How to Exit with Wild Multiples

Don't wait until it's time to sell. Do this instead...

We all know startups are hard. We also know they’re over-glamorized.

We hear about the VC world, getting millions, or even billions, in funding. We hear of massive exits too.

These may all be true stories, but they’re not the average. The average companies die before they make it to 5 years old. No press releases. No coverage. Just a blank headstone and nobody at the service except the founders and their significant others (if they made it through).

But not you.

You’re making it. You’re getting traction. You’ve found the illusive Product Market Fit, Product Founder Fit, Product Whatever-is-next Fit. You’re flying.

Ok, maybe not Unicorn status.

Maybe you’ve found some niche that you’re fighting for position in. It’s working well, and you have this feeling you’ll likely max out at $5M or $20M or something like that.

Now, there’s still the tricky part about exiting, isn’t there?

You’ve figured out how to go from a kitchen table to millions of dollars in revenue, but you’ve never sold before.

And everyone exits.

Whether you sell, get acquired, run out of money, get tired of it, get tired of your co-founder, reprioritize your life, or just die. Everyone exits their company some day. It’s inevitable.

Ideally, we IPO, get acquired, or sell our companies at the right time, before we die, before we burn out, or before the market changes and run it into the ground.

But how do we do that successfully? How do we maximize our chances of an exit? And how do we maximize our chances of a bigger exit than just a multiple of EBIDA?

Based on what I’ve seen, and my experiences, there’s one way that works best.

But, we have to roll back the timeline to make it work well.

Start early to get it right

There’s plenty of ways to sell for high multiples that don’t include this strategy. But, the ones who do it consistently have the same playbook.

To get it right there’s some good timing involved. And, it’s not when you’re looking to sell at the end.

The secret to repeated success with high multiple exits is getting a strategic investor.

Getting a strategic investor happens long before it’s time to sell, too.

Eventually, if you’re doing things right, you’ll have competition and a moat.

You’ll have built up your customer base, and even if you started as B2C you might have some B2B customers.

This is the time to keep an eye out.

Businesses who see your company as an opportunity, right when they begin talking with you, are wondering whether they will need to build what you have built, or if they need to become a customer.

Right now, they’ll likely just want to be a customer. But, if all goes well for them and for you, they’ll have to ask that spicy little question - do we build or do we buy?

Especially if the relationship is vertical.

Think about it.

You’re doing something with the same customer group. At some point, they will see the plateau coming. They’ll maximize all the potential out of a channel, or many channels. They’ll up sell, down sell, cross sell, and sell their mother in law to get new customers (if anyone will buy her).

But at some point, they’ll feel the need to grow and will be running out of things and places to sell. The only way to grow, then, is to acquire or build new revenue streams.

And you want to be in their sights as soon as they hit that point.

So, when you start getting customers who are bigger than you, using you to make money in the same vertical, approach them.

The offer

When the time is right, the offer will make sense.

You’ll be looking at expanding. Maybe to a competitor. Maybe to a new customer segment.

They’ll be focused on growing too, but they’re likely still doubling down on what’s working for them, so they won’t want to risk going out on a limb.

This is a perfect time to have the conversation.

They give you capital in exchange for equity.

If you’re right, you both win. You can jump into the space, nicely capitalized to do so. They get more services to sell their customers (they’re your client, remember). And if you’re really right, they’ll make a multiple when you exit.

Perfect.

The exit

Here’s the thing, though, when it’s time to exit, they’ll be wondering why they don’t just (1) keep the profit you’re making off them and (2) expand by buying the customers you have that they don’t.

They’ll have a vision of where they can take your company, how they can integrate it, how they can squeeze the competition, or make money off it, or just cancel their contract to give themselves an advantage.

And it’s this vision that will create the “wild” in the title of this article.

Slightly above average companies get bought based on EBITDA (average ones fail, remember).

The ones that exit with multiples beyond EBITDA only do so because there’s something intangible.

Opportunity.

And the best way to sell opportunity in this case is to let them experience it.

They should see your books, feel the pull, see the new customers and new revenue. They’ll be hungry to grow, and you’ll be an easy target to accomplish that goal.

This is the time. This is when “opportunity” is intangible. This is when the acquirer has a vision of the future.

And this is when you sell to them.

Now, with this knowledge, go forth and multiply.

And hey, if you want to dive deeper into strategies like this for growing your agency with recurring revenue, or getting your SaaS business unstuck, grab some time and let’s chat.