Sooner or later every startup wants to get acquired. They may not realize it at first. When it becomes clear that the next level of growth requires more time, money, and effort than they bargained for, they look to an acquirer to take their company to the next level. Or maybe they thought their kids were going to take over the company and care for them in their old age, but the kids may have no interest in the business. Or the founders just liked doing the business as a lifestyle with no thought about being acquired, but after decades, they begin to wonder how they will ever get out of it.
For one reason or another, most businesses ultimately want to get acquired. So why not plan on being acquired from day one, even if it will be years away? The fact is that when you are ready to sell your business, you may still have to wait years before your business becomes attractive to an acquirer.
Most startups today go into business with the express purpose of being acquired. They want to cash in on their brand equity, their following, and their chart of accounts. They realize that every day before that acquisition will be spent building their business. In fact, every bit of profit will go back into growth, so owners won’t be able to take out much until acquisition.
So how do you prepare your company to become an acquisition target? Here’s our short list:
- Select Your Acquirer. Identify the 3-5 potential acquirers who are most likely to buy your business. Discover exactly why your business is a great fit for them. Does it expand their line of offerings, or expand their territory? Does acquiring your business prevent their competitor from buying it, giving them an advantage in the marketplace? Knowing who and why will guide your growth strategy so it’s better to do this before you even get started.
- Know Your Numbers. Take a business broker to lunch who is familiar with your space and who has bought or sold a business like yours. Ask him for the numbers. How big was the business when it sold? Number of units per year, number of dollars per year? Multiple of earning? Percentage of market share? Years in business? Size of the market? Number of platforms? Number of followers? Rate of growth? And more! These numbers will be your target and milestones to your progress.
- Own Your Space. You don’t have to be a big national brand to be desirable to your acquirer. But you do have to dominate your space. This means that you rule in your narrow niche, whether that’s geographical, on line, or a specific application. This requires you to make some tough decisions early on about what exact business you are in. You must not spread yourself so thin that you can’t service what you’ve sold. You want first to be the big fish in the small pond.
- Be Scalable. Your acquirer will benefit from efficiencies of scale. They already have the cash, infrastructure, influence and reach to expand your business, product, or brand. They use scalability to justify the purchase and pay you its true value.
- Automatic Pilot. Your business should be set up to run without you. This may take years but makes the acquirer less dependent on a person or a personality. Look for ways to delegate. Identify and codify every policy and procedure so you can offer a clean, well thought out and low maintenance package.
There’s much more to be sure, but these are our top five steps to get you to Payday!
Who Are We.
Having built and sold a bestselling national brand, we appreciate the value of brands and everything it takes to make them successful. Companies are valued by their brand equity. Achieving and maximizing brand equity requires tremendous respect for all your customers, from your wholesaler to your end user.
Starting in our laundry room with no money and no knowledge of the industry, we built the famous Barefoot Wine brand. We learned a lot they don’t teach in school and much of it the hard way. Although our success was in consumer products, our real world experience will be helpful to anyone looking for information and advice about brands.
We have written the New York Times Bestselling Business Book, The Barefoot Spirit: How Hardship, Hustle and Heart Built America’s #1 Wine Brand, which chronicles the history of the famous brand from its inception through its acquisition. Our book is now required reading in schools of entrepreneurship across the country. We hope this book will provide inspiration and encouragement for all those contemplating starting a brand or wanting to improve their existing brand.
Michael Houlihan and Bonnie Harvey
-Barefoot Wine Founders