The best companies are bought, not sold

The best possible exit is one in which a competitor, a supplier or a customer wants to buy your company because you offer a strategic advantage to his company.

If you go on the road trying to sell your company it immediately begs the question, why isn't the owner interested in keeping this company? Even if you have a good answer it will not help you to defend your price.

Ignoring for the moment the crazy valuations that we occasionally see in the social media arena, a company which provides services (i.e. sells the hours of it's employees) will typically be purchased at 1 to 2 times its annual revenue depending on a great many factors. A company with an exciting physical product and recurring revenues (like royalties or license fees) might sell for 4 to 6 times revenue. The multiple of sales is higher if the sum of the two companies is greater than the parts, i.e you have a better product and they have the sales network to really make it big!

If you want to maximize your company's sale price you are best to concentrate on growing your business, make trouble for your competitors, and improve your profitability. You will never be so attractive to an acquirer as when you look like you don't need to sell.

Never let the lawyers win

Every entrepreneur should be able to read and understand the legal agreements that they sign. Lawyers may make assumptions about how you want to run your business that are far from your real wishes. Spend the time to painstakingly read at least one user-license agreement and try to understand what purpose each paragraph serves.

Legal agreements are not going to be any good to you if the will to cooperate is no longer present, forcing an unwilling participant to adhere to his legal obligations is unlikely to have a positive outcome.

Try writing the intent of your agreement in simple, clear language and have your lawyer review it. It will be cheaper and is more likely to meet your actual needs. More on what to do if you are sued in the next post...

Don't fear competition

Don’t avoid your so-called competitors.

You should be talking to them (without giving away your business strategy or long term plans), cooperating to serve customers, and sharing leads when you can’t or won’t serve them. I like to call this co-opetition.

If your product and service are superior then you will outperform the competition over the long term. In the meantime they could be potential acquisitions or acquirers and you want to have a healthy, friendly yet business-like attitude towards them.

When I meet people who are obsessed by the competition I always ask 'Are you smarter than them? Do you work harder than them?' The answer to both questions is always 'yes' and they suddenly seem a lot less menacing...

StartUps are coin-operated

You must get paid for your services; many customers will force the scope of work to creep up by adding new tasks which they tacitly expect you to “eat” at no extra charge. You can invest in the relationship by allowing a certain amount of this to happen (say on the order of 10% of the contract value) but make sure that they are aware of the cost and effort of this extra work. You want them to come back but also you want them to recognize the value of your services. Sometimes it is I better to walk away rather than to agree to everything.

The best customers will prepay you for travel or make downpayments on the work because they realize it is in their best interest that you have the resources to deliver ...

It is all about energy

Ration your energy, use it only on important things (and knowing what is important is the hardest part) but be ready to give all of your energy to the company for the foreseeable future.

Customers will be impressed when you hop on a plane at a few hours notice to fix their disaster and this will build loyalty and a sense of teamwork with them. 

If the problem is not your fault make sure you bill them. If it is, make sure you apologize and make it up to them. They bought the product from a startup knowing that there might be  problems but also trusting you to fix them.

Either way you will build a healthy business relationship and a reference for how well you react when things go sour.