This post comes from our VP Business Development, Rawy Iskander. With over 10 years of experience in international business development, sales and marketing, along with corporate strategy and management, Rawy certainly has a thing or two to say about sales strategy for entrepreneurs.
Entrepreneurship is really a sales job at heart! If you want to eventually sell your company (and you should!), then you have two sales missions: 1) selling your product (or service) very well and 2) selling your company. That includes a well-defined strategic long-term vision, articulating your expertise, previous successes, execution capabilities and a solid organization + team!
Of course, to succeed you can’t sell what you don’t have (no BS!), but you must also become very good at communicating what you do have. If not, your first step is to work on your sales pitch. It takes time and conscious effort to have an effective pitch, but it’s definitely doable and well worth your while. The legendary golfer Gary Player once said, “The more I practice, the luckier I get.” The same goes for entrepreneurship and sales!
To tailor your communication effectively, you need a firm grasp on precisely who your likely acquirers are so that you can orchestrate all your company efforts to potential buyers, just as you’d design a product for specific customers. I am not suggesting that you don’t keep your options open, but your chances for success will be much higher if you understand your most likely acquirer!
Here are my top 7 tips for taking your startup business beyond product sale, to lasting value creation.
Tip 1: Define & Manage your Exit Strategy.
Your journey towards success is much more likely to be short and effective if you define early on your exit strategy and share it with your key team members and shareholders. Taking 1-2 days every few months to review your exit strategy won’t do the trick. The activities and outcomes you define as necessary to succeed should be embedded in your operational activities and must have measurable outcomes on a monthly basis. A good check is: Have you allocated a budget for your exit activities / process?
Tip 2: Match your Exit Strategy with Suitable Financing Options.
There are two major options for a start-up exit: Revenue-based exits (e.g. IPO, late stage mergers, etc.) and value-based exits (e.g. acquisitions where the principal value is product, team or intellectual property and not necessary revenue). These options not only distinguish themselves by the timeline (the first take longer) but also by their risk profiles.
Revenue based IPOs are rare these days but usually very big when they happen. That implies a very high risk, high reward strategy. Value-based exits are more common but usually at a lower price point.
As a founder you need to decide which path is best for you, your personal wealth goals, the ambition of the company, and the scalability of your business model. Once that decision is made you can secure financing and people that match your strategy (i.e. VC’s are good partners for the high risk IPO play but generally a bad choice for value based exit strategies). Picking the wrong partners early on can completely derail your company. For example, raising a VC round of with significant liquidation preference will make a lot of value based exit scenarios impractical and push you towards a high risk IPO strategy.
Tip 3: Don’t wait to manage your Intellectual Property (IP).
We’ve said a lot about this on our blog already, but as a technology entrepreneur your IP management can make or break the saleability of your business. Are you actively protecting your IP? Ensure your company IP relationships with other parties are well carved out early on.
Tip 4: Master your Sales Funnel.
If you have no idea how much you can earn in the next few quarters and cannot backup your sales forecasts with a credible sales funnel, your business sale may be in jeopardy*. Can you forecast how many sales your company will earn by allocating a specific marketing budget? Future buyers will ask about this, so make sure you have a great story!
For the few lucky start-ups with products and services achieving high revenues, invest some effort in a decent CRM system early on. Well documented sales efforts not only track historical activities, but will also support you during an acquisition negotiation to address new sales growth scenarios (geographical, new market segments, price sensitivity, etc…), potentially earning you a higher exit value.
Note (*) this, of course, does not apply to start-ups trying to sell company pre-revenue i.e. only selling IP
Tip 5: Engage in Productive Joint-Ventures and Partnerships.
A good exit strategy dictates that you are actively engaged with other market players and become part of an ecosystem. Your business typically expands not only through direct sales but also through productive joint ventures and partnering relationships (OEM, Distribution, Licensing, etc…). Who else is doing development in your area? What opportunities are there for mutually beneficial business relationships or geographical expansions? Strong healthy relationships and dependencies are carefully firewalled from each other and from your IP ownership so that they do not become liabilities.
Tip 6: Develop a Strong Advisory Board.
A good advisory board not only gives you strong advice but also gives you more credibility in the eyes of an acquirer. Your advisory board should extend your reach into the market’s ecosystem through board member connections. Invest some effort into identifying suitable advisory members with strong market relationships and managing their relationship with your company. An advisory board should meet at least once a year, (preferably more) and be compensated, typically in equity.
Tip 7: Legal MATTERS!
A business goes beyond technology and intellectual property. It consists of people, customers, suppliers and a mesh of complex relationships. Make sure your relationships with different stakeholders are well and clearly managed. An acquirer wants to buy a running business and maximize their profit. They do not want to buy liabilities, problems, struggling shareholders, or “potential risks and time bombs.” Scrutinize all term sheets, by-laws, and management rights documents. Are you setup correctly to provide acquirers with an easy to transfer, legally hassle-free package? Consider also the location of that asset, applicable laws, taxes and R&D government credits.
The above will also make it easier to raise future financing and scale your business, so even the entrepreneurs who just want to “build a big business” should consider executing well on the above tips!
A Final Word
Good entrepreneurship is about focusing with limited resources on the few things that matter. The ultimate sale of the company is definitely worth your, and your team’s attention. Company sale should be at the core of your efforts, not considered an extravagant extra!