When Selling Up isn’t Selling Out

When Selling Up isn’t Selling Out

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Building up a business just to sell it down the line may seem calculating, but there are enough cases in which an exit from an up-and-coming start-up is not just inevitable, but the best possible outcome for all concerned.

Planning for it during the upfront stages will ensure that a golden opportunity to maximise a great idea isn’t missed – even if the course of business takes an unforeseen route.

Face realities

Successful start-ups often run into a critical shortage of funds on first entering the competitive, logistically-challenging global marketplace, leaving them powerless to compete effectively with more established players.

Every day that they’re not finishing redevelopment for a new market,and not producing, distributing or marketing their product effectively is a day lost in which new competition may see the light.

In such conditions, start-ups become takeover targets for large companies looking for ways to diversify their revenue base.

These incumbents have the resources to accelerate manufacturing or development, supply and support of the newcomer’s offering. In a very real sense, they may be the best chance the entrepreneur can give his or her brain child.

 

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Pimping your outfit

When you’re able to see your company in this light, you will see the point of prepping it for a possible sale – should it ever come to that. Here are some points to consider in making your company more palatable for a takeover:

Fitting in

Consider early on whether your product fits into any particular industry that you’d like to target. Position the company accordingly in the local media, and build networks that may in time pay dividends.

Pose no risk

De-risking your company is the furthest thing from your mind in the early stages of setting it up. At this point, growing the business and its revenue are the only real indicators of your company’s worth, as far as you are concerned.

But making sure governance is in place to mitigate possible risks to a sale is just as important to a buyer. For example, ensure that minority shareholders do not have commercial interests that may bring the company into conflict with a future buyer. At a more basic level, make sure your investors are on board as concerns your exit strategy, should it come to that.

Protect yourself

Any encumbrance on your rights to your IP will scare off investors. To facilitate open discussions around any possible acquisition, ensure your intellectual property is protected. Patents are effective but expensive, and company owners can protect themselves in various other ways.

Furthermore, make certain that contractors and employees cede their IP created on company time to the organisation. License the technology used to create your offering, and make sure you have the procedures in place to deal with any fallout.

Sell projected value

Presenting the company to a potential acquirer requires you to show not just market success, but a strong upward trajectory. Isolate a strong market driver that shows your company is riding an unstoppable wave. Projected value is more compelling than actual value, and packaging this in an arresting and visual way will enhance the attractiveness of the deal.

Bite the bullet

Entrepreneurs may be averse to some of these tasks, but it is advisable to bite the bullet. The time may come when their only options are a good sale, a bad sale or a missed sale.

Wesley Lynch
Wesley Lynch is the founder and CEO of Realmdigital, a top South African e-business strategy and technology partner, specialising in Web, Social and Mobile platforms. As a technology entrepreneur, Wesley has over a decade of experience in the financial, business and software development industries. He is also the co-founder of MyTrueSpark which sees him regularly consulting with start-ups, Venture Capitalists and Angel Investors. Wesley has recently been recognised in the Old Mutual Entrepreneurship Guide as one of the 38 emerging South African tech entrepreneurs to watch.