Good salespeople are successful through a process of careful and informed evaluation of which customers to work and which to defer until later. They focus their efforts on the best return during the limited hours in the day. Why not develop an exit strategy with the same approach? Consider the startup company as “the product” and the acquirer as “the customer.” Why not create a startup with a short list of acquirers in mind? Why not run a startup with a strategy that focuses efforts on things that make the startup a more appealing, more compelling target to a short list of acquirers?

Large companies are charged by their board of directors to grow at a rate of 10 to 20 percent per year. Anything less than 10 percent revenue growth increases the likelihood that investors will move their money into other investment opportunities with higher potential returns. Investors demand growth, otherwise they place their money elsewhere.

Large companies cannot reliably depend on generating growth at these rates with internal organic growth alone. When buying a smaller company, a large company can select best of breed and the business benefits are immediate. Big companies must acquire.

Let’s look at the other side of the equation. What about the target companies — those that plan to be acquired? Why not efficiently execute a business from the start that is purposely built to be an appealing acquisition target for specific acquirers?

Worth Considering
>>What’s the short list of acquirers?
>>What strategic gaps does the acquiring company suffer?
>>Who are the customers of the acquiring company? Are there unmet needs? Are there adjacent markets?
>>How might the startup establish a leverageable position by creating a competitive dynamic against the acquiring company?
>>What are the other startups that may be considered for acquisition rather than your startup?
>>How is your startup better than other startups for acquisition? For example, better technologies/IP; better customer list; better brand, awareness or demand; better channel; etc.

Most of this boils down to knowing your customer (the acquirer) and motivating that customer (by both carrot and stick) to buy the startup.

Create a Carrot
>>Identify your most likely acquirer and then create a short list of those who might buy the startup.
>>Identify key weaknesses that you can fulfill. Where is their pain? What’s hard for them to compete against? Ask their salespeople; ask their customers.
>>Identify key adjacent markets you can help them address.
>>Identify key competitors you can help them defend against.

Create a Stick
>>Sell your products in such a way that they create a competitive problem (pain) for your potential acquirer.
>>Provide enabling technologies to other companies that directly compete with the acquirer, especially adjacent markets that are included in the growth strategy of the acquirer.

A startup exit strategy should include a clear picture of who will acquire and why. Acquisition value can be increased and time to acquisition decreased by creating pain, i.e., “the stick,” for a specific acquirer. All decisions should be made while considering, “Does this make us more valuable to the target acquirer?” While running the startup, there can be and should be course corrections such as: which markets to target, project planning, staffing, channel decisions, strategic customer decisions, sales office locations, product positioning and promotion decisions. All of these decisions should be made while giving thought to the issue of becoming more valuable to the target acquirer.

Hubbert Smith is a Salt Lake marketing consultant with significant results in strategic marketing, new product development and competitive positioning for industry icons such as Intel, Western Digital and Samsung, as well as early stage companies. Smith is a patent holder and published author. He earned a Bachelors of Science in Electrical Engineering from Auburn University.