A blockbuster exit is something of a fantasy for Silicon Valley entrepreneurs. In an industry where so many companies fail, an exit is a powerful symbol of success. However, that does not mean it’s a good idea to focus on an exit strategy from Day One. It may seem paradoxical, but the key to leading a company to a successful exit is not to focus on the exit at all. The key is building a company that delivers maximum value to the market, and if the conditions are right, an exit will follow.
Don’t ever build a company to get acquired.
It’s one thing for an entrepreneur to think, It would be great if my startup got acquired, and quite another to make that the driving goal. You never want to build a company to get acquired. It means you are thinking about what potential acquirers want, instead of what your customers want. Typically, those startups end up building a feature, rather than a company. And if they do get acquired, it’s likely to be for the people (an acqui-hire). This is not a negative outcome per se, but it doesn’t really count as a successful exit either.
Focus on building value.
Instead of angling for an exit, the smarter strategy is to focus on building value. As an entrepreneur, you can’t control when the IPO or acquisitions market will be hot. Rather than focusing on what you cannot control, focus on what you can: building a business that delivers real value. This means you have to be clear-eyed about conferring significant benefits to your customers, whether they are individual shoppers or large enterprise clients.
For example, mobile payments has proven to be a tough nut to crack, with major tech and financial companies struggling to get their mobile payments products to catch on. One reason is that many of the solutions to hit the market didn’t provide enough value to customers. It was just as easy for customers to pull out a credit card or cash as it was to pay with an app, and so they stuck with the behavior they were used to. But, if these companies listen to customers and understand their need, then a mobile app experience designed to suit the customer’s preferences can be created, which would incentivize them to pay with that mobile app.
The fact is it’s not enough to think you know what your customers need. The “if you build it, they will come” notion does not apply to startups. You have to understand your market and your customers’ needs before you start building your first product. And your value has to be strong and easily communicated.
Match the technology to the problem.
The reality is that entrepreneurs can get caught up in the fluff and fail to ask themselves hard questions. One common mistake entrepreneurs make is to get married to a technology and try to find a problem to solve with it. What happens most often is that it is the wrong technology to solve that problem. It becomes like trying to put a square peg in a round hole. Or they end up building technology for technology’s sake, and once the initial excitement fades, the product or its underlying technology no longer feels as relevant.
To build a company worthy of a successful exit, you have to match the right technology to the problem you are trying to solve. If you realize that something is off, consider pivoting. Don’t be stubborn about sticking to a chosen course.
Only hire the best people.
While it’s understandable to want to fuel growth by hiring fast, hiring the wrong people can be a disaster. Really successful companies have great people and leverage them extremely well. An “A” player is worth ten “B”s, so don't compromise. Also keep in mind that culture and personality have a big impact on a business. As a founder or CEO, you can’t let your ego get in the way. I’ve seen so many great companies crash and burn because the founder struggled to be an effective CEO, so leave your ego at home.
Think about the business side of the business.
Leading a company to a successful exit requires entrepreneurs to build a solid business foundation. Avoid the trap of continuing to borrow and raise money from VCs and burning through cash. Make sure your business model gets you to cash positive in a few years. And once you get to cash positive, stay there. You don’t have to have huge profits, but you don’t want to be dependent on raising money for growth.
Later on, if you are starting to prepare for IPO or acquisition, make sure all of your organizational “stuff” is in order -- legally, financially, structurally. In the push to grow fast, it’s common to cut corners, but things that may have seemed minor earlier can come back to haunt you. Practice discipline to keep everything organized, clean and above board. Public markets as well as qualified acquirers expect that from you.
Remember: It’s not up to you.
As mentioned above, market conditions can be unpredictable. You can’t predict the future, which is why focusing (exclusively) on an exit strategy is futile. Your energy is better directed into building a valuable, sustainable business. Then if your company is able to reach a level of sustainability where it has the option to do an IPO or get acquired, fantastic. It’s a win-win.