Entrepreneurship, Lessons2Learn, Startup, Startup Marketing, Strategy

Starting up to Sell (S2S)

In today’s world, starting a company, finding funding and taking products to market is not tough, but the toughest is to sustain the business. The moment your idea is out in the market, there are a hundred others who will bring similar products with different Business Models. As an Innovator and Entrepreneur, your success depends on how well informed you are about your competition and how deep you understand your product and domain itself.

You notice that big companies buy smaller ones to consolidate and also reduce their competition. This is the law of nature. We need to accept it.

As your startup grows not just in financial value, but in the Value Proposition of the offering and the market capitalization of the product(s)/company is what drives a potential acquisition.

One of my acquaintances was explaining his idea and business to me. It was a tech product and I asked him, where do you see yourself in next 5 years and his response was very clear “Similar kind of company was acquired by XXXX for Rs.XXXX, so, am working to find a buyer and wish to sell”. No harm in this approach, but you need to understand how you build your company to be acquired.

When you start a business wanting to sell it off after a while, the efforts are more arduous.

First, even though it is your idea and you feel this is the best the world can have unless you have convinced your customers/clients there is no value-add. After this, if you are wanting to sell, then you will need to identify the kind of companies who might be interested in acquiring you. After you identify, you will need to understand how you can stand out from the competition so that your potential acquirer looks at you and after they see you, you must present yourself to them (only after their invitation) in such a way that they should be  convinced that this is the best product for their portfolio.

Considerations and key metrics for building a Sale Strategy:

Articulate the WWH -If you have watched Simon Sinek’s talk on Start with Why you know what I am talking about. Very clearly articulate What you are developing, Why and How you are going to impact lives. When this clarity in the vision exists, it becomes easy for you to build your value proposition. 

Identify a good Value Proposition – The key to a successful company is its value proposition. The value proposition cannot be lame, but a real problem should be solved. For instance, Apple manufactures iPad cases with a keyboard, but if you notice they do not have a button on the keyboard for the function of double-click of home button the iPad, but still they sell more smart cases than the others who do. Logitech, for example, manufactures fantastic keyboards for iPad’s and they have a key for the double-click function. Why do you think Apple is not doing it? It is their product and they wish to sell more of the accessories, but even after these many years and so many people asking for it, they have not incorporated the key in the keyboard. Why? Because Apple’s belief is in simplicity. In order to go to home screen, all you need to do is press command+H, it does the job as the double-click does. And if you want to navigate between apps, use cmd+tab. Simplicity is Apple’s mantra and they will not budge, instead, they will push their consumer to adapt to their way of doing things. When more consumers adapt, it increases their value proposition. Simple.

Build a breathing Business Model – A Business Model is a blueprint of how your idea can solve a problem and how you can make money by solving the problem. What is a breathing Business Model? It is nothing but having an element of adaptability when circumstances change and the tough get going. Consider Google, Apple, Nokia, all major companies which have marked their presence in this world. All these companies were on the brink of collapse at one point of time in their lifetimes and only bold moves helped them recoup and stabilize.
          
Google never had a business model. They were a loss-making machine not knowing how to bring in revenue with searches. AdWords changes everything for them.

Apple almost collapsed before Steve was called back. It took just a year to conceptualize the iPod, but that changed everything for Apple.

Nokia is more than a 150-year-old Pulp and Paper company, how they adapted to the changing times and build a portfolio of businesses is what made them what they were.

The list can go on, but the most important aspect is that your business model should be able to breathe. Remember, none of the companies which I mentioned above changed their business model but instead diversified into what was valuable at that point in time.

Identify who can acquire you – Based on what you are building, identify who will be the most interested in acquiring you. The list you make might not be interested to buy you at all, but the list will help you understand what these companies look at. For instance, many Health-tech startup’s today look at being acquired one day, because the domain is a lot complicated than you can imagine. How do companies identify potential acquisitions? Apple recently acquired a Hyderabad based Machine Learning Startup. Without going into details (which I am not completely aware of), this shows that Apple is foraying seriously into Artificial Intelligence. Apple also made few AI acquisitions in the recent past. Do we know if the founders were targeting Apple? We don’t know, but this is just an example to understand what companies might look for.

Keep margins high – If you watch Shark Tank, you notice that the Shark’s jump into making deals with entrepreneurs who show higher margin’s for their products. Why? This will enable them to take the risk and also demonstrate you don’t have much competition. If you produce at Rs. 10 and sell at Rs. 12 (because of the competition), then you will really struggle to survive and also this means there is a lot of competition which is making you sell at a marginal profit. It is like earning Rs. 10,000 per month and then having EMI’s worth Rs. 6,000. The math does not match and you cannot sustain for long.

How do you achieve this? You achieve this by having good processes and a solid estimation methodology. This gives your investors a lot of confidence.

If you look at e-commerce companies, this is why they struggle. Even though their valuations are high, get a lot of investment, the only hope is that tomorrow something changes. It is a dangerous way to build a company, but today investors accept it and also you should be lucky to find a good investor.

Yes, all the points which I mentioned above are same for building a company without an acquisition strategy. However, the small caveat is identifying your future and being prepared for it. Honestly, building a company to sell is a bigger task and emotionally draining, because if you are not able to sell, you are stuck and you will be frustrated which will lead to collapse unless you are strong-minded and can take it forward.

In summary, it is double the effort in starting up to sell and hence requires more energies. I call this the S2S (Starting to Sell) Syndrome.

My personal recommendation is that you start with your ideas, look at how the market is responding and after your first-year financial filings, start evaluating how you might want to sell, that is only if you want to.

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