10 Steps to a Nine Figure+ Exit

Earlier this week I had the pleasure of hosting the Austin Technology Council’s first CEO Forum of the year at The Driskill Hotel here in Austin. As Chairman of the ATC, I am proud to help promote the growth and success of the Austin tech community. We had a distinguished group of executives in the room, and here’s a quick summary of my remarks to them about how to orchestrate a big exit.

  • Solve a Big Problem:  This is different than going after a big market. The market for a tablet computer was thought to be close to zero when Steve Jobs released the iPad, but he understood that portable computing was a big problem if he could provide a solution. The best solutions create their own market, but make sure the problem you are solving is big enough to create a big market.
  • Do Something Hard: Create a product or service that cannot be duplicated easily. If two people sitting in a garage in Russia or India can build your solution, then it will be hard to exit for a really high valuation.
  • Do Something Unique: Do something that your particular team’s life experiences allow you to do better than anyone else. For example, if one guy is a Ph.D. in nanotechnology and another guy is a world-class swimmer, they might build a swimsuit that is more efficient than anything else on the market.
  • Do Everything Better: Many CEOs come from the executive ranks and think that they can continue to focus mostly on what they do best, whether that is sales, marketing or another function. Companies that are world-class in one area but neglect the others are not good acquisition targets. Acquirers care about everything – from HR to contracts to sales pipeline. Strive to be world-class in every department, and you’ll be a better acquisition target.
  • Get All the Best Talent: Your best employees are the key to your success. CEOs should not ignore their role in acquiring talent. I was on a flight one day with former Texas Tech football coach Spike Dykes. He became a legend in West Texas by transforming Texas Tech from an also ran to a formidable football power, often beating his better-funded contemporaries at the University of Texas and Texas A&M. I asked him how much of the success of a coach is due to his coaching and how much is due to the talent level of the players he recruited. I said, “Is it 50-50, 50% players and 50% coaching?” “No,” he quickly replied, “It is 75% the players and 25% coaching. You give me the best players and an average coach and we will beat the best coach with average players every time.” I thought to myself how much that resonated with my business experience. I have always felt that I should attribute the majority of my success as a CEO to getting the right personnel in the organization.
  • Raise As Much Money as You Can: You can never have enough. I’m shocked at how many people don’t want to dilute their shares by raising more money. You cannot go broke by diluting yourself. I’d rather have a smaller share of a larger pie than not grow the business.
  • Remain Confident but Realistic: Being overly confident can be detrimental. My philosophy is that you should always under promise and over deliver.  One night at a local gathering of technology company executives I ran into the CEO of one of the hottest young companies in town. He launched into a detailed and passionate monologue about how great business was and how his company was going to be the next billion dollar company. He seemed to be trying hard to convince me of how well things were going. It struck me as a little odd, but I am all for entrepreneurs being passionate about their businesses so didn’t think much about it. The next day I happened to have lunch with a former employee of mine who was now working for this CEO. I mentioned that I had visited with his CEO and how things must be going really well. He quickly grimaced and said that they had just missed revenue in the most recent quarter by 30%! Now a 30% miss is not something most CEOs would refer to as a great quarter. Why had this CEO gone out of his way to tell me how well things were going when that wasn’t really the case? He could have just said business was fine and left it at that. Now it doesn’t matter that this CEO lost credibility with me. I am not a key stakeholder in his company, but I couldn’t help but wonder: If he behaved that way with me, had he done the same thing with employees and might he do the same thing with shareholders? How many times have you seen a public company CEO stand in front of the camera and say everything is fine only to announce a massive layoff a few weeks later? Once a CEO loses credibility with their teams, I have never seen them fully recover. Treat every statement you make as CEO as if it is going to be printed in the paper for everyone to see and reference. Will what you say stand the test of time?
  • Know and Be Friendly with all the Rich Neighbors: People don’t want to do business with people they don’t know. I grew up in Ruston, Louisiana, population about 20,000. If you could afford to build a $2 million house in Ruston, you were in rare company. If you wanted to sell that house, then you’d better know who in town can afford it (or at least recognize them if they come knocking at your door). When I ask CEOs and executives about their exit strategies and who their potential acquirers are, they can almost always rattle off four or five companies. However, when I ask if they know anyone at those companies, they often say no. Relationships matter.
  • Get Lucky: I think being the CEO of a small, under-resourced company is the hardest job in the world. Both luck and timing play a part in any successful endeavor, but I’ve found that doing the right things to set yourself up for success – however you define it – allows you to take advantage of any luck that comes your way.
  • Get Your Timing Right: See Get Lucky

What advice would you give companies about how to exit successfully?

9 Responses to 10 Steps to a Nine Figure+ Exit

  1. Mark Gully says:

    Finding, cultivating, and retaining the best people who understand their talents is a never ending process and creates company excellence. Great message.

  2. Praveen Asthana, CMO, Gravitant says:

    Great points. Only thing I’d add is “solve a big problem but make sure the solution is easy to adopt by customers.” i.e make it easy to get started with and address the risk of adoption

  3. Joel – a very interesting read and I agree wholeheartedly with most all your points. The only thing I’d err to disagree with you on is raising money. I agree capital infusions are often necessary to scale, but I’ve seen too many companies try and address issues with spend, vs. questioning if they have the right product/market fit, business model etc. first. Capital can often hide fundamental flaws in those areas which can come back to bite you later. That’s why I’m choosing to incubate my new venture slowly. I do plan to raise $ once we’re ready, but am holding off until I feel I better know where I’ll spend it wisely.

    • Vinay, thanks for the comment. I agree that raising funds does not guarantee success. I have often seen entrepreneurs who seem to think that the goal is to raise money instead of building a business. However, for most people who need money to pay the bills each month, raising capital is a necessary exercise. My thought about raising money were within the context of trying for a nine-figure exit. Most nine-figure exits require a significant investment in capital. I have seen entrepreneurs get so hung up on valuation and dilution that they miss the opportunity to raise money. Significant amounts of capital are in my experience very hard to raise. If the money is being offered on rationale terms I think most entrepreneurs would be better off taking the money. Again this is in the context of seeking a nine figure exit. While I agree it won’t solve the product/market fit or business model question, it will buy time in which to find a solution. I would also say that raising large amounts doesn’t mean that I am in favor of spending any more than is absolutely necessary. No matter how much is in the bank, I would encourage entrepreneurs to be frugal in their spending.

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