We’ve all heard tales of bedroom entrepreneurs that end up selling their companies for billions.
It’s a dream that’s shared by many current and aspiring business owners. However, assembling your start-up with the ultimate goal of a trade sale takes a lot of preparation. What’s more, it’s hard to know where to begin.
When launching Gunna, an award-winning range of low-sugar craft soft drinks, I drew upon my previous experience of building my first company, a marketing strategy and innovation consultancy called Clear Ideas, and selling it to M&C Saatchi for £18.4m in 2007.
So here are my top five tips to help you build your start-up for a trade sale;
1. Prove your idea is worthy
We all like our own business ideas. When we think we’ve managed to solve one the world’s many problems or have noticed a gap in the market before anyone else has cottoned on, we assume the rest will be history.
However, fledgling entrepreneurs often fall short of realising such dreams.It’s not that founders are necessarily bad at pitching their idea, it’s the actual execution that often falls short.
Investors are used to hearing about world-changing ideas, and so they become harder and harder to impress. They’ll also need to be satisfied that there’s a market demand for this idea, demonstrated via market research or strong early sales figures.
To prove that the market is ready for your idea, you’ll constantly need to challenge your concept, ensure that you stand apart from your rivals, and improve on their weaknesses.
You’ll also need to understand your audience and their need for your product or service. Even if you don’t think you have competitors, it’s worth considering where they might come from.
Also be sure to take care of your early customers, engage them and thank them often. They believed in your idea from the start and will help you on your journey in breaking into the wider market.
Likewise, don’t pay much attention to your detractors, but don’t outright ignore them either. While you might not be able to change their minds, their critical points will help you to strengthen your ideas.
2. Build a great team
A great business idea can almost come out of the blue, and in that sense, be somewhat effortless. Building a great team for your start-up though, can take many years and thorough searching. Without one, you shouldn’t be in a rush to bring your idea to market.
All great startups are buoyed by a strong team, which will help to cement your business and propel your idea to success. These days, entrepreneurship is less about the individual and more about the quality of the team. It’s also something that investors look for.
Acquisition managers assess the quality of the team as much as they do the idea. They know your business will face challenges and that a solid team will make your business considerably more likely to succeed and make money. In the eyes on an investor, a strong team constitutes a strong investment.
The addition of an experienced advisor on non-executive director who’s made a name for themselves in your sector will bolster your team. If no one is willing to join you, it may be that your idea – or the way you are pitching it – is in need of work.
3. Keep evolving your funding strategy
Unless you’re able to finance your own business, you’ll have to put a lot of work into raising the funds you’ll need. In order to do so, you’ll need to have a clear funding strategy in place, and ensure that it evolves as your business does.
Always have an idea of where your next stream of funding might come from. This is bound to change as you meet more milestones and are able to attract different kinds of investment.
To give your business the best chance of ensuring funding, have one person in your team dedicated to fundraising for at least half of their time.
After each round of funding, make sure that you’re looking towards your next one, and always engage in conversation with investors.
The more you do, the better an idea you’ll have of what investors want to see from your company in order to invest. Keep up the conversations, but not just when you’re simply looking for money. Investors appreciate being kept up to date and won’t be impressed if you just get in touch when you’re looking for money.
4. Outsource the outsourceable
It’s understandable to want to keep control over all aspects of your business. However, it’s important to work out which operations create value, which you must always keep control of, and which would be easier to outsource.
You’ll likely want to retain control of your sales & marketing, programming and R&D, but almost everything else can be outsourced. While you may feel like you’re giving up control, outsourcing helps to keep your overheads low, and allows you to focus only on activities that create value.
It’s important to remember that outsourcing does not mean surrendering complete control – you’ll still be able to keep an eye on how each aspect of your business is being run. And, if the supplier you’ve outsourced to isn’t performing well, you can always seek a replacement.
5. Plan your exit and work backwards
You may have already envisioned your big exit, but have you seriously thought about how you’ll get there? The sure way to reach your end goal is to work backwards.
You’ll first want to consider who your potential buyer might be. The next steps then, are to work out how to attract them. You can do so by identifying any gaps in their portfolio and understanding what kinds of companies might be a good fit.
Start by thinking about what they might look for in an acquisition (a good clue will be the previous deals they’ve made).
You’ll then have an idea of what you’ll need to do and what your business might need to achieve before the buyer will consider buying your company.
Next, you’ll need to stay in their sights. Make yourself known to them right away, and keep them in the loop so that they’ll be always be aware of your progress.
The companies that have had successful exits are those that have planned a buyout many years in advance.
With so many unknown variables, it can be intimidating to even imagine these scenarios. However, that’s the difference between a business-minded person and a true entrepreneur. So, are you up for the challenge?
About the author
This guide has been written exclusively for ByteStart by Melvin Jay, founder of Gunna Drinks, an award-winning range of craft soft drinks with less sugar but more flavour. In the same way craft beers have disrupted their market, Gunna is aiming to shake up the soft drinks industry. Gunna is currently available in over 3,500 outlets including the Co-op and WHSmith, and has a sales growth of 300%.
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