Many business headlines talk about acquisitions. Be it Comcast’s US$16 billion acquisition of NBC, WhatsApp’s acquisition by Facebook for US$19 billion, and Microsoft’s acquisition of social network, LinkedIn, for US$26.2 billion in what is the largest tech deal of 2016. While many businesses may not fall in the same league as WhatsApp or LinkedIn, they are useful to a large company by adding value to their existing portfolio or in increasing their stock price. You can also build a company that can later be sold at a huge profit.
Why sell your business?
There are many reasons that you may want to sell your company. The main reason for many is to get more funding and liquidity in their business. You need to sell a part or your entire company to keep it running. Depending on the terms of sale, you can choose to forgo your rights or stay on as the driving force for the company.
Another reason to sell could be the risks involved. A small company with limited funds cannot invest as much and take high risks. For this, you need seasoned players who can lose a few million and still make it to the Fortune 500 list. Plus, after a certain period of growth you may become conservative about the damage that can ensue and steer clear of risk. However, risks are necessary for a business to grow and you can consider selling it.
Running out of ideas? Then selling is the best option for a business. The value of a company decreases once growth stops. So it is better that the company change hands while it is still existing and churning out ideas.
Retirement is a major reason many entrepreneurs sell their business. After spending decades building a company and nurturing it, they feel they’ve done enough and earned enough. They seek new ventures elsewhere or hang up their boots altogether by selling off their company.
Building to sell
Everyone, at some point, has an idea that they can sell. Most of the time it stays in the head, festers for a while, and then goes away because either the scale of their dreams is too large or their execution demands a lot of work. Whatever the reason be, taking an idea out of the head and putting it down on paper is the first step to creating something. Once you’ve created, it’s time to make it an irresistible sell.
Imagine your dreams making money. You’ve built a company on a veritable idea that has slowly picked up and is now reaping profits. It’s time to start building to sell because at some point you may want to give it up and when that time comes your business should be ready to sell. How do you do that? Here are a few things to remember while creating a sellable company.
- The business should be independent of you. There are no buyers for a business model that is dependent on its owner. If you do not delegate tasks and do everything on your own, no one will be interested in buying your business. Your business should be able to hold on even when you are not around. Companies see what can be improved upon when they buy a business. In such cases, you appear more of a liability than an asset.
- It’s all about the money. Many buyers naturally look for profit. It’s not enough that your idea is great. There has to be substantial profit year after year for you to be able to sell the business. Your company is not the only one that’s in the market. Large companies search several names and finalize one that stands out.
- Are you better than the competition? What makes your company better than your competitor? What are you offering that another company is not? There will always be duplicates selling the same products as you, pricing them just as much, and even naming them similar. Your best selling point is the company’s uniqueness and competitive edge.
Many businesses have thrived after they merged with or were acquired by bigger companies.
Before Compaq was acquired by HP, its competition was Dell, which had monopolized the low-cost PC market. The acquisition helped Compaq and by 2006, HP was leading the PC market. Nokia’s dipping cellphone market was a result of the smartphone revolution started by Apple and Samsung. Microsoft acquired Nokia to use its expertise in marketing its Windows Phone platform. Nokia later acquired Alcatel-Lucent to grow its wireless technology and services platform. Microsoft acquired Skype for US$8.5 billion. Skype was a great addition to Windows operating systems that lacked interactive applications.
Small companies such as Topsy, C3 Technologies, Redmatica, and Camel Audio went under Apple’s wing and Where2, Outride, Fly Labs, Pixate, and others were bought by Google to create better products and services.
Not all acquisitions lead to profit. If not researched properly, an acquired business can cause more loss than profit to a larger organization. In such cases, the company may dissolve the smaller business or cease to use its services thereafter. Your goal while building a business is to ensure that it grows and adds value. Take your dreams further so that it creates recurring revenue for you even after you’ve let it go.