Exit routes are not always detrimental to the organization, it can always be looked at as the next step towards growth
In the 80s there was a phenomenon—corporations making money were considered a bad thing. It was somehow construed that the difference in value between what the customer got
and what the company incurred as cost was a siphoning off of value and that the customer was being cheated. 'Profits' were simply a bad word. Then things changed. Suddenly it occured that the option of ensuring the customers the value for their money and at the same time, the stakeholders making money was a great way to incentivise this value creation process. Capitalism, as we know it, in India was born.
Acquisitions or fundraising get a similar treatment these days. Everybody agrees on fundraising but the companies that have managed to raise funds are looked at the same way as companies that are considering acquisition offers—someone who has taken the easy way out. The two are innately different—one is a promise of work to be done and the other is an act of the reward of work that is done.
Very much like the transition that companies went through in the perception of their profit motives; it is essential to understand that exits are part of the iterative process of building an exuberant startup landscape. While there are many who possess the knowledge of starting companies and people with expertise in sustaining and running them, it is those that have built companies and made an exit who contribute to the knowledge base of an ecosystem.
With the IPO trend in the upswing here in India, there is a trend that seems to be emerging. More and more businesses that have been traditional businesses or ones that have built a single track business are looking out to acquire small and dynamic teams to expand their portfolio, offering and attracting a slightly larger client base.
Here are five reasons you should consider for the exit offer, if you have one on the table:
1. Experience in Cycles
Take a company from start to finish. The more number of times you are able to do that, the bigger you can reiterate your vision and dream towards it. There is an ancient script that says that the end is what counts than the beginning—one couldn't argue with the wisdom behind it.
2. Bigger, Bolder Dream
An entrepreneur who is a first generation explorer has to tread his journey with a bit of caution. Go too far into the deep end and it could be impossible to convince investors, team members or partners towards the viability of the venture and the product. The iterative succession will give one the license to bring to the table, a vision that is not mistaken for a fool's dream—having the credibility in the project and liquidity to even build the first working version with his own money or better yet, go Zoho's way and never take VC money.
3. You are Venture Fundable
Your track record speaks for itself. Experience counts a lot—be it failures or exits, adds up to something and builds a credibility in the industry; something that investors can use to guage your implementation and execution skills. If you bring home enough of an exit for those involved, you can presume that your next venture will not have fundraising issues. You can include marriage proposals as part of this, no more will your future in-laws ask if you can deliver on your promise to give a good life?
4. Reward the Team
When building a venture and especially when deciding as to whether to bite an offer or to keep pushing forward to the next opportunity window, do consider your team—without them all would be nothing more than just dreams. As such it is up to you to also ensure that they could possibly cash out on the promises that were made as ESOP when they signed up. Two other things also happen as a side effect, you will have slightly lesser problems attracting an even more solid workforce for your next venture, and also startups in general will have an higher perceived value for equity payouts. That's ecosystem building at its best.
5. The Next Wave of Angels
There is a funding problem in India and it will never quite get solved till people who have made money in the startup space start funding. We have plenty of them. People who have made money the hard way, one paisa at a time, will find venture investment highly risky and uncertain for their appetite, no matter how you cut it. It's also not just the money but the experience that you bring to the table. To be able to gauge the difference between the near death experience of a startup versus a straight dive to the pit that can make all the difference in giving a company a new leash or shutting it down; if not for a trained eye which has experience to back it up, it can be extremely hard to spot the difference between the two.
If you have been with me so far, one has a logical question to answer. When should one sell? I'd suggest three crucial points when you can consider selling your company.
1. Sell when you are at the end of one phase of the value creation process
If you are riding a hype and have an option to make an exit, none of the benefits that we talked about in terms of credibility might really confer upon you. It's very well possible that you happened to be at the right place at the right time. But if you have built a company and a product and you can prove traction and market positioning, you are definitely at the right spot—the transition so far, and the next level. It's perfect timing.
2. Sell when and only when your product and vision aligns with that of the buyer
If the company is buying you out just so that they can save on hiring, training and team building costs, say no (unless you are doing a desperate sale, in which case just take it for what it's worth). With the current wave of acquisitions being out in the open with an agenda to be able to expand the product range and the market, it shouldn't be difficult to find a company that can find synergies with what you do, and also give you your space to grow in the market position that you have carved out for yourself.
3. Sell at the brink of the founders capability
You as the founder have been a swell captain from day one and now the team has grown beyond you; and you are more tired than thrilled of running the company. You have the option of either hiring a new CEO and a management team around it or get acquired. Be rather straight forward here.
There is a long list of problems that the nascent startup ecosystem in India has and I would bet you that a good number of them would get solved or would find a solution should some exits start happening and people can go beyond the empty promises given to the investors all over. The
entrepreneur is the final product and we are all evolving and just like how we build a company, focus on profitability first, then aim for higher margins and then try to bring in the hockey stick growth and margin. Same applies to one's entrepreneurial lifestyle as well. Sure, the first exit is probably not going to get you enough to retire and buy an island for yourself but it most definitely counts as the first bold step. If you are one of the lucky few, it's worth considering.
Vijay Anand
Vijay Anand is a serial entrepreneur, the founder of Proto.in, and the Vice President (Incubation) at IIT's RTBI. He tweets at
@vijayanands.
To write to the author, please send an email to dare@cybermedia.co.in with the subject line 'Vijay Anand'.
Disclaimer: The views expressed here are that of the author and do not represent the magazine's.
Â
Subscribe to this comment's feed
written by Ivycat, March 18, 2011
| < Prev | Next > |
|---|
