The end game in a startup is as important as starting up itself. Yet very few have mastered the craft. Here’s some tips…
Build a good database : Get every piece of information about how other startups fared while evaluating, say, a buyout proposal, stake dilution, time to exit etc. This is one instance where the adage “let’s cross the bridge when we come to it” is falsified. You can’t go tracking history after the suitor/competition has shown up. Keep it handy, review it periodically and absorb the trend.
Avoid big talk(ers): While you recruit a banker to advise you, hire the one that can walk with you, keeping your interests in mind. The first guy to avoid is the one who talks more on big valuation numbers than on the immediate value maximizing steps, say, getting more bidders, due diligence, protection of minority interests etc. Big talkers normally have little to lose and often are bad negotiators. Their focus will be on how their name gets flashed in the media “XYZ was the banker for ABC Inc. on $_000,000,000 deal”. I’ve seen their stubbornness wreck many a good deal for startups. In a way, they will be a little like Bill Clinton in white house if Hillary were to become president – I mean if a guy’s banging interns under his desk when he’s the president, what do you think is gonna happen when he’s got no stake at all?
Eye on profit: Most founders, especially if they happen to be techies are often great preachers. Too much of academic Kool-Aid drowns them, making them look better on the pulpit than in a startup garage. They dwell in detail on the intricacy of the technology but mostly have little to say on how it is going to make money in the end. They mistake “execution” for translation of a theoretical ingenuity into a real time functionality blissfully neglecting the first move that sets the stage for a perfect end game – making profit. If you don’t know how to lead your business to profit, don’t waste time and effort. Volunteer for the Red Cross.
Just be wary, don’t fear competition : Many startups fear an early go to market fearing formidable competition. They delay it expecting the competition to wear out. Many founders quiver the moment you mention competition. Remember, when we hate our enemies, we are giving them power over us: power over our sleep, our appetites, our blood pressure, our health, and our happiness. Our enemies would dance with joy if only they knew how they were worrying us, lacerating us, and getting even with us! And they love winding the guy up and driving him nuts. Our hate is not hurting them at all, but our hate is turning our own days and nights into a hellish turmoil. Hit them where it hurts, by outthinking and outselling them at the market place. The valuation math depends to a large extent on sales numbers.
Have you been part of a well executed startup end game…? What other steps you think are important…?