Forget Speed to Market, Focus on Speed to Acquisition
3 Reasons Why Founders Should Understand Startup Exits
Imagine you sold 3 startups to the same buyer.
The first exit provided a software solution that gave your buyer access to a mid-market segment it didn’t have before.
The second exit provided encryption on that software that needed security, which both of you only realized it needed when competition increased.
The third exit provided data on digital and physical assets to enhance the buyer’s ability to deliver better value to its customers.
Now imagine you sell each subsequent company faster, for a higher price, and with more ownership control.
The first exit valuation was $10M, whereby you owned 10% of the company.
The second exit valuation was $20M, whereby you owned 30% of the company.
The third exit valuation was $40M, whereby you owned the majority of the company.
The speed to exit became faster because you spent less time raising capital, you applied your learnings from the previous startup failures, and you already had a relationship with the buyer.
Let’s break down these common denominators.
A technology built today will quickly become obsolete (nowadays in a matter of months). It’s called the Velocity of Obsolescence.
We watched movies on TV and at theaters for 80 years. Streaming overtook cable TV and all subsequent innovations in a matter of 10 years.
We used personal computers at home and the office for over 35 years. Smartphones that fit in your pocket outnumbered them in a matter of 5 years.
My point is, before you even consider pressing the gas on your business, competition will speed past you on the very road you pave to innovate a new technology and create market demand.
In this case, as Peter Thiel puts it,
“Your goal isn’t to beat the competition — it’s to escape the competition altogether.”
If you plan to create sustainable growth in a technology startup, you have to move faster than the rest at providing value to your customers. You may also want to consider the help of some more established and experienced players.
Those established players will create a form of cumulative causation in that “their earlier knowledge and advantages attract even more talented workers and investment” for you.
This concept is prevalent on a state dominion level because it exists on a human level. Meaning, the more you work in a specific market or with a type of technology, the more you learn how to best map customer needs to innovative solutions.
You then take that learning, along with the newfound connections and resources, to your next venture.
Rinse, lather, repeat.
Developing a repetitive process in a business is important for its scalability. Similarly, developing a repetitive process for building successful businesses is important for your scalability as an entrepreneur.
One such process you can get good at is creating alignment with your buyer.
Develop a profile of the key individual at the key company that would acquire yours. Normally the person is the Director of Corporate Development (or of M&A). And the company is one that would gain value in merging with or acquiring yours.
Capital systems in the West, especially in the UK and in the US, are so sophisticated they’ve become complicated. Your job is to simplify and pinpoint the exact reason why your buyer would be interested in you.
Is it to generate revenue? Maybe you have a new offering for existing customers or you bring new kinds of customers to the buyer.
Is it to reduce costs? Maybe you have a cheaper or more efficient way to manufacture something or deliver a service to customers.
The best way to understand what your buyer wants is to build a relationship with him and understand the company’s challenges. These two efforts can happen exclusive of one another, and in many cases should.
When you have pre-existing knowledge on the kind of innovation your customer needs, you create a stronger value proposition.
When you have a better understanding of a particular market’s characteristics, you more efficiently create product-market fit.
When you have a clear understanding of your buyer’s needs, processes, and culture, you create deeper alignment.
Having these three elements helps you build a sustainable growth business that provides true value to your customers, allowing you to escape competition and exit your startup faster. You can then reinvest your income into your next venture, bringing you that much closer to your bigger vision.