Many people start a business with no exit strategy in mind. The attitude is often, “let’s see how it goes.” Or perhaps they do have an exit plan – for instance, sell eventually to the industry leader – but executing on that plan goes awry. The lack of planning or bad planning to a large extent explains why only 1 in 6 startups goes on to be acquired/merged; 3% sell stock to the public via an IPO, and 80% close down.
At a recent presentation hosted by the Alliance of Angels, TechStrat and K&L Gates teamed up to present key things that entrepreneurs should do to avoid being part of the 80% of startups who liquidate. Working with startup founders and first hires over many decades, we here at LNWM find three things in particular to be key determinants of success:
- Aligning the interests of the management team, the board, and any shareholders so that when the time comes to sell your company, there won’t be any blowups about who gets what, when, and how.
- Not being afraid to openly communicate with potential buyers. Don’t play hardball and stall a potential buyer while shopping the company around for a better price. More often than not, a fair price will be found when going through the finance and diligence portion of an M&A.
- Hiring the right people — attorney(s) with lots of experience in M&A and a really good CFO can make a huge difference between success and failure of a deal. Here at LNWM, we put entrepreneurial clients in touch with a solid network of experts who can help guide them through the entire process.
As you get closer to selling or exiting from your business, it’s also very important to think about how that will affect your personal finances and life goals. We often work with business-owning clients to come up with a financial and estate plan that maximizes their personal bottom line, provides for their family and sets them up for success in what they do next, including retirement. Find out how in this blog post by LNWM’s Brian Whitaker.