Some entrepreneurs start out to create a company that they intend to spend their lives growing and maintaining. Others form startups with the expressed hope of being acquired by larger companies. If an acquisition is part of your exit strategy, you need to build your business with your buyer in mind.
To find out what strategies helped real-life entrepreneurs negotiate their own acquisitions, we asked four successful young entrepreneurs from the Young Entrepreneur Council (YEC) for their advice. Even if an acquisition isn’t on your radar yet, these tips can be helpful to you in getting - and keeping - a future buyer’s attention:
1. Strategy Is Important - Storytelling Is Critical
Everyone loves a great story. We all “invest” in stories one way or another - it’s the way we make them ours. The friends you choose, the experiences you have and the dreams you chase are all investments in stories that you can then share. It’s the same for companies. Your customers are investing in your story to share in it, as are your investors - literally. “The only family-run startup in the industry” or “the only app that actually helps me fix this”… you get the idea. The upshot is that you better have a great story to tell. The better the story, the more people are likely to want to invest. If your story is truly great, and you can tell it with absolute conviction, you may just find someone who wants to own it. - James Rohrbach, stealth
2. Clarity in Past and Future
To me, it wasn’t just about having a clear vision for the future, but having a transparent past. If you’re building a business to sell, make sure everything is organized and recorded properly from inception. When you sit at the bargaining table, you want to be able to present your company in a neat little package, with everything from incorporation documents to licenses and key agreements systematized. Any missing or “broken” piece may be seen as sloppy on your part. And if a potential buyer begins to think you’re sloppy in some areas, they will begin to wonder where else you might have been negligent. Few will risk buying to find out. - Nicolas Gremion, Foboko.com
3. Demonstrate the Adaptability of Your Business
A partner and I recently sold a startup to another company that was only looking for certain elements of what we had created - in particular, a Facebook app. Entrepreneurs must have a clear strategic vision to have useful discussions with potential acquirers. But you must also demonstrate that your product or service is built on a strong foundation that is flexible enough to fit within the new organization. Your people need to be able to adapt to the new culture, your marketing strategy must be easily subsumed by the acquirer’s, and your product must fit within the larger catalogue. When you build your business, you must have a clear vision and road map. But as soon as you sell, what was once “yours” is now part of a greater whole. - Aaron Schwartz, Modify Watches
4. Keep Your Books Consistent
Potential buyers are always going to look at numbers. Don’t leave anything in question by being as thorough as possible along the way. The more data you are able to supply to the end buyer, the more professional you look and the more confident they will be with their purchase decision. - Logan Lenz, Endagon
The Young Entrepreneur Council (YEC) is an invite-only nonprofit organization comprising the world’s most promising young entrepreneurs. The YEC recently published "#FixYoungAmerica: How to Rebuild Our Economy and Put Young Americans Back to Work (for Good)," a book of 30-plus proven solutions to help end youth unemployment.