Selling Your Company is a Life-Changing Event
For most founders and many major shareholders, selling a company is a life-changing event. One which can be the most impactful and positive event for shareholders, employees and their immediate family. The reality is that the people in the company responsible for the sale, typically have no training and scant experience of the sales process.
Clear Vision is Required
The one big thing that we, at Boss Equity, appreciate is that it’s like a parachute jump. You must get it right first time. Despite the natural boldness and normal confidence of most entrepreneurs and business owners, moving into an area where you have little experience can be scary.
You need a clear vision and a path to your objective. Being bold is an asset and will help you take action but setting forth unprepared can be foolhardy and very costly.
‘If you do not have an absolutely clear vision of something, where you can follow the light to the end of the tunnel, then it doesn’t matter whether you’re bold or cowardly, or whether you’re stupid or intelligent. Doesn’t get you anywhere.’ - Werner Herzog
We assist software company founders and C-Level Executives in considering the most important questions. Questions that will facilitate their thinking, help them to make the right decisions and ultimately, lead to the right conclusion for them, their shareholders and their employees.
Timing Is Important; Sometimes It Can Be Critical
The very best time to sell your software tech business is when things are going so well that you do not need to and don’t want to sell it. That may sound quite counter-intuitive: when the business is growing and things are going well is probably the time when motivation and energy levels are at their highest. This is the best time to sell. The trends of the business are all painting a bright future and the forecasts for the business will be most likely indicate an upward trajectory.
Quite frequently, shareholders think about selling their software tech business when they’re experiencing a lack of traction or when the competition has increased. This could be caused by a heavily-funded competitor or a large corporate giant that has moved into the same market.
New Players Aggressively Target Market Share
Well-funded new players will want to gain market share quickly and will use their greater financial power to focus marketing and sales resource or offer heavily discounted pricing. As you can imagine, this is a bad time to sell your software tech business: you’ll struggle to find enthusiastic bidders and you may be more likely to capitulate to the demands of anyone who does show an interest.
The best time to sell your software tech business is when you have many options and you’re not under pressure; when neither you nor the business are feeling “stressed”.
The following is a brief overview of the steps involved in formulating and executing an exit strategy, including some thinking points for you when navigating the acquisition process.
Why Software Companies Are Different
Software companies are different to businesses in any other industry sector. As a consequence of this, when selling a software business the sales process also needs to be different.
If you’ve not owned or managed a software business, then it’s not always easy to understand some of the key challenges and opportunities that owning a software business poses for shareholders.
1. Firstly, the key difference that a software company offers is that of scalability. Once the software has been developed, the ability to scale cannot be matched by any “normal” company. The difference between selling 100 licenses and 1 million increases the business costs to a much lower extent than in other business. With the main cost in such growth being solely due to increased support costs.
2. Secondly, software businesses have fast growth capability since they are at the heart of the digital revolution. This makes such businesses very attractive for investors and good employers for the smartest people who seek out software companies as places for their future careers. The 2017 Deloitte Fast 500 list of fast-growing technology companies showed that 59% were from the software sector. (Compared to 37.8% in 2009) This is in line with recent years of growth results for the software sector. The fastest growing businesses were software companies.
3. Thirdly, size is important. In a recent study we conducted, which resulted in the creation of a whitepaper: “On the Wings of A Software Unicorn” (2018), it was clear that there is a increasing trend for software companies to grow surprisingly quickly and join the ranks of the Unicorn. Even amongst those which do not acheive the mammoth unicorn size, there are many hundreds of new breed software companies achieving massive levels of growth. This is happening through an understanding of the changes that have happened in this market. What worked in the past does not necessarily work now. It’s hard for some executives to abandon accepted wisdom or experience that has worked in the past, to focus on new areas or change management practises.
DEFINITION: “A unicorn company is a privately held, start-up company with a current valuation of US$1 billion or more.” From the list of Unicorn companies across all industries, we identified over 200 Unicorn companies globally. From this list, over 30% were from the Independent Software Vendor community (ISVs) sector. We examined these 60+ most successful software unicorns to identify the observable common traits.