As entrepreneurs thinking about selling, you and your partners must be crystal clear about why you want to do that.
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As the CEO of a public company, your job is twofold: ensuring profitability and protecting shareholders. That’s likely a big reason why the board of Silicon Valley darling Snowflake Computing recently named Frank Slootman its new CEO. The ex-Greylock Partners VC has already taken two tech companies public, and his appointment as CEO of Snowflake Computing suggests an IPO may be just around tthe corner.
That shake-up at the data storage firm provides yet another example of why startup founders considering selling or even taking on additional shareholders should think carefully about what they’re trying to accomplish. All entrepreneurs must understand that a company’s goals will change after an acquisition or the sale of a large portion of equity. And when goals change, people frequently change.
Traditionally, it hasn’t been easy for entrepreneurs to retain the startup mentality while becoming a more established corporate organization. Many entrepreneurs don’t understand that an acquisition means they’re suddenly a small division within the parent organization. That’s why it’s common for the executive team of the acquired business to leave or be absorbed into the parent company’s management team. Moreover, about 30 percent of employees perform overlapping functions if both companies involved in an acquisition operate in the same industry. So, layoffs are the logical conclusion.
Related: 5 Tips to a Successful Merger and Acquisition
That said, large organizations are beginning to see the value of bringing on entrepreneurial teams to serve as internal disruptors. This was the case when my company, Schmidt’s Naturals, was acquired by Unilever in 2017. That transition taught me a number of valuable lessons about how entrepreneurs can maximize returns before and after a buyout.
Why stick around after a buyout?
I co-founded Schmidt’s Naturals in 2015, and my biggest priority leading up to the acquisition was making sure all stakeholder goals were aligned. For any entrepreneur thinking about selling, you and your partners must be crystal clear about why you want to sell. You’ll want to define what your company is trying to accomplish through the acquisition and ensure everyone is on the same page.
Sometimes, a founder or CEO needs to leave after an acquisition. That decision often boils down to one factor: When you built the company, were you doing it to enrich yourself or to solve a problem?
Different founders have different motives. Some want fame and fortune; some seek enrichment; and others are passionate about changing the world. For founders who have a creative bent, for instance, staying on after an acquisition to pursue the goals of a large organization doesn’t align with their personal values.
I ended up serving as the CEO of Schmidt’s Naturals after the Unilever acquisition, and immediately took on a host of new responsibilities. Instead of building the company, I suddenly found myself supporting a much bigger ship than the one we had originally built. I was comfortable in that role, but that might not be true for every entrepreneur.
Related: The Case for an Early Buyout
Whether you’d seek the same opportunity or not, here are a few ways in which to position your startup to maintain momentum well beyond the initial transaction.
1. Think of your business as a living entity.
When you’re building a business, your brand is a living being — it’s like a kid. It starts off as a baby, and you have to help it navigate through the world. It matures to become a teenager, taking on its own personality along the way. And then, by the time it’s an adult, your business is ready to make an impact on the world — with or without you. Its health is ultimately measured by cash flow: Profit is the blood flowing into the business, and loss is blood flowing out.
Like raising children, running a business involves making mistakes, learning from them and looking for patterns that can help you adapt for the future. “Patternicity,” a term coined by writer Michael Shermer, is defined as the ability to discover patterns in a chaotic, noisy world. Your business will face plenty of challenges as it grows. By filtering out the noise and focusing on what works, you’ll be well on your way to “raising” a successful company.
2. Have an exit strategy, but don’t be afraid to pivot.
A lot of founders and creatives have an exit strategy that involves cashing in on their idea. Others view themselves as visionaries and want to share a product they believe in with a world that they believe needs it.
Figure out your long-term plan as early as possible. As you grow, make sure all stakeholders — including management and investors — agree with that plan. The sooner you define it, the better odds you’ll have of being successful. Entrepreneurs who wrote out a plan in the earliest stages of starting their businesses were nearly 10 percent more likely to succeed, according to a study from Harvard Business Review.
You’ll inevitably encounter new opportunities, new threats to your business or new market needs that could give you a reason to change course. My original plan for my company was to issue an IPO, but building the infrastructure for that would’ve taken me a decade. I was fortunate to connect with Unilever because the acquisition allowed me to take my company to the next level in a fraction of the time it would have had if I stuck to my original vision.
Related: The How-To: Building An Exit Strategy For Your Business (Even Before You Start)
3. Play the long game.
This advice is applicable regardless of how big or small your company might be. Your team might only be you and a few others right now, but it could balloon to hundreds or even thousands of employees and millions of customers. Stay focused on long-term success at every stage.
Amazon started with Jeff Bezos selling books online. It doesn’t get much simpler than that. The company has since evolved quite a bit from that original structure, and it now serves a staggering number of shoppers all over the world with first-quarter sales of nearly $60 billion.
The bigger you get, of course, the harder it is to maintain growth. As the third most valuable corporation in the world, Amazon is massive and still growing. Bezos has been forced to spend heavily to ensure the company remains a major player in everything from AI and smart home technology to cloud computing.
None of those investments will pay off tomorrow. In truth, some might never pay off. But this focus on the long game is why Amazon has been so successful. Ultimately, that sort of long-term vision will help you achieve success — regardless of how you define it.