How Startup Founders Can Set Themselves Up For Success Heading Into The Acquisition Process
There are some things you can do in preparing for an acquisition to try and normalize the process and ensure that, ultimately, the decisions you make are the best ones for you, your business, and your team.
Selling your company is seen, in some ways, as the cornerstone of the entrepreneurial dream. For some founders, at least, it’s the thing that powers you through the long nights and early mornings––the goal you start working toward on day one, back when you decided to start a company in the first place.
It’s an exciting time. But for first-time founders, especially, being acquired can also prove daunting. You might not know what to expect or how to ensure the process goes smoothly.
Personally, I’ve sold two companies––my first, Modasphere, and my second, Surebilling. The Modasphere acquisition happened somewhat unexpectedly. My relationship with the company that acquired us began through a partnership discussion, and only into our partnership did it become clear they were interested in acquiring us. In time, my business partner and I realized that selling the company might be the best move for everyone involved.
From there, it took about another six months to finalize the agreement. There was a lot of negotiating and due diligence required before we came to an agreement, and since they were acquiring all of our employees, as well, we had to have a transition strategy in place. With Surebilling, on the other hand, my team was approached by a company that wanted to acquire our technology. Since our company was small at the time, and the acquisition was mostly a matter of selling our tech, the process was quick and easy.
The two experiences were entirely different, which illustrates an important point: no two acquisitions will be exactly alike.
They can happen in 1,000 different ways. This makes planning for an acquisition complicated.
Yet there are some things you can do in preparing for an acquisition to try and normalize the process and ensure that, ultimately, the decisions you make are the best ones for you, your business, and your team. Like, for example:
- Getting to know the company that’s hoping to acquire you.
- Understanding their plans for your company.
- Assessing whether those plans line up with your vision for your company.
This proved essential for me leading up to my first acquisition. It was very important to me, for example, that whatever company acquired us also acquired my employees so they wouldn’t be out of a job. My deciding on this before starting the acquisition process helped make sure that the leadership of the acquiring company and I were on the same page from the beginning.
But the list above is far from exhaustive. Here are a few other things to keep in mind and prioritize if you’re considering selling your company.
For first-time founders, decide whether you want to stay or move on.
In most acquisitions, the founders will have earnouts, so staying on may seem like the only choice. However, I strongly encourage you to be as honest with yourself as possible about this as things will likely not remain the same after the acquisition; you’ll quickly realize that your company is no longer “your baby.”
If you’re hoping to retain control and creative autonomy after an acquisition, you may be in for a rude awakening. Because the truth is, that’s usually not how it works, and you likely won’t have anything close to the same independence or autonomy as you did if you were the majority owner.
Sometimes, even when you do intend n to stay on to reach your full earnout, you may find that the dynamic has changed so much compared to what you were used to that you’re willing to leave money on the table and walk away. I did that myself, and I know plenty of other founders who have done the same. So, be honest with yourself, and if you don’t think you can handle 4+ years of your earnout, you can try negotiating for different packages knowing that you may leave.
Always operate with a “business-as-usual” mindset.
Upon receiving interest from a potential buyer––and deciding internally that you’d like to move forward through the process––your next job is to cooperate and collaborate with them until you reach a final decision.
This process can take a lot of time, and it’s not guaranteed to work out positively. You may even ultimately have to walk away from the table. Still, though, you must make a point to show up to the company you’re still the owner of every day as if nothing has actually changed. You have to keep that business going and keep the machine moving.
That’s why it’s helpful to not only assume a business-as-usual mindset, but to also assume that the acquisition will not happen at all.
Be professional, cordial, and honest with your potential buyers, but make sure you continue running your business as you normally would––because if the deal falls apart, you don’t want it to negatively impact your company.
Increased expectations can be dangerous if you let them run wild in your mind, so always be prepared for the worst-case outcome.
To this end, don’t tell your team about the acquisition right away––only tell them once it’s set in stone.
The reason you can’t tell your team right away is simple: it makes it impossible for them to continue operating like everything is business as usual.
Of course, there are other reasons why you can’t make your acquisition public knowledge right away. NDAs need to be signed, and there remains a chance up until the very end that it might fall through. But, realistically, what occurs when your employees find out about an acquisition is they get curious, fearful and distracted. Their first thought, generally, is: will I be out of a job? That fear makes it impossible for them to go about conducting their day-to-day responsibilities effectively.
And that’s why, when you do tell them about the acquisition, it’s critical to let everyone know that you’ve prioritized their well-being and have taken care of the things they’re sure to be worrying about––including, of course, their continued employment. When we sold Modasphere, we not only ensured our employees would be kept on at the new company, but we secured most people pay raises, as well.
That made internalizing the big news a bit easier for everyone.
At the end of the day, enter into the acquisition with logic, not emotion.
Such a wide variety of unforeseen things can happen. To get overly excited––to stop coming into work or to buy a new sports car––is foolish. For one thing, it compromises your ability to negotiate effectively, and you always have to be willing to walk away from the table.
But it’s also true that an acquisition will only ever go smoothly if you yourself are of a sound, logical mind––and if you’re supremely cognizant of what you want and need out of the acquisition for your company, your employees, and yourself.
Acquisitions may all look different, but your mindset is something you can control heading into one.
Here are other related articles you might find helpful:
Should You Bootstrap Your Company During Its First Year? Here’s What To Consider Before Making The Decision
The 5 Things You Need To Discuss With Your Co-Founder Before Starting Your Business Together