5 Moves to a Successful Exit in Tough Times

Since the IPO meltdown in late 2021, acquisitions have been on a roller coaster. Company valuations plummeted in 2022 causing strategic buyers to pause their acquisition activities. Private equity firms that still had cash scooped up scaled companies at lower prices. High interest rates kept many acquirers on the sidelines.

Finally, this September, we saw a small signal from the Fed that helped jumpstart the market.  But will it be enough to bring acquirers back to the table? And if so, when?

Some companies might wait to see what happens next. But smart companies don’t wait for the perfect market to orchestrate a successful exit.  They take control of their acquisition strategy by learning these five moves.

Date early and date often 

Founders and CEOs love to talk about how they would rather be bought than sold—as if most companies just go about their own business and eventually acquirers come knocking at their door. But waiting for an acquirer to come to you is a fool’s errand for all but a very few outlier companies—and not a mental model founders ought to rely on.

Getting acquirers interested in your company requires similar strategies to getting VCs interested. It’s not enough that they know your company exists. They have to get to know you. And you have to get to know them. This isn’t an inside sales effort. To become strategically interesting to potential acquirers, you must develop relationships as though you are building a strategic accounts sales strategy. Get off Zoom and on a plane, or in a car. Tell them you’re in town and suggest a meal, a coffee—some way to break bread and start building a relationship.

I often hear CEOs tell me they don’t want to reach out to potential acquirers because it might make them look desperate. If an enterprise salesperson said that about reaching out to a customer, you’d fire them. Whether you like it or not, you are the salesperson for your business, and you should be constantly pitching, even if you don’t want to sell.

First meetings are like first dates. You’re not proposing. You’re just getting to know one another. And don’t just stop at the first date. Build the relationship. You won’t know when an acquirer will be ready to acquire you—but when they are ready, you want them to have already fully appreciated how your business can help theirs grow.

Become the doctor, not the patient 

You wouldn’t try selling a product without first understanding why customers would want to buy it. Yet in my experience, founders regularly fail to understand what drives a company to buy another company. Like customers, acquirers are more likely to buy a company that solves their pain point rather than one that helps them be a bit better. So as a startup, you need to be a pain reliever for two different audiences: your customers and your potential acquirers.

As an operator in acquiring companies, I have often been approached by startups with a pitch deck explaining how the startup’s business could grow faster if we bought them and used our larger sales team to sell their product. But my job wasn’t to grow their business—it was to grow ours.

Don’t tell them what they can do for you — tell them what you can do for them.

Rethink your roadmap 

As you date more and talk more, you may come to realize that what you’re currently offering isn’t what many—or any—acquirers out there are looking to buy. Your current offering isn’t solving their pain point. It might not even be a “vitamin” that helps them feel a bit better.  It may just be irrelevant to their strategy.

If that realization hits you, you have a hard choice to make. Go it alone and try to build a successful stand alone company, through any market condition, or pivot your roadmap to better fit within the strategy of your potential buyers.

Reimagining your roadmap in order to increase your acquisition optionality is a bold move inevitably requiring some kind of pivot. But this pivot might not have to be a significant one to set you on course to intersect with your potential acquirers. It might involve realigning your product strategy, or your business model.

How do you know where to pivot? Talk to the close contacts you’ve developed at your potential acquirers. Share your thoughts with them and get feedback. Many founders fear that sharing information can lead to someone else stealing their idea. That could happen, but it’s more likely that not sharing will leave you charting a course that closes more options than it opens. Chances are, you have some incorrect assumptions that can only be vetted by sharing them.

Only by aligning your roadmap to as many potential acquirers as you can will you be able to take control of your acquisition strategy, regardless of market dynamics.

Invest in your next level leadership 

Acquirers aren’t just buying your product—they’re “buying” your team. They want to know the people actually doing the detailed work—the next-level leadership—are competent, reliable and likely to stay through an acquisition.

Sometimes, an acquirer attributes significant value to the founder or the startup’s executive team. But more often, acquiring companies realize that founders and executives are hard to retain—sometimes because they make so much money from an acquisition that they aren’t as motivated to work hard post-acquisition; sometimes because they don’t like not being in charge; and sometimes just because they are burnt out. And so companies look carefully at the next-level of leadership to see if they have developed the critical knowledge about the acquired company’s operations, customers, and products to be able to continue growing the business post-close without disrupting operations.

Acquirers buy for continuity. They’re not interested in rebuilding your team, especially in a challenging market. To ensure your business maintains value through an economic cycle, make sure your next-level leaders are able and willing to step up.

Do more with less 

It takes time to negotiate your way to a successful acquisition.  And in tough times, it takes more time. Preparing for an exit is not a thing you start doing when you realize you’re running out of cash. So while you are working on the moves described above, also work on extending your cash runway. Not only will this give you more time, but getting more profitable (or less unprofitable) also makes you more attractive to acquirers.

Nearly every company can take the following three steps.

1. Let go of those unproductive employees—the ones everyone knows are unproductive but that no one has done anything about. In most companies, headcount is the largest expense.
2. Kill projects that don’t move the needle. The more employees you have, the more pet projects you have. Be ruthless about aligning work against the roadmaps that maximize your business’ value.
3. Move beyond people performance reviews. Measure product performance and project performance. Make sure you understand the value you get for the dollars you spend.

Successful acquisitions are typically the result of years of preparation.  Make sure you give yourself enough runway to fully prepare.

Take Control of Your Acquisition Destiny 

You can’t control interest rates, market cycles, or acquirers’ timelines. What you can control is how you respond to them.

Too many companies grew overly accustomed to the frothy markets that extended overly nearly a decade leading up to 2021. Now, with the market having softened, these companies find themselves caught off guard with a tentative IPO market and wary strategic acquirers still hesitant to pursue acquisitions.

Instead of reacting to market conditions, take control of your destiny by

• getting in front of potential acquirers, even when you aren’t ready to sell,
• understanding what they want to buy, rather than what you want to sell,
• being prepared to realign your roadmap to better intersect with theirs,
• making sure your next-level leadership is capable and committed to maintain the continuity of business operations, and
• building an efficient operation that doesn’t drain your bank account before your acquirers are ready to buy

These five moves will maximize your exit options even in the toughest of markets.

Written by Mona Sabet.

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