what matters to them. Same for acquirers. The better you understand their mindset, the more likely you'll grab their attention.
So what do acquirers care about? Here's the top three factors potential acquirers care about most.
1. Do you have a thriving customer base?
Your success is gauged by how strongly your customers say yes to what you offer, not by how advanced your product or service is. Otherwise, acquirers could just copy what you've built, right?
Clay Collins, co-founder and CEO of Leadpages, knows this well. Leadpages recently acquired an email marketing automation startup, called Drip. When I asked him why he decided to buy the entire company instead of just replicating their technology, this is what he said.
"[Drip] has an existing customer base. You might be able to replicate the technology, but not the presence they have in their market," Collins said.
This is true. Ultimately, nothing matters more than actual customers. As Gabriel Weinberg, founder of the Google Search competitor DuckDuckGo, points out in his book "Traction," if you can get strong enough traction, power flows your way. Potential acquirers, investors, strategic partners - no one will be able to ignore you.
But how do you get traction? After speaking with Drip CEO Rob Walling, a key factor emerged.
At launch, Walling already had a large following he had built up over years of teaching other entrepreneurs how to grow their startups.
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"I can pretty easily reach tens of thousands of people. And to be able to get a few hundred customers right off the bat - I wouldn't downplay that," Walling said.
Moral of the story? Do whatever you can to grow and strengthen your customer relationships because it's the strongest indication you're a winner. Bit by bit, you'll increase your audience and thus give your future ideas a better chance to thrive.
Next up? Acquirers look at the one thing truly unique to your startup - your team.
2. Does your team have unique industry expertise and experience?
Collins singles out team expertise as a key value proposition for him as an acquirer.
"Another key reason [why I bought Drip]: the people. What the co-founders of Drip have in terms of founding DNA, product knowledge and understanding of the industry is absolutely invaluable."
Deep expertise is worth more than gold since it takes a huge amount of time and effort to accumulate and then becomes unique to you and your company.
It doesn't matter what stage you're at, but rather whether or not you have a broad and deep understanding of your niche.
Spend time learning your industry, and make sure your team does so too. It's hard to go wrong with deep knowledge. But even if your startup boasts a lot of customers, and you know your stuff, you still need an essential little thing called trust.
3. Do you have an existing relationship with the acquirer?
People tend to do business with people they already know.
For instance, Collins and Walling spoke for about a year before sealing the deal on the acquisition. And prior to this, they interacted via podcasts and talks.
The point? Walling positioned himself so that influencers came his way, and then he nurtured those relationships. You need to do the same.
As VC investor Charlie O'Donnell points out, you're not really in the business unless you build long-term relationships. Same applies to you and potential acquirers.
Play the long game because it will take longer than you think.
Focus on the three items listed above, and potential acquirers just might look at you with excitment in their eyes.