First and foremost, as you build your business you have to think: what is it that we provide that is tangible that would be an asset to a larger organization? From SOPs to physical products your valuation will have multiple areas of IP and value. How you structure your company at the beginning will determine how well it performs in the end.
How to improve your company’s valuation:
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Create processes that improve performance
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Streamline and disrupt the way things get done
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Create ease of use optimization in areas your competitors don’t
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Do it faster and cheaper
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Develop partnerships with great companies
Create processes that improve performance
One of the most common reasons for a large company to buy a smaller one is because that smaller, often more versatile company has processes that will improve margins. Larger corporations are always searching for ways they can:
- Earn more money
- Lower costs
- Implement emerging technologies
Streamline and disrupt the way things get done
Big companies move slowly… Startups move fast. It’s rare that the establishment can outpace an agile smaller company so if you want to be invaluable to the big guys: rethink the way they do things.
Create ease of use optimization in areas your competitors don’t
Distribution networks are large and complex for large, well, complex companies. Startups often source products from unexpected places eliminating middle-men and red tape in teh process. For a high valuation, show that your process is more streamlined and easier to navigate than the corporate labyrinth.
Be the Innovator - Like an outsourced R&D department.
Innovation through acquisition. Start-ups, thanks to their innovativeness, are able to offer new products quicker and of better quality than corporations.
Many large companies do not understand the notion of ‘corporate entrepreneurship’ citing security concerns they do not foster creativity and out of the box thinking on their teams. The result of innovation by acquisition can backfire if the acquired company culture is not rock solid. Often the corporate stranglehold squeezes the life out of the very thing they just purchased. So wear a spiked collar if you’re getting acquired by a massive company.
Less frequently occurring acquisitions:
The roll-up — find a friend, kiddos. Sometimes small companies who do not have economy of scale all get bought up at the same time: think krill: by a big whale of a corporation.
The buy our competitors model— in very competitive sectors companies may buy up all the competition… and occasionally keep them running to seem like there are options out there.
The transformational merger — We want to be just like you, merger… These fail at a stunning rate due to lack of organizational oversight.
In a perfect world, your startup grows, pays back VC or PE investors and starts to make a profit allowing you to live and work in the company you built for many successful years. In reality, an early or mid-stage acquisition may save you from financial trouble. The journey to IPO is long (currently, it is about 10–12 years) so banking on that is a long shot. Instead, develop the best internal processes, culture and supply chain in your market and wait for the whale… the one with a ton of cash.