5 Things You Can Do To Shoot For A Successful Exit, From Someone Who’s Been There
I loved every minute of running Talent Rover, a staffing and recruitment software company I founded in 2011 and sold in 2018.
That’s why I never operated with a focus on an exit. Of course, our leadership team was aware of all the potential outcomes: getting acquired, going public, or simply staying the course and continuing to grow and serve our customers.
We were always focused on the latter — growing the business.
With that goal in mind, we raised ~$28 million from an awesome group of angel investors who believed in what we were doing.
However, we were still always talking to private equity folks — which is great advice for any entrepreneur. They are extremely knowledgeable and can help with everything from operations to sales to product issues.
We eventually were looking at our Series A and taking on some institutional money, which was a strategic move to create a stronger backing. We never completed that round, as we were fortunate enough to have our largest competitor swoop in and acquire us.
Considering and eventually accepting that offer was one of the hardest decisions we ever had to make.
Statistically, most companies don’t have a successful exit. Just reaching the point where another company wants to acquire you is an amazing feeling, nevermind when they give you a fantastic offer.
It was an exciting time, but it was bittersweet — very difficult, incredibly emotional. Leadership had to consider the entire team and our customers, and whether the deal would be good for them — not just us.
Were we living up to the promise we made to our company and clients if we took the offer?
Every founder faced with a potential exit will find themselves asking some form of this question.
Here’s the advice I would give to any founder considering an exit via acquisition:
1. Figure out why — or if — the deal makes sense.
The first thing we did was sit down to list the pros and cons — for us, for stakeholders, for employees, for clients. Obviously, pros need to far outweigh cons for a deal to make sense.
Additionally, be clear on why you’re making the decision to exit (or not), because the outcome will be difficult either way. Being able to reassure yourself that you accounted for every detail will help you avoid tossing and turning in bed at night about your decision.
The due diligence of the acquisition process is more detailed, long, and arduous than I could have imagined. You have to conduct a financial audit, tech audit, HR audit, operations audit, sales audit, etc. And you must work to thoroughly understand your business and its finances — don’t assume you already do, even as the founder.
More specifically, take a deep analytical dive into these areas:
- Financial forecasting. I was always focused on running the business by the numbers well before any talks of acquisition popped up, so we had a good starting basis. Even with that, we spent a lot of time, money and effort on our forecasts, models, budgets and assumptions. Not to mention how much time we spent sharing, collaborating on and discussing them. This was such a huge amount of effort, which is one of the primary reasons I decided to build my new product, PlaceCPM, to help simplify this for other companies.
- Accounting. You need to really understand your books and ensure that they’re accurate. Even a seemingly minor error can throw measurements off. For example, we were incorrectly recognizing quarterly bonuses, which turned into a big wrinkle when ironing things out during our audit.
- How you stack up to your competition. Consider different financial ratios. Compare your ratios to the ratios of competitors in your industry. Know where your business stands — where you’re strong and where you might be struggling. It’s all part of the company story you want to tell.
- Your valuation. Valuation is certainly an art and not a true science, but look for a middle ground between optimistic and pessimistic — realistic. Above all, it’s important to understand how exactly companies are valued, which can take into account everything from revenue to cash-flow analysis to financial formulas and more.
2. Surround yourself with a brilliant team of professionals.
We had a legal team which had collectively conducted dozens of exits. On top of that, our investment banker guided us. Make sure that the experts you’re working with really understand your business — not just the sale, but the way your company operates and its mission.
3. If you’re being acquired by a competitor, be honest but cautious.
You have to protect certain info, in case the deal falls through. In our case, we had to protect our client and prospective client lists, sales strategy, product details, code and more. This is a great example of why you should never burn bridges with your competitors. You never know if you’ll be doing a deal with them somewhere down the road.
4. Acknowledge that some things are out of your control.
They wanted to go into a level of detail we couldn’t even imagine during the due diligence phase. They asked so many unexpected questions and talked to so many of our customers. And what our customers told them was entirely out of our control.
All you can do is prepare as much as you can for the things you can control.
5. It’s a team effort, but the team is very small and operates on a need-to-know basis.
You have to keep all discussions confidential until an ultimate decision is made. If details get out to the whole team or the world at large, that can disrupt the business, kill the deal, or even kill the business. Because people often assume the worst when they hear news of a potential company acquisition. And poisonous rumors can spread quickly internally.
Once an exit deal is in place, you — the founder — typically have one big, final decision to make: to stay or go.
This can be especially difficult because you’re not sure exactly what daily operations will look like at that point. Sometimes, a founder fits well into the new company’s culture, and they settle into an executive position. Other times, not so much.
I chose to stay with the company for a period of time and see how it went — mainly because I wanted to make sure our customers continued to receive the high-level service we promised them. And I wanted to help the transition go smoothly for everyone involved.
But I quickly realized that my passion is building companies and I love being an entrepreneur. There’s nothing more fulfilling in life than taking an inspired vision and turning it into a company full of passionate people — and value. Of course, it’s bittersweet to see a company you built from the ground up come to an end upon a successful exit.
But then comes the best part: developing the vision for your next company.