As a bootstrapper, I had a complicated relationship with the topic of acquisitions. I rejected the idea that an exit strategy was an important part of running a great business.
First, I believe that entrepreneurs are conditioned by our media, society, peers, and their investors (if they have them), to think that selling their business is the ultimate manifestation of success.
Now that I have experienced the arc of scaling a profitable business and achieving a positive cash exit, I see the alternatives to selling more clearly.
On the one hand, I have appreciation for the commitment and vision it takes to turn down a lucrative, flattering, possibly life-changing offer in exchange for continuing to roll the dice and play the game.
On the other hand, I’ve since met several founders who turned down good offers, only to see their business decline to a shadow of itself a few years later.
There is no guarantee that if I had held onto my company, we would have continued to experience our success unabated. However, as one of my VC friends (quite versed in acquisitions) told me as I was considering my options,
“Jason, if you decide not to accept this offer, you are not negotiating for a better deal, you are deciding not to sell. That means you are deciding to put your head down and continue to build the business good or bad. This is a 5 year decision.”
In other words, the alternative to selling a successful business, is a commitment to a continued evolution, iteration, and reinvention.
Investors like to ask funded entrepreneurs: “What’s your exit strategy?”. It makes sense that an investor wants to know if the person they’re giving money to has an idea of how they will get it back (plus some!).
In my experience building ShipCompliant, I felt having an answer to that question drew me away from the long term. I also believed that the existence of an “exit strategy” didn’t align with the fundamentals that form the foundation of great businesses.
I believed that I should focus on building a GREAT (culture / customers), PROFITABLE (sustainable), and DURABLE (recurring revenue, low attrition, deep competitive moats) business. If I was planning today, in order to sell later, it would have lead me to make short term decisions with negative long term affects; for example, raising prices on current customers and ignoring their support issues and feature requests, or taking my eye off of new logo growth in pursuit of extracting more revenue from my current crop of customers, or, worst of all, making exceptions to our hiring standards in order to “move faster”.
For this reason, I decided bootstrapped businesses shouldn’t have an “exit strategy” if they desired to build a GREAT, PROFITABLE and DURABLE company.
I was wrong.
I had confused an exit strategy with the question: “how will you sell your company?”. When in fact, an exit strategy is more a vehicle for determining a long term vision for what one wants out of their business. What do I want my ideal life to look like 10, 20, 30 years in the future? How can my business best serve that vision? Is my exit strategy to fully cash out and leave? Or is it to eventually see my fledgling business become a holding company of several businesses across many industries? Is it to see my role diminish, but ownership stake stay constant? Is it to take enough capital off the table to become debt-free and cover college for my kids? An exit strategy can inform an infinite number of possible paths.
Now that I have sold my company, and left the business, the suggestion I give other entrepreneurs in this position is to answer the question: “What do I want my ideal life to look like 10, 20, 30 years in the future?”, and document it during a time of relative calm and unimportance.
At ShipCompliant, after 12 years, and a lot of ups and downs, my team and I were successful in building a “great, profitable, and durable” business. Lo and behold, I started receiving unsolicited acquisition offers — eventually reaching multiple parties and meaningful multiples, that I started to take the idea seriously.
Without my exit strategy thought through and written down, I found myself reacting to the offers – reacting to the option of selling or keeping the business for the long haul. My time, gut, and brain were consumed with questions like: “Who is the better partner?”, “What are the right terms?”, “How do we keep the business performing during this process?”. Those are BIG questions. Once I layered on: “What do I want in my life?”, “How can this best serve my family and those I care about?”, “What will I do next?” and, “What actually matters most to me professionally?” — it became a big, stressful mess.
Alternatively, if I had been clear in my personal vision and how I saw my business best serving that long-term vision, there would have been a quick, painless, binary decision on whether to take the second meeting with the acquirer in the first place.
Create the exit strategy by: 1) Thinking through and capturing your long term personal vision, and 2) Once a year, review how your business is best serving that personal vision.
Knowing what you are going to do next, after selling, is the number one precondition to having a happy exit, as noted in Bo Burlingame’s recent book, Finish Big.