I heard it again this week. The lame startup who answered that they didn’t have an exit strategy because they just wanted to create value for their customer. I’ve heard this so many times by CEOs who think they’re being noble by focusing on their passion and commitment to the company and not to an exit – but what I hear is that they are NOT truly committed to their business.
CEOs who don’t have an exit plan are limiting the potential for their business.
The fundamental lie of exit denial is in the belief that creating value for the customer is the same as creating value for the business. Think about it – if you do something really well and create value for a customer, and you’re passionate about carrying out that mission to the greatest extent possible, then wouldn’t it be a good idea to identify larger companies who shared your values and could carry out the mission to even greater extents with their additional resources, capital, sales channels and expertise? Creating value for the acquirer means creating value for the customer as well – it’s rare that anyone wants to acquire a company with no customers.
But no – you’re just creating value for the customer, and then if you do that, acquisition offers will come along….eventually. Yes, offers will come along, but they may not be from companies that share your values. They may be from companies that want to shut you down. They may be from companies that want to exploit your product or customers. Just passively waiting for a suitor to come along is a cheap cop-out for lazy CEOs who believe that uncertainty means that you have to wait for whatever the world brings you.
Companies who are truly passionate about their mission are working to develop two value propositions simultaneously – the value proposition for their “first customer” who buys their product and the value proposition for the “second customer” who buys the company.
CEOs who think about the second customer are the ones who get me excited because they exhibit deep knowledge of their industry. Like Wayne Gretzky, the hockey player who famously said “I don’t go to where the puck is, I go to where the puck is going,” these CEOs have identified a trend and they build value for companies in their industry who will be needing their innovation within a three to five year window.
To be sure, there is uncertainty. You can’t just pick the acquirer, date and amount of acquisition. This does not mean, however, that you can’t research comparable transactions and identify the key players and their behaviors. You can create relationships with the companies who will be needing your technology so that when their board identifies a need for your product/service, they know that you are a key player in the industry that would be a good acquisition target and can reach out with an offer.
Identifying multiple bidders for your exit strategy not only allows you to select the bidder who most closely matches your values and goals for the company, but also allows you to demand top dollar for the acquisition.
No, it’s not all about the money, but if you put your head in the sand and just wait for suitors, you will likely end up with a lower price for your acquisition and more importantly you may fail to truly carry out the mission of your company to its fullest potential.
Create a detailed exit strategy and show everyone your passion for the mission of your company.