How to Develop an Exit Strategy as a Startup Company
Most startup companies are solely focused on keeping their customers happy and improving sales. Getting their products and services to market and ahead of the competition curve seems like the only goals they care about.
However, these startups often find themselves in financial turmoil, where they cannot provide for their business needs without outside investments. The last thing they resort to is selling their business as an exit strategy.
According to a definition, an exit strategy is: “The method by which a venture capitalist or business owner intends to get out of an investment that he or she has made in the past. In other words, the exit strategy is a way of “cashing out” an investment.”
In other words, this type of business strategy allows a startup company to harness the full potential of any good opportunity, rather than avoiding a bad situation while providing a backup plan for both situations.
If carefully planned and well organized, an exit strategy can significantly increase your company’s value and generate revenues. We live in a fast-growing, highly competitive startup world.
Since you have to scale up at some point, your exit strategy is the most effective way of successfully growing your business.
3 Most Common Exit Strategies
Here are the three most common exit strategies so far:
- IPO – an initial public offering refers to the situation where a startup company issues the first sale of stock, with the primary goal of gathering means for the business to allow it to expand and grow. When it comes to IPOs, it’s all about the timing, finding that one moment in the economic cycles.
- Merger – an act of uniting two different, existing startups into one newly formed enterprise. There are various ways to do this as the reasons for merging differ. Most of the time, mergers happen for the sake of growing a business, expanding its reach and gaining market share, as well as creating more value for the marketing startups to the shareholders’ delight.
- Acquisition – an acquisition refers to a situation where one company takes control of the other by buying either all of it or most of it. The main goal is to merge the target startup’s assets and stock. This act can be paid for in the startup’s stock or cash or both.
In the majority of cases, startups turn to M&A consulting companies to go through merging and acquisition successfully. M&A consulting companies like Sales Synergy Consulting provide a range of solutions for young companies seeking transition.
M&A companies’ main goal is to help optimize and reduce the risks of merging, achieve better sales consistency, have more effective and transparent sales processes, and increase productivity and profitability.
More importantly, these companies develop strategies that help to merge startups while educating their employees and making sure they’re on board with the latest events. Now that you know some basic things about the most common exit strategies let’s see how to develop your own.
Critical Steps to Developing an Exit Strategy
When it comes to developing an exit strategy, the buyer must fully and thoroughly understand the seller’s reasons for selling their business. If both sellers and buyers are on the same page, this ensures a more seamless and harmonious transition and a smoother negotiation process. So, let’s see what key steps to take to make sure everything goes well.
1. Explore Your Options
Determine the most realistic fundraising benchmarks in your industry by doing thorough research on other companies and competitors. Identify all companies and active acquirers that could be the best merger candidates.
Use their complementary offerings as the primary determining factor. Go through acquiring enterprises, check their acquisition history and past, their deals and reasons, to see if they have what you need.
2. Know Your Industry
The critical factor in determining your startup company’s most effective exit strategy is obtaining a clear and solid understanding of how your industry works and the market dynamics. Some startups become so occupied with day-to-day tasks that they completely neglect clarifying and going after their business goals.
Launching and fundraising are just the initial stages of a startup. It’s what comes after that matters the most. Figuring out where your startup fits in the market allows you to see a bigger picture and recognize the best opportunities.
3. Calculate the Cost
An exit strategy includes quite a few expenses. It would be wise to come prepared with all necessary data regarding comparable exit transactions, including the completed milestones and purchase cost.
The best way to get the most accurate information is to keep an eye on the latest industry events, trends, and announcements. This should allow you to gather relevant data and valuable insights, and better prepare your startup company and team for making the transition.
This is where teaming up with M&A consulting company like Sales Synergy Consulting can be extremely useful. We have all the data you need to anticipate and answer your investor’s questions.
4. Shift Your Focus on Revenue Growth
Revenue growth opportunities should be your top priority when planning to exit. The more your company grows, the more you develop such opportunities.
This is a great way to gain traction in the industry and market, and prove that your business has potential.
Focus on funding requirements and identifying revenue benchmarks by consistently tracking the valuation trends.
5. Establish a Healthy Relationship with Potential Acquirers
Developing an exit strategy is a continually evolving process. Changes are constant, as the process requires regular adjustments and adaption.
While identifying possibilities and targets as early as possible is recommendable, you have to be prepared to answer the ever-evolving priorities and markets adequately.
The best way to do this is to establish and build a relationship with a potential acquirer to better understand work philosophy, customer response, the business culture, etc.
Developing an exit strategy is a lengthy and detailed process that can turn out to be quite a challenge, especially for growing startup companies that are yet to achieve their full potential. Fortunately, thanks to M&A consulting companies like Sales Synergy Consulting, it’s absolutely possible to make a transition without disrupting your business routine.
M&A is quite a chaotic working environment. Young startup companies need professional help with getting on top of their existing sales processes, handling the sale orders, improving sales reporting consistency, utilizing complex CRM systems, and coping with all the current obstacles of the fastest-growing startups and ever-shifting M&A trends.
Contact us today to get your quote and use our expertise to successfully develop an exit strategy that will launch your startup business sky-high.