Gregory Shepard argues founders should plan their exit before launching. Know who might buy you, what those buyers value, and whether they care about growth, margins, or retention. Build a strong business first; selling is the outcome, not the goal.
Chapters
For a little while, I was doing these 1-minute mentors where I would take just about a minute and I would talk about a specific topic and dig in and sort of give you my thoughts on it. And I stopped doing it for a little while and everybody was like, please do those again. So I'm going to start doing them again. And the other change is I shaved my head because my hair wasn't growing. And so we'll go into the first topic. The first topic is exit strategy. And when we talk about exit strategy, I've gotten into a lot of debates with investors and entrepreneurs over the years, and they say it's too early to do an exit strategy upfront. But I strongly disagree. I think that you must do an exit strategy at the very, very beginning. What I mean by an exit strategy is not a detailed outline of what you're going to do, but a specific general direction. So, what I mean is that when companies buy companies, they buy them to either make or save money. And typically those strategic— they're called strategic acquisitions or synergies— are based off of the fact that somebody like a Microsoft or a Google or some even smaller company has a base of customers. And those customers, they've been able to acquire and they've been able to retain. And the way that they make money is based on the customer acquisition cost up against the lifetime value of the business. What happens is those people have already absorbed their customer acquisition cost, so they can make a lot of money by selling additional products to those same customers by growing that overall lifetime value. So if that's the case, then it means that in most scenarios, a business is buying your business specifically to sell to their customers. In other words, most of the time, your business is just a product to them. And all the numbers and the growth margin retention and all the rest of the numbers that are in there, those numbers are made up to verify to them and validate to them that this product is a good product and their customers will buy it. Now let's roll back a little bit. If you have done what I have done earlier on, which is not understand who your buyer is, it's like building a product without a customer, building a business without an acquirer. Because that business and your business need to have the same customer in order for that strategy to work. It's too late to do that 3 years down the line. So in your go-to-market strategy, in your product strategy, when you first start, you need to make sure you do research on your acquirers. You need to make sure that you understand their persona and their ICP so that you can align your growth strategy, your go-to-market strategy, and your customer acquisition strategy to that end. Now, in addition to that, you need to make sure that you understand what these companies are buying for. Are they buying off a top line? Are they buying off a bottom line? Typically, growth margin or retention is a primary driver to come up with the multiple. What I mean by buying on the top line or the bottom line is, is the multiple based on net margin or gross margin? Do you get premium for retention? What matters to them most so that you can craft your company for the end result in the end? Now, you don't ever build a business just to sell it. You build a business to build a good business, and selling it is an outcome. Just like you don't build a business to make money, you build a business to solve a problem or create a new opportunity, and the money is an outcome. I hope this is helpful.
