So your startup wants to be acquired – now what?

In the first column this three-part series, I discussed how a stellar strategy only gets your company halfway, but executing can take you to the finish line. Next, we took a deep dive into what startups should do after landing a first big client.

As I sat down to write this column on strategies for startups, it occurred to me that, for many founders, their ultimate goal is for their startup to be acquired. I have an endless supply of tips and tricks to help your business grow, but how to position your business for acquisition might be the most important.

And while it’s no small feat, I’ve learned that startups that position themselves the right way typically reap enormous benefits. (I’ve worked with enough larger companies that are often perusing the startup menu and have an appetite for acquiring businesses.)

Buttoning up

First and foremost, make sure your business affairs are in order.
Potential buyers will want to know:

  • Your history of producing revenue and profit combined with the professionalism of your record keeping;
  • Your likelihood to grow your business in the future and at what rate; and
  • How well differentiated your business is from competitors in your industry.

I can tell you with 100-percent  certainty that these are just a few of the questions a potential buyer is going to ask. At the end of the day, it has to be a mutually beneficial relationship. Making sure your business is buttoned up requires an up-front investment in time and resources when it comes to documentation, accounting, organization, technology and systems.

Start with implementing clear guidelines and standardized processes that your employees not only follow, but also support. Documenting procedures can streamline your business, leading to efficiencies, cutting costs and focusing staff’s attention to more important tasks. As your startup continues to grow and new employees are added to your team, this helps ensure you aren’t stretched too thin witht training. Your current employees are able to take care of training while your focus remains locked on executing strategy. A potential buyer needs to know this business would still run with or without your involvement.

Invest in your brand and culture

For startups, business models may change. Products and service offerings evolve and employees transition. But a company that was built on a solid brand is the unwavering foundation as everything else around it settles.

This foundation begins with developing your positioning, purpose and vision. It must be cohesive and consistent through all your marketing collateral.

“The art of marketing is the art of brand building,” said branding guru Philip Kotler. “If you are not a brand, you are a commodity. If you want your startup to be valued for what you have created and want to stand out in a crowd, branding is the way to go.”

Effective branding makes you stand out, increase your perceived value and can garner more interest from potential buyers, making the decision to acquire that much easier.

Investing in your internal brand is just as important as the external, so don’t forget the importance of building a strong culture. Most mergers and acquisitions fail because of poor integration, lack of communication and incompatible cultural fit. To be successful, culture and integration must work in tandem.

“Cultural transformation in a merger and acquisition environment is not easy,” Inward Strategic Consulting CEO Allan Steinmetz said.“It must become a business process that is rigorous, structured and accountable. Companies that are not successful at cultural integration do not succeed in the short term or long term. It is hard work and companies should seek out guidance from professionals just like they seek out guidance for the financial/banking transactions and legal ramifications from attorneys and law firms.”

You have to know your culture before you can understand if it will fit with someone else’s. Successful mergers and acquisitions require a company to embrace the integration process to ensure progression. Without a clear sense of unity, direction, vision, mission and culture, companies will be more likely to fail.

Doing the song and dance

Finally, it’s important to understand that different types of buyers have different motives. Financial buyers lead the evaluation process based on financial performance and risk involved; strategic buyers are looking at how they can leverage your product, service or intellectual property to make their company better.

Many times, a competitor might be the most natural buyer for your business; they see the potential to pick up market share, giving them more pricing authority in the market. But seller beware, there is some risk involved.

“The challenge with negotiating the sale of your business to a competitor is that, if the deal falls through, you can end up regretting all the secrets you shared with them in the process,” Forbes contributor John Warrilow warns.

Because of the different motives each buyer might have, your job is to strategically position yourself and think carefully about how you interact with those in your shared market space. You want to be visible, but not ostentatious. You want to know who your competitors are, but carefully lie somewhere between ally and rival.

No part of the startup journey is easy, but if you’re committed to creating something new — and something great — there is a process and a list of to-do’s that can better prepare you.

If you’re going to put your company on the startup menu, be prepared for when someone wants to take a bite.

 

Denise Kruse is the CEO of AdamsGabbert, an Overland Park-based consulting firm. She has nearly 30 years of corporate general management experience, entrepreneurial leadership and a passion for making a difference in the Kansas City community. Connect with her on Twitter at @AdamsGabbert.

This article originally appeared in Startland News. 

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