When we start a business, we are optimistic that we will succeed and dream of riches to follow when the company is sold or even participating in an IPO. Some of us build our businesses to be lifestyle creations, destined to provide for our families but not necessarily as creators of great equity upon an eventual sale. But most of us dream of selling the business someday for lots of money and building our wealth upon that event.
So it is important to envision that end game even at the outset, especially when planning to take in money from others as investors, all of whom will seek a payoff someday in a sale or IPO.
An effective way to do this is to make a list of up to ten possible future buyers of the business, and to spend time defining what those buyers would want when purchasing your business. Would it be your intellectual property? Your skilled employees? Your brand and market recognition? Your distribution channel relationships? Whatever you envision that value to be, you should work to build that portion of your business by paying special attention to it as you work to build the operation.
Step by step as you make decisions to allocate your scarce human and financial resources, you should remember where the ultimate value should be at the end game. It will help you to explain the value of your business to potential investors and certainly help focus your efforts as you advance toward that goal of a liquidity event in your future.
Great insight. However I would also caution the reverse perspective as well… that entrepreneurs be careful to not get blinded by the dream of an exit. At our companies, we believe in building a company that we want to keep forever. Something that someone wants but cannot have becomes an object of desire and commands more attention without asking for it.