Knowing when and how you'll sell the company you create — even as you're still building it — is a big part of startup success.
Planning an exit strategy early "empowers entrepreneurs to take charge of their startup's ultimate fate," said Touraj Parang, a venture capitalist. And doing so maximizes a startup's "potential for success while mitigating the risks of failure," he said.
Parang, a veteran Silicon Valley dealmaker, is the author of "Exit Path: How to Win the Startup End Game." He spent nearly a decade buying companies.
Let Your Goals Guide Startup Success
When thinking about how you might sell your startup, you must consider its "core values." Those values include its primary mission, vision and principles, Parang says.
For example, what one startup considers a "successful exit" may be considered failure by another based on their respective values, he adds.
One buyer might want the company to break itself up and sell off its parts. Such a plan could conflict with founders' goal of creating a product that reaches a global audience. And it might also limit growth opportunities for employees.
Follow Your Playbook
Following a strategy to find startup success while selling isn't just a theory. It guided Keith Krach at every company he's run, including DocuSign. The former CEO and chairman of the electronic documents company created a playbook to guide company's future.
Once you know your company's "vision, mission, principles, objectives, and strategy," knowing when and who to sell to "all boils down to execution," Krach said.
Build Relationships For Startup Success
If you think entrepreneurship is a solo effort, you're doing it wrong, Parang said.
In today's hypercompetitive and interconnected world, "relationships provide startups with unfair competitive advantage," he said.
This is especially true when it comes to strategic partnerships and acquisitions. These relationships can also help to create startup success.
"Companies don't do deals, people do," Parang said. "In fact, most acquirers have had a long courtship period with their targets before they ever enter into serious acquisition discussions."
Get To Profitability
Early stage startups face a daunting task; they need to sell their products when the product is barely ready or not yet fully built, said Caroline Winnett. She's the executive director for Berkeley Skydeck, a University of California At Berkeley startup accelerator.
But this doesn't mean selling something the founders can't deliver, she says. "Many a success story is due to the ability of the founders to sell a vision. Not a fantasy or a dream, but a vision."
For example, leaders of a successful young software company felt they had a solid enough vision once three clients tested the beta version of their software. That was just the start, though.
"Listen to the customer, and put together a compelling value (proposition) that addresses their needs," Krach said. "Speed is the ultimate weapon in business." He adds that industry leadership is often determined "by momentum — not size."
As undersecretary of state from 2019 to 2021, Krach applied his startup knowledge to cut through government bureaucracy. He worked for securing 5G, advocacy for Taiwan and opposition to China's treatment of the Uyghurs. Krach is a 2022 Nobel Peace Prize nominee for his work.
Seek Options To Sell
If you can walk away from a negotiation, you have the power to dictate its terms, Parang said. And nothing can boost your negotiation leverage more "than having viable alternatives."
These alternatives include access to capital and funding that makes selling your company a luxury and not a necessity.
Alternatives render you more confident and resolute in your demands, he said. "But cultivating and manifesting those alternatives takes years of advance planning. That is why your exit planning should start as early as possible," he said.
