Whenever I meet with someone who is starting a new company or business, or even a specific project, I always suggest that they clearly define their desired outcome, usually in a written statement of objectives or guiding principles, that will be used to define the project and guide all decisions along the way.
For a startup company, I think this is particularly good advice, and I think that every startup should define the desired exit strategy and have a plan for getting to the desired outcome. There are so many things to think about when starting a new business, including how to develop the product, the right markets to pursue and the market strategy, who should be on the team, and, of course, how will it be funded. Among those key decisions should be a very specific thought process relating to exit strategy, as this will necessarily guide decisions relating to choice of entity, capital structure, investment in IP, etc.
For companies that are started with a view to a sale, there are a lot of ways to enhance the chances of success and the potential financial outcome. These things include the following:
- Good housekeeping – buyers will pay more for a company that is clean and appears well managed
- Understanding the likely buyers and what they are looking for and what they value
- IP ownership and protection
- Internal processes – this can be important for risk management purposes and for being able to add new team members who can be trained and contribute
- Economic value drivers – the long-term value of the business (at least to a potential buyer) might be driven by a number of different factors, including revenues, earnings, key customer relationships, key IP, the sales engine, etc. – those should be identified and drive key decisions and investment
- Contracts – if revenues are represented by customer contracts, then special care should be given to making sure that those contracts are complete and have favorable terms – signing contracts just to get the business can create longer term challenges and value deterioration
Again, begin with the end in mind!