When starting a business, you must have a plan to get out of the business and maximise the business's value in the process. This is where some of the principles we've discussed in the book start to come together.
As your number of customers, revenue and profits increase over time, you're building value in your business, and at some point both you and your investors are going to want to realise that value. If investors are investing an amount of money today, they generally don't want that money sitting there forever. They will want to understand how you're going to add value to the business and then how they can exit the business at the increased value in a few years' time (usually a three- to five-year horizon) and make a significant profit. (Remember the investor pitch (presentation) described in chapter 11.)
Knowing who the target acquirers of your business are and how you'll make yourself enough of a nuisance to get their attention is key from the start. Disrupting and changing the way an industry operates is the ideal way of gaining the attention of large players in your industry. They will need to adapt their business if they are going to compete — which, if they are an old, established business and brand, could cost them an extraordinary amount of money. It may also take too long to change the existing culture and business model, and it may simply be more cost effective to buy the new upcoming business and brand and integrate into or extend their existing business and eliminate a problem opposition at the same time.
As mature businesses develop over time and the early founders and innovators exit, it often becomes harder for a business to maintain its entrepreneurial capability, particularly as new shareholders become more risk averse over time. Depending on the culture of the business and the risk tolerance of new shareholders, they may have a mandate to continually invest in research and development, but many will look for new up-and-coming businesses and technologies they can invest in to take their primary business forward faster and maintain their competitiveness. They will have generally built up a strong balance sheet (asset backing or ‘war chest’) over time and when the time is right, they will go on the hunt.
If your business is performing well and making good returns, you may be happy to keep it moving along and not sell. There's nothing wrong with this, although if you're doing well, you'll most likely get tempting offers along the way so all shareholders will need to stay well aligned and have a clear strategic plan. You also don't want to miss the boat if you don't realise the market is slowly turning and you've left your best days of value creation behind — and then can't get out of business later if you decide you want to. Many people have made the mistake of holding on too long.
So, the trick is positioning yourself in the market to attract the right offer and then picking the right time to sell to maximise your company's value.
With Regency Food Services it was a multinational that was entering the country and saw our business model as the one they wanted to replicate across Australia. We knew they really wanted the business as they had already made about three offers during the year, all of which we had refused. Eventually they made an offer we couldn't refuse, and my brother and I agreed we had maximised the value we could contribute personally and achieved the right price for the business — so we sold it.
Techniques for positioning your business for sale can be in the form of selling your product or service to the target company. Demonstrate the value you provide to them, and the market advantage they have gained and how that is sustainable over time. Make your business critical to their business; keep innovating and evolving so they can see a forward development pathway, but at all times protect your intellectual property via patents and trademarks so it can't be stolen.
Alternatively, the positioning could be achieved by stealing key contracts and accounts from your target business with new innovative ways of doing business, an enhanced product offering or a service that they can't compete with.
Whichever way you choose, you must outline the strategy to investors and incorporate the smart use of PR to build a profile, which will be crucial in the process so that potential acquirers get to read about you, your company, your brand and the market success you're enjoying.
Apart from target competitors, investors also seek to read about successful growing businesses and their strategies, so this third-party validation of your business through PR will often attract more investors if you want to continue to fund growth and build for a larger planned exit in the future.
