Selling Your Startup

Why Read: Understand the reality of acquisitions, the importance of value creation, and the dual focus required in leading a venture-backed company. It provides crucial insights for strategic decision-making.

Featuring: Greg Shove (@GregShove), Co-Founder at Personal Math and Taylor Malmsheimer (@taymalm), COO at Section

Link to Article: “Your startup is always for sale”

Key Concepts and Tactics:

• Differentiate on Brand:

  • Understanding the "Always for Sale" Mindset:

    • Point: Recognize that investor-backed companies are always open to acquisition offers, regardless of public statements.

    • "We're always for sale. Honest, but not great for anxiety. At Section, we raised $37M from investors – and my job is to return that capital (and hopefully more!). So I'm always thinking about selling the company. At the same time, I think I could be running Section in 10 years (assuming I don't get fired first – which happened when I was CEO of FirstUp, a company I founded and ran for 10+ years)."

    • "First of all, if your company raised capital from investors, they are always trying to be acquired."

  • Recognizing the Rarity of IPOs:

    • Point: Understand that acquisitions are the primary exit strategy for most startups due to the declining frequency of IPOs.

    • "Only 54 companies IPOed in the US last year – and just 9 of those were tech companies."

    • "Going public is rare – and it's becoming less common, which means acquisition is the only way the vast majority of investors can get a return of capital."

  • Understanding Value Creation for Potential Buyers:

    • Point: Focus on creating value that would be attractive to potential acquirers.

    • "Can your product plug into a buyer's distribution or sales network and accelerate the buyer's growth? In other words, do you have a product they'd rather buy than build?"

    • "Can the buyer leverage your product in their business within 12 months?"

    • "Are you close to break-even, or better? Acquirers don't want to buy companies that are hemorrhaging capital, especially in today's funding environment. They need the fundamentals to be working with a clear path to profitability."

  • Recognizing Acquisition Scenarios:

    • Point: Be aware of the two main scenarios that lead to a company sale: formal sale process and inbound offer.

    • "Scenario 1 – A formal sale process: A formal sale process occurs when the CEO or board hires an investment banker (or uses a lawyer/CFO) to run a 3-6 month process to solicit bids and sell the company."

    • "Scenario 2 – An inbound offer. Sometimes, this leads the CEO or board to hire an investment banker and run a sale process to test the market and see if the offer is competitive."

  • CEO’s dual focus:

    • Point: Understand the CEO's dual focus and prepare for potential changes.

    • "All good startup CEOs are always doing two things at once – trying to build for the future and be as attractive as possible to potential buyers in the short term."

The Value of Exit Interviews

Why Read: Understand the importance of exit interviews in improving organizational culture, addressing employee concerns, and gaining valuable insights for retention and growth.

Featuring: Admired Leadership (@AdmiredLeaders),  a development program focused on leadership behaviors that create loyal followership & results.

Link:“The Fabulous Discomfort of Exit Interviews”

Key Concepts and Tactics:

• Understanding the Value of Exit Interviews:

  • Point: Recognize that exit interviews provide valuable information for organizational improvement.

  • "When they conduct Exit Interviews with team members who leave the team for whatever reason, the best organizations garner a wealth of valuable information about how to improve. Questions regarding how the enterprise met expectations, the quality of the training they received, and suggestions for enhancing the culture are gold in the hands of those who want to improve."

• Overcoming Resistance to Exit Interviews:

  • Point: Acknowledge and address leaders' concerns about negative feedback.

  • "The reason some enterprises choose to ignore this best practice comes down to how receptive leaders are to supporting it. Exit Interviews and the data they provide are typically dreaded by the leaders who manage the departing colleague. That's because those leaders know many of those leaving the organization are disgruntled and have an axe to grind."

• Extracting Value from Criticism:

  • Point: Recognize that even harsh criticism can contain useful insights.

  • "Unbridled criticism can be uncomfortable but still supply a bounty of ideas worthy of action. Of course, not every colleague who departs is disenfranchised. Not providing them a forum to comment on how the organization can improve is a big miss."

• Implementing Effective Exit Interview Processes:

  • Point: Use appropriate questions and independent interviewers to gather meaningful feedback.

  • "The ideal off-boarding interviews are completed in person by an independent third party and last 30 minutes or less. In addition to ideas and insight, they serve to close the loop with the departing colleague in a positive fashion."

• Utilizing Exit Interview Data:

  • Point: Focus on actionable insights and disregard unproductive complaints.

  • "The best organizations share the leader's concerns and promise to pull out only those actionable comments worthy of consideration. They commit to ignore the rest."

• Embracing Discomfort for Growth:

  • Point: Accept that the discomfort of feedback is worth the potential for improvement.

  • "Deciding what comments to absorb and what complaints to reject as sour grapes is up to the leader or reader. But the small discomfort the answers create is usually worth the effort."