We’ve all heard the stories of companies that started in a garden shed to eventually be sold to Google for billions. So many founders and aspiring entrepreneurs share this dream. But building your start-up for a trade sale takes a lot of forward-planning. Where do you even start?
Having sold my first company, marketing strategy and innovation consultancy, Clear Ideas, to M&C Saatchi for £18.4m in 2007, here are my top five tips that’ll help you to build your start-up for a trade sale says Melvin Jay, the CEO of Gunna.
Your idea stinks until you prove it doesn’t!
We all think our idea is a unique game changer. When you’ve identified a solution to a long-standing problem or have simply spotted a glaring gap in the market, it seems nothing will stop you from taking over the world. Your idea will be a shoe-in in the eyes of both investors and consumers, right? Unfortunately for budding entrepreneurs, this is seldom the reality.
Most founders are good at selling their idea but executing on it is a completely different matter. Investors hear about incredible, world-changing ideas every day, almost to the point where they’re immune to them. The thing that captures their attention is when a founder has demonstrated that the market is ready for this idea, either by showing very positive early traction or significant market research that shows is interest.
So how do you prove the market cares about your idea? You need to challenge yourself every day to pressure-test your concept and maximise your points of difference versus potential rivals. Know your audience and why they would buy your product or service; importantly, learn everything you can about your competitors, so you can identify how to improve on their weaknesses. Hint: even if you think you don’t have competitors, you do. Even the first motor car had a competitor in the horse-drawn carriage.
Your early adopters and supporters are crucial, so be sure to thank and nurture them regularly. Don’t spend your time listening to your critics but don’t ignore them completely. The challenges they present will give you the insight you’ll need to raise your game.
Team, team, team
If you have a great idea but not a great team, then don’t rush to take your product or service to market. You’ll first need to invest your time in finding your co-founders, advisors and other collaborators.
In the modern era of entrepreneurship, it’s unlikely that an individual will succeed in a new venture without an excellent team around them. Beyond the need for a wide portfolio of skills and discipline, there’s also the investor element.
Smart investors invest in the team as much as the idea, as they know that a strong team will be able to overcome most challenges and work out how to make money for the business. In their eyes, the stronger the team, the more worthy the investment will be. If no one is willing to come on board, it might be that your idea or how you sell it isn’t strong enough yet – another reason to prove that your idea can be a success.
Secure a funding strategy and never stop fundraising
Like any building project, your venture will cost twice as much as you originally expected, and it will take twice as long as you planned. Unless you have the money yourself, or just get lucky, it will take much more effort than you think to raise the funds you need. As such, you’ll need to have a crystal-clear funding strategy and review this at each different stage of development.
At each stage, make sure you understand where the most likely sources of funding will be for your evolving business. Who might the early investors be? Who can you target now that you have a proof of concept and an expanded team with new expertise?
Ideally, you’ll have one person in your team dedicated to fundraising for at least 50% of their time. So, when you’ve closed a round of funding, be sure to celebrate your victory – just don’t stop there. Start planning the next round immediately and never stop talking to potential investors.
In-source value creation, outsource everything else
Everyone feels precious about the operations of their business to some extent, but it’s important to decipher what activities truly create value for you – of which you must retain control over – and which would ultimately be better to outsource.
Beyond your start-up’s R&D, programming, sales, marketing etc., everything else should be outsourced to existing suppliers. While it may feel like you’re forfeiting control to a certain extent, outsourcing does two key things that will help to define your success:
- It ensures that you’re able to keep your overheads very low
- It ensures that you’ll spend your time only on activities that create value
Even when you outsource certain responsibilities, you’ll still be able to keep tabs on how this aspect of your business is being run. If the company you’ve outsourced to isn’t cutting it, you can always find another.
Work backwards from the exit
So, you can envision a successful and lucrative exit, right from the inception of your business? Great. But do you have a clear idea of how you’ll pave the way to this end goal? The best way to do so is to work backwards.
Start by identifying early who might be interested in buying a business like yours, then build your business with potential acquirers needs in mind. Here are a few questions that you should be asking yourself:
- Are there gaps in their portfolio? What sort of business would fit well within it?
- Have they had any other deals? What types of deals have they done before?
- What would they look for in an acquisition, and what might be a show stopper for them?
- How big would you need to be before they’d be interested in you?
With your goal in mind, get on their radar in some capacity as soon as possible. Make yourself known to them so that they can track your progress from the start.
The founders who are successful in their business exit are normally the ones who planned it many years ahead. It can be a scary thing to visualise a scenario with so many unknowns, but that’s the difference between a business person and a true entrepreneur.