The image of a successful founder often rings a bell on a public market listing. So it’s easy to forget that the majority of successful exits are private acquisitions. Having sold my influencer company Fanbytes to global digital marketing agency Brainlabs for an eight-figure sum in May, I’m one of many who fall into that category.
The founders must be realistic with themselves; The odds of building a billion dollar project are low. Even less, you will create a multi-billion dollar company And the Take it public. However, building a company that sells for tens of millions of dollars is very realistic – with the right team, hard work, and some good market timing. There is more than one game when it comes to entrepreneurship, and more than one measure of success for you and your team.
Here’s what we’ve learned about how best to prepare for a successful exit.
Tell the story of organic growth and untapped potential
The number one reason to acquire a business is that the buyer believes that the company can be of much more value. That’s the story they want to hear, and as a company that actually generates revenue, it wasn’t a hard story for me. If you are an early stage or early stage business owner, you will likely also have a good story about your positive potential.
We clearly charted our growth story. We presented why we are attractive to this acquirer: 40% of our revenue came from the US but we didn’t have a physical US presence. Brainlabs has an American presence. And we’ve given the overall reasons why we continue to be a compelling business: As influencer marketing matured, it became clear that it was part of the broader marketing mix. We positioned ourselves as the missing piece for the big agencies, which we really believed.
If you are currently building, you will find this process easy. You probably have a wish list of 10 or more targets that you don’t have enough time or funding to attack. Look at this list from the potential acquirer’s point of view, and elicit the most interesting two or three stories.
Remember, the acquisition process is about making sure both sides get value from the transaction, so it’s important that you can think about that value early on.
Don’t forget your data room
Suppose you can get your business at any time and arrange your data room. The data room is where you store all the information about your company, from legal to financial, contracts, information about people…everything. This is what M&A and corporate development lawyers and bankers look at during their due diligence.
You don’t want to scramble to get your home in order when the LOI — an initial commitment from the buyer — comes along. When we were going to sell Fanbytes, a lot of pressure came from our lack of an extensive data room. Having great lawyers who dealt with it helped us, but we would have saved unnecessary time and pressure had we kept a data room earlier.
If you know that your data-related operations are substandard or non-existent at all, you are accumulating a painful debt to pay off.
“If you know that your data operations are substandard or non-existent at all, you are accumulating a painful debt to pay off”
This kind of rigor is the first thing to let go when product launches, crises, or holidays devour time. Do yourself a favor and hire an auditor annually ASAP.
Avoid relying on the channel as soon as possible
Buyers are looking for potential risks to your business, and you need to cover your bases. This doesn’t come from an attitude of hate, it’s just business sense. Reliance on the channel is a prime example of something that can lose credibility.
Most tech startups focus primarily on one channel: paid media and performance marketing. When you start with an idea, some messy code and not others, this is still the most effective strategy!
However, it quickly becomes a bad look. Ultimately, if you don’t show that you can acquire customers from at least three channels, your value is diminishing. And if your competitors have shown you success with their omnichannel customer acquisition strategy? Too bad look.
At Fanbytes, we’ve used content marketing, sales, performance media, and public relations, to name a few. We didn’t need each channel to generate an equal number of clients, but we did need them to be in sync and in sync with each other.
Aim to diversify your acquisition channels and not only will you reduce your reliance, but the optics will become attractive to potential acquirers.
Swim in the same waters as the Poachers
If you want to ask someone out, you’ll have a better chance of success if you get to know them well beforehand – rather than suddenly dialing their number!
Likewise, as your business progresses, you should aim to build alliances with potential acquirers – even when you’re not ready to sell.
“You should aim to build alliances with potential acquirers – even when you’re not ready to sell”
This serves a dual purpose. First, you won’t feel lost when you want to look at an acquisition. Second, you will learn how these people work. You’ll see how they receive and evaluate opportunities, and you’ll discover the way your industry does business.
We used M&A bankers for the acquisition, and it helped that we were aware of a number of interested companies.
You will always sell in your business – whether it’s to employees, clients or investors. Selling your business is the biggest sale you will ever make. Be careful with potential acquirers, and know that you need to be friendly with the right people in order to get the best results for you and your investors.
Sell in time
The timing of the sale is as critical as preparing yourself for it.
There are two mistakes founders generally make when exiting. The first is that they sell when the company is in trouble. This is the worst time for obvious reasons. Another mistake is to deceive themselves that their former growth will continue, and they will be able to continue building without additional support and infrastructure.
Fanbytes was growing incredibly fast when we sold – growing revenue of 150% on average each year – but I was realistic that we couldn’t grow like this forever on our own.
So our focus was on ensuring that both the market and the product reached a healthy level and we were ready to receive strategic support to reach the next level of growth.
celebrate. celebrate. celebrate
As entrepreneurs, we tend to believe in the “hustle culture” – you sell and move on to the next thing.
If you’ve created something significant, chances are that your team will work with the buyer in some way. So it is very important that you celebrate as a group. The index is overrated on this. When we sold out, we had a number of parties because it was really a great starting point for the team to build on the next phase of their career.
We tend to think a lot about ourselves during the acquisition process and what we’re getting from it, but it’s very important to note that this is also a major milestone for employees, especially those who’ve been with you for a while.
You are likely to get great returns compared to it, but money is not the only motivator. Prestige, career development and influence are all great motivators for the team.
Make sure you celebrate them. They are the real reason for business success.
One last note
I launched Fanbytes when I was 21 in college. At the time, I wasn’t thinking about the company culture or the professional growth of our people. I was driven by $$$, and frankly, I didn’t think this would change.
Fast forward five years, and I was turning down would-be acquirers because I felt their office vibe was off!
If you are in a fortunate position to acquire your business, then realize that you are in a very unique position and that people matter.
It is important to take a long-term view of what this means for your career, your family, and yourself. Reading the press to start can make it seem like it’s very normal but it isn’t, which is something I think you have to prepare for mentally and tactically.
It’s the biggest decision you’ll make in your career.
Timothy Armoo is the founder of Fanbytes, which was acquired in May.
Do you want to hear more about the story of Timothy? catch him in sieve top in October.