How to Expertly Position Your Business for an Exit
Clear objectives, transparency and proactive planning are imperative.
Some startup CEOs are deeply invested in their businesses and want to remain at the helm indefinitely. Others dream of a lucrative exit, a vastly different path that can be just as satisfying.
For CEOs and founders in the latter category, 2021 is an excellent time to start positioning a company for an exit. Global venture funding topped $300 billion in 2020, a 4% increase over funding numbers from 2019. On the IPO front, there were several splashy debuts, like that of Airbnb, which hit the market at $146 per share with a $100 billion valuation. And on the mergers-and-acquisition side, tech has been especially active. Square snapped up Afterpay for $29 billion, and Zoom bought contact-center tech-company Five9 for $14.7 billion.
In other words, executives hoping for an eye-popping exit have reason to be excited. But before the big payday is a possibility, business leaders must effectively position their companies, and there are a few ways to prepare for maximum impact.
Have a clear value proposition
This might seem obvious. CEOs and founderrs likely wouldn’t be in the position to pursue an exit without knowing their company’s value proposition. However, it’s important that they dig deeper, beyond the surface-level differences that set them apart from their competitors. This means conducting a detailed ratio analysis to show how the business’s performance outpaces that of others in the same space. Defining a value proposition also requires a thorough SWOT analysis and proof of how the company can grow in the future in both the least risky and riskiest scenarios.
Clarify the exit strategy
An exit raises some important questions for CEOs and founders. In the event of a sale, how long will they stay in the business? What creditors or investors will still need to be paid? What’s the current financial state of the business, and how do they expect that to change after the exit? There’s a lot to consider, and they must be clear on their answers to each and every question before taking a seat at the negotiation table.
Complement the buyer
Not every merger is a match made in heaven. In pursuing an exit, there’s more to think about than identifying the highest bidder. Especially for those taking the strategic-acquisition route, the business should compensate for the buyer’s weaknesses. For example, if the CEO’s company has a strong direct-to-consumer strategy, the buyer should be a business that can benefit from that expertise (for example, a company that’s big on traditional retail channels). There must be an incentive for the two companies to merge.
An exit strategy shouldn’t be crafted in a bubble. The decision will ultimately affect many people beyond company ownership. How will the exit impact investors? What will happen to employees, in terms of succession plans and transitions? And what about customers: Will the company still offer the superior services they’ve come to know and love? Communication is key for a drama-free exit.
Plan ahead … before you’re asked
CEOs and founders seeking an exit must also be realistic about how their industry is changing and how those changes will affect their business. Potential buyers will want to see an acknowledgment of an ever-changing business climate, especially in light of the pandemic. For example, for a streaming company that saw massive growth during lockdowns, what are the plans for revenue growth as society reopens? Gaming? Theatrical releases? Merchandise? CEOs and founders must show buyers that they understand the competition, the customer and the market, and also that they have a plan to handle whatever comes their way.
Despite all that has happened over the last year, this is still a great time for an exit. But for it to be successful, foundational work and proactive strategizing are crucial.
Entrepreneur Leadership Network Contributor