This story appears in the September issue of Utah Business. Subscribe.
Merger, IPO, family succession, selling your stake — there are a lot of strategies for exiting a company. Regardless of the path you take, Paul Burgon, managing partner of Exit Ventures, underscores that the most crucial (and probably the most misunderstood) aspect of any exit strategy is advance preparation. “Successful exits don’t just happen. The most successful exits are years in the making, using proven, established best practices,” Burgon says. Four Utah founders and shareholders share their experiences navigating corporate exits below.
Robert Bishop
Exits: Custom Design Systems, Zinc Software, InfoGenetics, InnFlicks, Miravue
“Your exit doesn’t start when someone comes to you interested in acquiring your company; it begins the day you start your company. You should decide your strategy upfront, and the whole team — founders and executives — needs to be on the same page. Who are the likely candidates? How can we position ourselves to be a strategic play? I always tell founders, ‘Startup with the exit in mind.’ If you do this right, exit opportunities will come to you along the way. Of course, it takes effort, but it’s definitely worth the investment.
Once you’ve identified likely candidates, carefully let them know who you are. ‘We’re X, and we’re doing Y. As a leader in the market, we thought you’d like to know.’ Ask for their counsel on something simple but pay attention because many times the holes that you can easily fill in their strategy or product offering come out in these simple interactions. I’ve gone from being a nobody to being an acquaintance to being a friend to having a vendor-reseller relationship to becoming so strategic that they acquired the company, and all this took place over one year.
Create a data room from day one and put everything in there that’s important as it happens. If you sign an NDA, put it into the data room. If you sign a distribution agreement, put that into the data room. Put monthly financials in the data room. Organize the room so that when people want to do their due diligence, you give them access to the data room and they’re amazingly impressed. All the financial and legal are there.”
Kevin Clegg
Exit: Clegg Auto
“We transitioned into an employee ownership model because I was very disenchanted with exits that result in the next party trying so hard to make extra profits that they make bad decisions that negatively impact the employees and the customer experience. It’s not easy to get everybody aligned on what an employee ownership model should look like, and determining the roles and responsibilities of prior owners and new employee-owners can be challenging.
If everybody’s OK with it, I believe only good comes from exiting sooner rather than later. That’s one of the downfalls of many small businesses: They’re not thinking about their exit strategy, and they’re probably not hiring people with enough of the leadership skills required to make that transition successful. A lot of small businesses never transition; they just shut down because nobody is prepared and ready to take it on.
Meeting employees where they’re at and sharing a little bit more about the company means they understand more about how the business operates, how their role fits in with other people’s roles, and how their job impacts how profitable we are or not. Those things take time, but it’s fun. The negatives or frustrations are far outweighed by the positives of watching people’s journeys and seeing the impact it has on customers and on the individuals themselves.”
Dan Lambert
Exits: Pushpins, Board Vitals, PathologyWatch
“In under six years, we went from zero at PathologyWatch to a successful exit. None of the other pathology companies have exited, so we’re excited to be the one that made it to acquisition. There were three potential buyers: Quest Diagnostics, Sonic Healthcare and Labcorp, three of the largest labs in the world. There’s a process to understanding the large potential buyers in a market. In the case of our buyer, Sonic Healthcare, their culture is very much focused on medical leadership. They didn’t want to hear from the VCs or engineers; they wanted to hear from the doctors. We were pretty deliberate about anyone who communicated with the company being a specific type of certified physician. It’s about really doing your homework on the parent company and understanding what they need.
It can be very hard sometimes to discern whether someone really wants to buy your company or is just running you through. In prior companies, we overcame that challenge by finding a banker who was willing to play bad cop and was very good at forcing difficult conversations. As a founder, you want to keep a good relationship with who you’re going to be working with going forward, so you can’t push certain things. Using a tough investment banker was the right call for that.”
Ryan Westwood
Exits: Simplus, Pathology Watch, Spiff, Comparably, Workfront, Onboard, Conga, Logik.io, PCS
“Years ago, we interviewed a potential executive for a position at Simplus. We decided not to hire this person, and they ended up being hired by Infosys. Later, that individual introduced me to a leader at Infosys who was interested in acquiring Simplus. This is why it’s important to take every interaction seriously and treat people with respect.
Being acquired is a difficult decision because you have many stakeholders to involve. You have to be thoughtful about your employees and shareholders and the value the acquirer will be getting. If you can satisfy all three, your odds of a successful acquisition are significantly higher. The acquirer is always more motivated to provide a detailed post-integration plan prior to the acquisition. I would make sure you understand and sign off on this plan prior to being acquired.”
