Planning for exit: how can you prepare to sell your start-up?

Donald McLaughlin, former director of Cisco Scotland

That’s the advice of experts who shared their own experiences of acquisition during Young Company Finance’s (YCF) 15th annual conference, held on Friday 15 September.

Jonathan Harris, editor at YCF, explained that this year’s theme was ‘Getting to Exit.’ It looked at trade sales from a number of different angles, including how to prepare, how investors can help, and what happens after the deal been signed.

Speakers included Rupert Lyle, formerly director of Barclays Ventures, who said the first thing any company needed to do was understand itself.

Rupert Lyle, former director at Barclays Ventures

“Preparing for exit is a very nice thing for a young company to be considering, but it is way in the future, and they have significantly more important things to be worrying about running the day-to-day business.

“That’s why it’s so important to have a strategy with clearly defined goals, and to make sure you are methodically driving every stage of that. Take a step back and look at the bigger picture.”

At some point, every business will need some form of external support, whether that’s sourcing investment or attracting your favoured new sales manager to your business, and it will help if everyone is on the same page, he said.

“The key thing is stakeholder alignment,” said Rupert. “Every company should make sure that their directors, employees, shareholders, suppliers and customers all understand what they are working together to achieve.

“If everyone is working to the same goal, you can cope with most things the business will throw at you.”

Charles Sweeney, CEO at Critiqom, has been at the helm of four companies as they were acquired. He agreed that preparation and organisation were key to success.

“You should be preparing for exit almost from the start because that will make sure you are organised. Whatever your goal, whether you are looking for investment or good governance, it’s an easier business to run if it’s well organised,” he said.

If exit is your aim, said David Baynes, COO at IP Group, who has co-founded three companies that have later been floated on UK public markets, keep your eye on the prize.

“Assuming that exit is your aim, it makes sense to remember that’s what you are doing as you go along. Most companies are too busy staying alive to consider what their long-term aim is.

“Be aware of other companies in your space, both from a competition perspective and from a ‘who might be your partners’ perspective.”

And when it comes to making a deal, make sure your goals and those of your investor are aligned, because you may be frustrated with the outcome if you don’t.

The best time to do that, according to Charles, was before the business was transferred: afterwards, your control over the company would have waned significantly.

“You need to be prepared for a shift in dynamics. You are no longer in charge and it’s no longer your show. The most important thing is to understand the investors’ plans, particularly what they want to focus on in the first 100 days,” he said

The sales process itself is “exhausting and challenging”, but is a great test of both yourself and the business, said Charles, adding it was enjoyable to work at such a heightened level.

Donald McLaughlin, former director and general manager of Cisco Scotland, explained it was just as stimulating from the other side of the coin.

Cisco, an academic start-up born at Stanford University in 1984, has acquired almost 190 companies in its time, and Donald was close to many of these during his 17 years with the company.

He warned: “You need to be prepared to lose some influence and control.

“If you sell your business for a bit of cash, you may have three years of working in a much bigger company. You may have a very clear idea of how that would look, but there are so many moving parts in big companies, it will probably be very different to how you imagined it.”

All this means the dynamics and company culture tend to change, whether that’s for the better or the worse, from day one, so it’s important to put the staff right back at the centre of your business as soon as possible.

Charles said: “It’s often said that the greatest strength of any business is the people, and sometimes that can get lost when a business is sold.

“During the sales stage, you are looking at numbers, valuations and due diligence, and 24 hours later it’s back to the people and what you need to do to keep the business working.”

That’s what makes the whole process so exciting, added Donald.

“Any new influx of people and technology is brilliant because it keeps the company fresh and competitive,” he explained.

“Bringing people into the company who are very different means new ideas and new perspectives and that can only ever be a good thing.”

For more information on Young Company Finance, go to www.ycfscotland.co.uk