The founder’s playbook for engineering an exit
The framework I used to go from zero inbound interest to a successful exit
The idea that companies are bought, not sold is harmful. It can lead to a feeling that you should always be ‘heads down’ and you should spend no time thinking about how your company will be acquired. If you want an acquisition at some point in the future, this is BS.
The very top 10%, 5%, or even 1% of startups may be flooded with inbound acquisition offers. Maybe the bottom 10%, or 5%, or 1% become obvious fire-sale targets.
For those of us running businesses in the middle, you need to take an active role in creating interest for your company.
If an exit is a long-term goal - or if you reach a phase where it becomes a short-term goal - you cannot sit idly by and wait for it to happen. You must demonstrate high agency and make it happen yourself.
The exciting thing is that this is within your control and that you can go from having no inbound acquisition interest to selling your company for a number that you’re happy with if you just put in the thinking and the work.
The blank piece of paper exercise
If selling your company could be a goal over the next couple of years, here’s an exercise to try. While Claude can do this exercise itself these days, I’d strongly recommend starting with an old-fashioned pen-and-paper, zero-distractions setup. You can perform the exercise a second time with Claude’s assistance rather than totally outsourcing your thinking.
Take a blank piece of paper and write your company name in the centre. Then draw a line down the middle of the page horizontally, and another vertically.
In one quadrant each, write:
Traction/Market
Defensive/Competitive
Technology/Product/IP
Talent
These are the 4 overarching reasons companies buy startups and scale-ups.
Traction/Market: The acquirer values your revenue, your profits, your customers, your user base, your marketing contact database, your distribution, your brand.
Defensive/Competitive: The acquirer wants to neutralise you as a competitive threat, to take you out of the game, to stop you eating their lunch, to consolidate or improve their position in your market.
Technology/Product/IP: The acquirer wants to buy your technology/product/IP rather than try and build it in-house. Usually because it is either faster or less risky. They can then make use of the product - perhaps by selling it to their customer base.
Talent: The acquirer wants you and/or the team to work for them. Perhaps for some specialist capability you have.
Hopefully as you write these reasons down, ideas are starting to pop up around what you have that is valuable for each. You’re starting to think about how your revenue could be useful to a PE-backed company in an adjacent space, or your IP could easily be sold to the customers of a company whose CEO you meet with regularly.
The next step is to draw out each of these sub-reasons in spider diagram style in your quadrants.
Cover at least the ones I’ve mentioned above (for example, one line each for revenue, profit, customers, user base, contacts, distribution and brand in the ‘Traction/Market’ quadrant) but also start to layer in other reasons that might be personal to your company - e.g. your own relationships with potential acquirers, exclusive access to a niche customer segment, some kind of official or unofficial license to operate in a particular industry, a strong position you have in particular geographies, or your super efficient go-to-market model.
To come up with your own personalised reasons, think through everything that is valuable within your company. What do you do particularly well? How do you win? What makes you beat competitors? What have been the key unlocks along the way in your story as a company?
Building the long-list
You should now have 20, 30, 40, or 50 different reasons that an acquirer would buy you. The next step is to start putting company names to each.
Open a new spreadsheet. In the first two columns, type out each reason for acquisition. Now your job is to find at least one potential acquirer for each reason.
Your day-to-day knowledge of running the business, your market, your competitors and tangential markets will get you off to a good start here. You can then pad out the list using AI and search.
Keep an open mind. Your acquirer does not need to look like your company. They can be bigger, maybe even smaller. If you’re a technology company, they can be an agency and vice versa. They can be based in a different country to you. You might have raised venture capital, but that doesn’t mean they must have.
At this point don’t think too much about their ability to acquire you. Only consider their motivation. By the end of this exercise we want at least a hundred different companies in our spreadsheet.
Shortlisting the most important companies
You now have ~100 companies that could be motivated to acquire your business. Now you can start to edit and prioritise the list based on likelihood of buying.
Add columns and ratings for each company on:
Cash position: higher scores for PE-backing, profitability, cash in bank (if public), public companies. Lower points if they’re unlikely to have cash in the bank.
Acquisitiveness: higher scores if they’ve been acquisitive recently, lower scores if they’ve never bought another company.
Relative size: There seems to be a goldilocks zone for the size of the acquirer to the size of the company they acquire (though like all good rules, this is often broken). You can be too small to matter, or too big to ingest.
Ease of access: How easily can you get a 1:1 conversation with the CEO, Chair or someone else very senior? This usually comes from a pre-existing relationship or a mutual connection on LinkedIn
Timing: Are there any clear signals that make this a good/bad time for them? A new CEO or relevant senior leader can signal a good time for acquisitions, as can a new PE owner or recent successful acquisition. Recent lay-offs likely signal it’s a bad time.
Speed of decision making: How painful is the approval process likely to be? High scores if the founder is still leading the company, for example.
Strategic urgency: Can you see a clear strategic narrative that means they could need you right now? Particular pressures from the 4 reasons for acquisition? Maybe they’re losing deals because they don’t have your tech, or your category has suddenly become important to them because of new regulation or margin pressure
Total the scores and sort by top score. You have a prioritised list of potential acquirers.
Making contact
I wouldn’t start with the highest scoring company. Similar to raising an investment round, it’s useful to get some practice before going in for the ideal partner. For the companies scoring 21st to 30th on your list, find your in. Find a mutual connections with the CEO or a member of the leadership team on LinkedIn.
Ask your contact for an introduction. Don’t mention acquisition - just say that you’re exploring partnerships and think there could be mutual benefit from a conversation. Most of the time you’ll get your intro.
Creating your first offer
Once you have an offer for the company, you are responsible for creating the best outcome possible for your shareholders. This makes creating more interest much easier - you can say ‘we are evaluating an offer for the company, and want to know if you’re interested.’
Creating the first interest is more challenging, but doable. In your intro calls with the potential acquirers, you can ask open-ended questions about the future of their business - what their aims are and their vision for the next few years. You’re essentially running discovery like you would with a sales deal, looking for the goals and motivations that the acquisition could help with.
When the questions are turned back on you, you can talk about your ambitions for your company and mention that you’re open to what the next phase looks like in achieving your mission - whether that’s profitability, further investment, or partnering through partial or full acquisition.
If you’re a fit, they will start to have ideas of acquiring you. You can signal openness and start to work on what a partnership (aka acquisition) could look like.
Once you have this first expression of interest - whether it comes from your first conversation or your twentieth, you’re off to the races, and you can ‘run a process’. Assuming you’ve not given up exclusivity, you can approach others on your list and let them know you’ve had an acquisition offer and you want to understand their interest.
You can do it
This isn’t an easy process, but it is fairly simple. You are trying to actively identify companies with the motivation and ability to purchase you, then helping them come up with the idea to acquire you, then working through a sales process to create competitive tension and shepherd multiple buyers to serious expressions of interest.
The first offer that landed for my company was hugely energising at a time when I was feeling burned out. It gave me the energy to push on building the company alongside running the acquisition process.
This acquisition phase - which ended up lasting 18 months - picked me up out of my burnout and gave me a new sense of direction. I’ve since helped other founders create interest in their companies and they’ve reported the same.
I’m hopeful this exercise will inspire more entrepreneurs to take an active role in making an acquisition happen. The juice is definitely worth the squeeze.
P.s. if there’s interest, I’ll write about what happened next; creating competitive tension, negotiations, due diligence, the moment I knew it was done, and what I got wrong, in future posts.