by Mark Edwards
Growth & Global Impact of the Software Industry
One way of measuring the growth of the software industry is to calculate the number of independent software companies (ISV’s) in the sector globally. In 2018, we (Boss Equity) estimated it to be in the region of 150k - A considerable number - And it continues to grow exponentially.
What can also be noted is the software industry’s huge contribution to the global economy. A variety of sources estimate the software industry makes an annual $2 trillion GDP contribution and provides over 20 million high-quality, well-paying jobs. Software is a major contributor to the global economy and its impact shows no signs of slowing.
Unlike other sectors of the economy, software does not need an external catalyst to bring about change. Software has revolutionised the way we work. The software industry is continuously innovating, delivering incremental advances, in a genuinely transformative way, for the benefit of all. Software is driving and facilitating the digital revolution, providing tools that turn Big Data into manageable information-sets.
Software powers business platforms that provide eco-systems for business communities, suppliers and consumers. It not only helps us deliver what was previously thought impossible but has also irrevocably altered the way we all live our lives; in most cases, by providing ease of use and therefore, enhanced convenience.
Delivering a Digital Universe
Digital information more than doubles every two years and between 2014 and 2020, the digital universe will have grown by a factor of ten. Software gives us the potential to achieve far more with less, very quickly.
Software solutions and platforms bring benefits to our daily lives by allowing us to work with fewer limitations of time and location - Networked and altogether smarter and faster.
For example, this article is being written whilst I enjoy freshly-brewed coffee in a village coffee house, linked via the web to research data on our office server. Only a few scant years ago, prior to current levels of connectivity, this would have been unthinkable and I would probably have been regarded as skiving! Instead, I can now be highly productive in any location with Wi-fi.
Software provides traditional businesses with an efficient highway to access the Fourth Industrial Revolution and entrée to the benefits of latest technology, including robotics, artificial intelligence, voice technology and the Internet of Things (IOT).
Myriad Options for Entrepreneurs After Exit
Over the past few decades, we, at Boss Equity, have completed hundreds of software company sales. One major observation we’ve made is that many owners and shareholders become emotionally attached to their business. Although we completely understand that the business often becomes their "baby", this mindset can detrimentally affect the clarity of their strategic thinking and ultimately, their exit planning.
Many entrepreneurs feel as though they are fundamentally intertwined with their business. They’ve become addicted to their past successes and this is not healthy for them - or their business. There seems to be a common theme of entrepreneurs feeling they've climbed their mountain, crested the summit and now they need to hang onto life at the top, like a limpet to a rock - Even when they know deep down that their journey with the business has come to a natural end and it's really time to move on to pastures new.
One of the important steps in our process is to help our clients think about the potential life beyond running their business - Their potential steps towards exit.. The interesting thing that frequently happens, is that, with the right questions, quite quickly business shareholders accept that there is life beyond this one particular company and there are myriad options for them, moving forward.
As this realisation dawns, it's often the case that a weight is lifted from their shoulders. This can result in renewed passion for the next step in their career or life; they realise they can climb new mountains if they choose to and this time they can start ahead of those stuck at Base Camp Zero.
To do this, though, they must first stop and lift their head from the business to look beyond its constraints. Initially, this can be a daunting proposition but it is ultimately both highly beneficial and liberating.
The Stimulus for Acquisition Talks
We regularly receive approaches from business owners wanting us to sell their business, that have been prompted by an approach from a potential buyer. The stimulus is often that initial call from an opportunistic buyer or sometimes they may have had a failed attempt at selling their business themselves. The failed attempt was often triggered by a cold approach from a buyer. The reason this happens is that it has given the business owners their first glimpse of a life beyond their current company.
Do not enter acquisition talks unless you’re personally ready to sell and your company is prepared for a full due diligence process. What will be required of you during that due diligence process may surprise many and will frustrate all. It's painful and you won’t enjoy it. Therefore, unless you’re a masochist, the only way forward is to be properly prepared for the acquisition process - or, as we call it: “M&A Primed”.
Looking to ‘The Life Beyond’
Negotiating an acquisition can only begin once all shareholders are aligned and have spent time thinking about their collective objectives in selling the company. You also need to have at least a half-formed plan for what lies beyond the sale of your business for you personally. The plan for your next steps after exit is far more important than many initially believe. Many overlook this future planning and miss out on what could be a major boost to the next stage of their life.
Once you have some degree of clarity about what you would ideally like to do after the business is sold and you are no longer involved in it, you can start to plan for that next step immediately. That means right NOW! This will give you the advantage of a running start towards your next venture - and the next stage of your life.
Often opportunities arise during discussions with potential buyers that can help facilitate the next stage of your journey. The step of clarifying what lies beyond your current business is a complete topic in itself, which I won’t examine in detail this article, other than to raise the point as something that should be carefully considered.
Take Action to Shape the Direction of Your Exit Strategy
Don’t wait for buyers to knock on your door. “Build it and they will come” is not the best approach in this instance. You need to be proactive and take decisive action. This starts with the creation of an exit strategy.
In its simplest form, an exit strategy is a clarified ‘end vision’ for your business, which becomes the main objective. The objective, broken down into steps, becomes the exit plan. The plan broken down into a series of actions makes the exit plan a reality.