31 Oct Around the Web: A Week in Summary
A recent article from Entrepreneur.com entitled “Planning Your Exit Should Begin When You Launch” explains why it is important for a new start-up to build the structure of their company based on who would be the ideal company to acquire them in the future.
The article states that “more than half of today’s health and tech startups are ‘hoping for an acquisition.’… From the beginning, entrepreneurs need to think about the profiles of companies that might potentially acquire them, and align their strategies, team hires and products with these companies to build the right foundation for mutually beneficial acquisitions later on.” The way a start-up can achieve these goals is by creating an Ideal Customer Profile, Ideal Employee Profile and Ideal Buyer Profile, and to develop partnerships with potential acquirers.
Some things to consider when going through this process are:
- What kinds of employees will your company need to hire? The employees you have play a large role in the salability of your company when it comes time.
- Does your company and model address unmet needs of the customer base that you share with your ideal acquirer?
- In what ways can your start-up fit into the larger picture of an already established organization?
- What do you offer that your partner company can’t produce itself?
- What are the values and standards of the company you’re looking to partner with?
All of these questions will not only guide you in building your business plan but the answers to them will greatly impact the outcome of your business’s future.
A recent article from Business2Community.com entitled “How to Find Your Dream Buyer” explains the three stages of being on the market through the metaphor of finding your soul mate. When you’re searching for your soul mate there are three stages to the process: Dating, Engagement and Marriage. These steps are comparable when selling your business:
- Dating: Play the field, feel out potential buyers and don’t rush into any commitments too eagerly. It becomes very evident that you’re an inexperienced seller if you are overzealous about the sale and can block you off from the perfect potential ‘suitor’. During this period it’s also best if you as the business owner do some ‘soul searching’ in the form of a business valuation.
- Engagement: At this point you are committed to a buyer and they are committed to you. However, without due diligence a deal could still fall through. Once contracts are drawn up, due diligence handled and boundaries established, you’re hopefully ready for the next step.
- Marriage: In this stage of the sales journey it’s time to negotiate final contract terms, including an offer and sign your business over to the proud new owner. If you’re not staying involved with the business after the sale, now is the time to sign any assets over to yourself that were not purchased.
A recent article from Divestopedia entitled “Letting the Market Bridge the Valuation Gap” discusses the reasons why 90% of businesses fail to sell their first time on the market and explains the factors that affect this statistic.
The majority of sellers view their business as more valuable than the market does and this causes the business to sit on the market, unsold for months or years at a time. While many entrepreneurs get caught up in how much they need to retire or how much they invested into the business or product development, these things don’t matter to the market. The four factors that DO affect the value of a business the most are:
- The amount of contractually recurring revenue your business has
- Durable Competitive Advantage
- Growth Rate
- Customer Concentration