At a Crossroads: The Different Kinds of Exits

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Companies get acquired for a few reasons: they’re interesting economically, they’re interesting strategically, their employees are attractive, or they are a thorn in the eye of the acquirer, a foe to be vanquished. Depending on why someone wants to buy your company, the deal and the whole process of selling the company may be radically different.

In any case, you will likely sell for quite some money. Usually, that money arrives in two parts: one directly when you hand over the company, and another when the transition is completed. The first part is usually a big lump sum, while the second part is a safety retainer, a means to keep the founder engaged and motivated. As you will need to transition the company over to the acquirer, there will be a period of time when you will need to train the team that takes over. In many cases, an earn-out may be part of the exit, which means that your second part of the money is conditional to reaching several business goals for the acquirer over a set period of time.

The Financially Motivated Acquisition

If someone wants to buy your company because your financial outlook is impressive, your growth rates are high, and the future looks bright, they will want to buy as soon as possible and keep the business running as-is as much as they can. This is the most interesting kind of acquisition for a bootstrapped founder. If buyers reach out to buy your business for financial reasons, you know you have done everything right.

Your company will be a diversified income source, and the acquiring company will likely need to find someone to fill your position as the owner and operator of your business. The more documentation and automation you have, the better. If you’ve been structuring and running your business the “Built to Sell” way, you’ll be in a very good position to hand it over easily.

The value of your company will be determined purely by the numbers: how much can your acquirer expect to make by running the company for a few years? How easy will it be to continue to grow the business without the founder? How easy will it be to transition the business into their organization? The more value and the less work are involved here, the higher the price.

Acquirers who buy businesses for this reason usually want to get the deal done quickly, as a growing profitable business gets more valuable every day. The earlier they can get their hands on it, the better. This will affect the amount of money they will be willing to spend. To entice you to sell it to them sooner than later, they may pay a premium for your business.

The Strategically Motivated Acquisition

Some companies acquire strategically. Your business may have an excellent customer base for a segment into which they want to expand, or you have some technology that they would rather buy than build themselves. It’s likely that significant changes will be made to your product. Many of your customers will be nudged to buy different products, or they will see dramatic price increases. Unlike a financial acquisition, it’s not likely that things will just go on as they did before.

As the founder, you will need to stick around for a bit, making sure that the strategic benefit of the acquisition is realized for the company that bought your business. As things change, you have to be comfortable seeing your vision distorted and realigned with the strategy of another business. Some founders have no trouble getting back into an employee-like position, and others can’t handle it. Be aware that there will be work, discussions, and decisions that may be contrary to your beliefs, while large amounts of your compensation could be locked up in the requirement that you stick around for a long time.

The amount of money for which you can sell your company is less easily calculated in this case, as this depends on the unique relationship between the two businesses and the context of the market in which this happens. Be prepared to receive completely different offers from different interested parties. The differentiator you’ll have to look out for more than the money is the conditions of transitioning your business.

Be very aware of earn-out conditions (discussed later), which means you have to stay on as the manager of the business and reach certain business goals that someone else will set for you. Many founders fulfill their earn-out obligations without issues, but there is a large number of entrepreneurs who experience a number of complications. 

The Talent-Motivated Acquisition

In rarer cases, a company may want to buy your company to get access to your talent, usually called “acquihire.” This supposes a certain size of your business, but particularly with the skilled technical talent that surfaces through the bootstrapping scene, it could happen at any size. If you’re reliably present in the bootstrapper and indie maker scene, certain companies will look at you and your spirited efforts as a potential addition to their equally ambitious team.

If you’re a solo founder, this can put you in an interesting situation. A company may want to hire you for several reasons, and some can work very well for founders. Look at Stripe and their acquisition of the Indie Hackers forums. They got a great entrepreneur, developer, and community leader in Courtland Allen, and the Indie Hackers community can trust in the fact that Stripe will keep the community running for a long time. A win for the acquirer, a win for Courtland, and a big win for the community.

This kind of acquisition happens most often for businesses who are quite young or aren’t very profitable yet. At a certain point, the value of the business in question will shift acquirers to put in an offer for financial reasons, as the business itself, not just its owner, becomes an interesting thing to have access to.

The Nuclear Option

Finally, a competitor may want to buy your company, take over your customers, and shut down your product, while binding you to a non-compete for a few years. Usually, founders like this option the least, as nobody wants to see the business they built so carefully being eliminated and forgotten. This kind of exit is a last-resort option, and it will usually come at a hefty discount for the buyer. They understand that if you don’t have any other offers, they can offer whatever they want, and you’ll take it. Try to find a strategic buyer so that you at least have some leverage in negotiating your price.

Whatever kind of offer comes your way, understand that they are all signs of interest in your business, nothing more. You don’t have to fear missing out on the perfect offer. If your business has value, you will get multiple offers eventually. You can actively seek out buyers yourself, have a broker do the work for you, or just wait for offers to come in. In the end, it’s all optional, and you don’t have to sell your business if you don’t want to.

If you want to, try finding an acquirer who wants to acquire your business for financial reasons. This kind of exit will have the clearest alignment between buyer and seller interests, and there is a lot of useful information available from other founders. And it will quite likely yield the highest offers you could get.

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