Being acquired shouldn’t be the goal of starting your business. With James, it came as a natural path of when felt right at the time. It gave him the ability to amplify what his team was doing and do it better.
The Two Paths to Take When You Are Acquired
There’s two paths that you can take when you’re acquired. You can be acquired and go with the company, or your product can be acquired and you can just break away from it right there and then. James wasn’t ready to break away from what he was doing now. It had been almost 10 years and it felt like his baby.
The point again being that you shouldn’t necessarily start a business just with the goal of being acquired. You’ve got to have passion for what you’re doing.
Also what people buying businesses are looking for, that they’re not necessarily looking for something that you’ve spun up and made it look as pretty as possible for a seller. They want the product but they also want you and your experience and your passion behind that product to push it forward.
Focusing on Renewals and Subscriptions
But in terms of actually structuring your business so it’s in a good position for acquisition, after this experience, James added that focusing on renewals in a subscription-based pricing is a massive thing that some buyers will be looking for. The fact of having a sustainable business and making sure that your business is encapsulated as one entity.
If you do agency work and you do product work, they need to be easily identified when looking at your books, income and revenue.
Clean Books Tell a Story
Zach reiterated that clean books tell a clear story and is really important because whoever’s going to acquire you needs to know where’s this going and where they are going to take it. And if you, as the business owner don’t have a path or don’t see where it’s going, then it’s really hard for someone to come in and layer any kind of vision on top of what’s already there. That is something buyers will look for and yes, the subscription revenue is critical because that’s repetitive.
Back to Subscriptions
If you’ve got subscription and reasonable renewal rates, that will help the buyer with a predictable revenue model. On the other hand, lifetime licenses, which are very customer-friendly, are not acquisition friendly in most cases. A buyer will look at is as you made that money once, but you’re never going to make that particular money again from current customers.
You could put together a business model where you have an additive nature of what you’re selling back to those same customers, but it means you already paid the cost of acquisition on that customer and you’re done monetizing them. That’s a real challenge in terms of putting together an acquisition offer that the seller feels good about. Your business ends up being much lower valued than you think.
Team Track Record
Also, one of the things about a WordPress businesses is its part an open source ecosystem. As a result, the track record of the team and what they’ve been able to accomplish is equally valuable maybe to the products that the buyer is looking at.
As an example, let’s say your business is described as this, “Well, they’ve sustained great growth over many years. And they’ve been building these great products, expanding their product portfolio.” Well, the buyer will ask how have they done that? Often the answer is the person running the business, the founder, or the entire team. If they don’t come along, where’s the guarantee that that’s going to continue to happen. Who’s going to be the person to continue that success if they aren’t in the equation or the team isn’t? Those individuals come along in the deal and what their commitment is and what they are looking at for the future of the business. That’s equally important.
You can listen to the full podcast.