Bootstrapped companies take extreme effort to build and scale, and when, even after taking years to create your product and putting blood, sweat, and tears into it, you still decide to sell it, congratulations! You’ve probably already taken the most difficult step.
Giving up your baby is not an easy task. It’s not just about finding the highest bidder; it’s also about finding the right partner that will ensure your legacy lives on. It’s important to understand how to navigate the acquisition process effectively to get the right fit.
Luckily, there are a few tips and tricks that we can share after acquiring over a dozen bootstrapped companies.
To grow a bootstrapped company, a founder has to go to incredible lengths to understand how to be smart and scrappy in using the resources they’ve worked so hard to get in the first place.
And getting an acquirer to understand there’s value in that, means you have to clearly articulate your company's strengths, its competitive advantages, and the potential for future growth.
Granted, just being bootstrapped doesn’t make a company special, so transparency and a straightforward approach to communication could help ensure that you find the right buyer who will appreciate what you've accomplished as a bootstrapped founder.
Research to Do Before the Outreach
The first thing to ask yourself is, What are you looking for? Do your research, and see the potential buyers who, ideally, have already acquired similar companies and did it successfully.
Make sure they have resources and expertise, otherwise, the company may be stuck with the new owner but no innovation or people who are ready to bring it on.
Selling your company is just like selling the product that it creates. That wasn’t easy at first, was it? You have to have a clear positioning in the market. And to do so, you need to be aware of market and industry trends.
It’ll give you an incredible insight into what to expect from the sale process and potentially rid you of the challenges and roadblocks along the way.
Another key thing is to learn a bit about the M&A process itself. It can be long and have lots of details to think about and options to consider.
Come to the initial call with the potential buyers with some basic understanding and knowledge of the process to avoid misunderstandings and have a chance to really streamline the sale.
How to Create an Exit Strategy
Some founders build their companies with an exit in mind; they already know what documentation to have in place and how to make sure it’s easy to put it in the hands of the acquirer and leave into the sunset without further ado.
Some founders only realize their financial information is scattered across multiple different tools and accounts, and getting it together alone can add a few months to the sale process.
It can be hard to estimate what your end game will be. However, having a solid exit strategy is crucial for the long-term success of your business.
First of all, think about what type of exit you want. Imagine your dream exit. Do you want to sell your company to somebody who is ready to put enough resources into it to drive it to the top of the market?
Do you just want to make sure your team is cared for, but how the product will live is not as important after the several years you’ve put into it? Understanding what you want from the exit can really shape your strategy and give you a push toward the right partner.
Next, it's time to come back to Earth. Determine a realistic and attractive selling price for your company. This means going over your financials, customer base, overall market demand, and ways to grow or add value to other products you may merge with.
Understand that this journey doesn’t have to be lonely.
You don’t have to talk to the entire team about your plans, but having a person you trust that can start taking over some of your responsibilities and even help make the roadmap clearer can really help. Otherwise, don’t underestimate the power of advice and a good consultant.
Seek professional guidance that can further shape your strategy and help you navigate through this complex process.
Granted, sometimes founders just want to sell as soon as possible. For various reasons. But no matter how daunting a strategic approach to the acquisition may look, it can absolutely give you the advantage of being in a powerful position and ensure the long-term success of this new chapter.
How to Build Goodwill With Potential Acquirers
We wouldn’t stop talking about building goodwill, and there are reasons for that. For a bootstrapped company, it can be an essential point that could turn the deal around.
And there are a couple of ways to do it:
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Transparency: Open communication builds trust. It’s good manners to be honest about your financials, user base, IP, and growth trajectory from the very beginning.
No company is perfect, and if you clearly state your weak points, serious acquirers will start coming up with solutions that would eliminate their risks and appreciate the fact they didn’t just stumble upon them themselves 2 months into due diligence.
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Confidence: You don’t have to try to convince your buyers that you’re the prettiest of them all. Just clearly address the points that make you stand out in the crowded market. Highlight your intuitive user experience, innovative features, exceptional customer service, or whatever makes your customers love your product.
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Building relationships: Engage with potential acquirers via social media, networking events, and other opportunities to keep the relationship fresh and relevant. Do regular updates about company progress, new features, and steps you’re taking to streamline the potential acquisition, and just keep them in the know to make sure you have something to rely on when you are finally ready to sell.
These steps look easy and intuitive but don’t underestimate the power of intentional communication and building mutual trust with your potential buyers to make your company an attractive prospect for acquisition.
What Information to Present for the Acquisition
No one expects you to hand over the audit papers during the initial acquisition call. But having basic numbers ready is a great way to show that you’ve been doing your homework and have serious intentions.
What data to put on top of the list?
First and foremost, the revenue reports and growth trajectory. This data should show month-over-month growth, churn ratios, and total revenue generated in the past years.
Next, move on to the customer base. Show your user engagement metrics, such as user retention and user acquisition costs. It’s essential in establishing the company's value proposition.
Continue with your unique features and everything that makes you stand out in the crowded market. Talk about everything that’s already been implemented to grab the customers’ attention, and don’t forget to mention the upselling and scalability potential of the product.
Go the extra mile with a financial plan that shows your potential growth opportunities, cost structure, and risks in the next five years.
Presenting a clear picture of your achievements and future potential can really pave the way for a successful partnership with your acquirers. Get the most relevant information together beforehand to increase your chance of successfully selling the company.
How to Stand Out During the Due Diligence Process
It may be your first acquisition deal, but for your acquirers, it’s likely the fifth, tenth, or fiftieth. They’ve seen it all, know what to expect, and have certain expectations toward the information they’re getting.
And while it’s not exactly a talent show, there are ways to really stand out during the due diligence process.
Confidence and clarity are the points that will help you shine through. Confidence in our financials and a track record of profitability. Clarity in understanding your target market.
Getting these things in order will show a solid grasp of industry trends and the ability to demonstrate growth potential.
Last but not least, show how passionate you are about the business. Because if your eyes don’t spark when you talk about it, what are the chances someone else will get excited?
Get your personal story through; talk about the problem that got you to create the product in the first place and how it changed with it.
Financials are always easy to change with the right amount of resources, but enthusiasm and drive are things that could make a whole lot of difference without any investment.
Red Flags to Watch Out for Before Signing Any Documents
Remember, as the founder, you have the power to control the outcome of your M&A agreement. Stay vigilant, ask questions, and don't be afraid to walk away if the deal feels off.
Pay close attention to what you’re signing, and don’t be shy about pushing back or bringing in your financial or/and legal advisor. Read through each clause carefully. Does the nondisclosure clause seem overly restrictive?
Negotiate a more reasonable alternative. Is the payment structure complicated and unclear? Wait until you really understand all the terms.
Some of these warning signs may include clauses that could harm your brand or give your buyers too much control over your company.
After putting in all the hard work and dedication, you should feel great about reaping the rewards. Selling a business is never an easy decision, but when done effectively, it can provide a great outcome.
There are effective ways to get the true value of your company across to a potential buyer. Don't be afraid to showcase what your business has to offer.
Endings are hard, so maybe the most difficult part of the sale is to find your own peace with it. It’s a chance for a new beginning, bringing back the rush of starting a new business. So, set your sights high, and go get what you deserve!