Even if your start-up is just scraping along, you can always dream about flipping it for a fortune. It happens.
In February, Apple bought the Australian discovery start-up Chomp for $US50 million. In June, Microsoft bought the social enterprise start-up Yammer for a dazzling $US1.2 billion. And on October 25, Yahoo snapped up the New York City-based smartphone app maker Stamped for a secret sum.
Here, two start-up experts tell how to raise your chances of getting bought out and joining the ranks of Chomp, Yammer and Stamped.
1. Build a dream product
To be in with a shout of having your start-up snapped up, first you need to devise a great product that people love and will happily talk about, says serial start-up founder Mark Harbottle, who has built web successes including Flippa, 99designs and SitePoint.
Examples of great products include the file hosting service Dropbox and the photo-sharing program Instagram, says Harbottle. Both grew through word of mouth, becoming valued in the billions because they were powerfully appealing, he says.
“I think it’s really hard to create products that people love out of thin air. You’ve got to try solving a problem people already have – give them a simple elegant solution and deliver unbelievable value.”
Then, he says, you are onto a winner, if the market is big enough and your numbers look good.
2. Prove you have traction
“Show numbers heading north,” Harbottle says.
Your start-up does not necessarily need to show revenue growth, but you should demonstrate “traction” – booming demand for your offering.
Prove that more people are using your product month-on-month. Prove that the number keeps increasing, remembering that you will win a much higher valuation if you dominate your market.
So, be number one. “No prizes for second,” Harbottle says.
3. Build your business with a buyer in mind
Too many entrepreneurs start out without an endgame. Plan your exit from the beginning, says business coach Alex Pirouz.
Actually phone the firm you want to buy you out, he says. Ask what it wants in a start-up. Then, when you pitch, success is more likely, he says.
4. Remove risk from your business
Ensure that your budding business boasts rock-solid structure. For instance, assess whether you have the systems in place to track all the financials and sales, Pirouz says.
The more you systemise and “de-risk” your start-up, the higher the price it can fetch.
5. Seek professional help
Yes, you can read 100,000 books on how to exit. But you will do better to hire a specialist advisor, says Pirouz.
Armed with wisdom anchored in “day-in-day-out” experience, a specialist will know the lawyers who need to be brought onboard and all the pitfalls and challenges – the tricky dynamics that could affect your start-up’s value.
Find a specialist by running a search on “exit professionals”, “corporate advisors” or “business brokers”.
6. Pick the best
Beware specialists who have far less deal-broking experience than they make out, Pirouz says. Investigate their record. Check whether they are in the right price bracket for sales.
If you want $50 million, any buy-out specialist you hire should have sunk deals of that order before. Tell prospective hires you are shopping around.
“I would ring four or five at a minimum and conduct meetings with them – and I would even let them know that I’m actually speaking to four other people,” Pirouz says.
“I do want to sell,” he adds, “but I want to make sure I can sell it to the person who’s able to get me the most amount without fluffing up the numbers just to get my business.”
The person you pick should have a clear grasp of your start-up’s worth and a network of potential investors ready in the wings, Pirouz says.
7. Prove you have a future
Finally, you should be in a position to make a persuasive case to investors that your start-up has “legs” – the strength to sustain momentum. You need to show that you can keep bringing in clients and cash indefinitely.
Your carefully compiled statistics about growth and revenue should boost your argument that you are a good long-term bet.
This story Administrator ready to work first appeared on Nanjing Night Net.