How to Think About Exiting as a Startup Founder

When we talk about tech entrepreneurship, it’s normal to gravitate towards the sexy, high-profile world of venture-backed startups.

And yet, startup, where the business is financed through its operations, is often a better business strategy. It gives founders more control over their destiny and more reward for their efforts when they finally decide to exit. However, these businesses are often built far from the public eye, so it’s rare for other founders to learn from their successes.

That’s why I thought it would be helpful to share insights from the work I’ve done with founders and exit teams.

So how should these founders think about and prepare for the exit process? How should they tell their story to prospective buyers and sell the outlet to employees?

Many thanks to Janosch Kühn, co-founder of Berlin-based Kolibri Games, who kindly shared his exit story as part of this article.

The reason: why go out? Because right now?

Bootstrapping requires a great deal of heavy lifting for entrepreneurs to grow and sustain their businesses to the point where an outlet becomes viable.

Unlike venture capital-backed entrepreneurs, who typically operate on a predefined time horizon of seven to ten years, the end of the startup process is not always clearly marked.

Through my coaching work, I’ve identified five main motivations for why early-stage founders may consider an exit:

  • Growth partner needed. There are significant growth opportunities that they cannot address without more resources or investment.
  • Capitalization of incoming interest. People are knocking on doors to buy the company.
  • Relationship breakdown. The co-founders no longer agree on the future of the business, and these differences are proving irreconcilable.
  • Recognizing your limits. They have taken the business as far as they can go and recognize that they do not have the right skill set to take it to the next level.
  • Is the time. Whether it’s exhaustion, discomfort, a desire to spend more time with their families, or seeking other opportunities, they know the time has come to move on.

But regardless of the motivation, eventually things come down to one question: does an exit make sense at this point?

Later, the founders will be tasked with telling the story of the exit to their teams, clients, partners, and potential buyers or investors. If they can’t convince themselves it’s the right move, they’ll have a hard time engaging these audiences.

The path: What are the exit routes?

Once a founder commits to exit, the next step is to evaluate the different options.

After a five-year rollercoaster ride, Kühn and his co-founders Daniel Stammler and Oliver Löffler left Kolibri Games in 2020, having sold the studio to gaming giant Ubisoft for more than $100 million.

When thinking about exit strategies, he explains: “It’s always a compromise between financial investors and strategic partners, so it’s important to be clear about what your end goal is. We needed strategic support, first and foremost, and Ubisoft was the perfect partner in that regard.”

Most startup exits take the form of a commercial sale/acquisition, either by a strategic acquirer, as was the case with Kolibri Games, or a private investor, such as a private equity fund. Self-sufficient companies they can list publicly, but, as with any company, the probability is slim. As Kühn points out, in most cases, an exit will involve striking the right balance of strategic and financial support.

The timeframe to complete this transaction will vary greatly depending on the appetite of the acquirers. We often hear the standard estimate that venture rounds take around six months; for the founders I’ve worked with, the exit process has approached 12-18 months. A longer time frame is not necessarily a bad thing. It gives the founder a chance to strategically manage the exit and prepare everyone for the disruption that is likely to follow.

The deal: How can we create an alignment of co-founders and a shared commitment to exit?

All entrepreneurs have different reasons for considering an exit, and in the case of co-founded companies, these reasons will not always align.

In my experience, the best way to achieve alignment is for co-founders to walk through different exit scenarios and explore all the possibilities. For example, is the strategy to sell or could outside investment represent an alternative way forward? Would it be possible for a founder to be bought out by the remaining partners? The founders must be aligned before making any other decisions.

One company I worked with had three founders: two had been in business longer than the other and had more personal investment at stake. They were ready to take some of their chips off the table and spend more time with their young families. The other founder joined the group a bit later and was in a different phase of life from her. She definitely wanted to stay and see where the success story could go.

Kolibri Games’ Kühn explains: “Although we were pressured by our friends and family, my co-founders and I never disagreed about the timeframe for the release. Our goal was always to reach a level where an exit was worth it for us and made strategic sense for the company. With this lineup, we were all able to join in on the journey.”

The Story: How do we shape the narrative around the exit?

An important part of preparing for an outing is getting the story right. Founders need to be able to talk about why it’s time to sell and shape this story for both teams and potential buyers. If you’re crossing a river, you need to be able to show people what the bank on the other side is like and convince them that it’s worth the effort to get there.

Remember that a departure can result in job loss or role replacement, so internal communications are just as important as external ones. It creates a lot of uncertainty, and founders shouldn’t tiptoe through this reality, but they shouldn’t go too far, too soon, with their communications either. In the case of one company I worked with, they built their entire internal communication strategy around listening to the concerns of the team, just to make sure everyone felt heard.

Of course, sometimes the person who needs the most convincing is the founder himself. They are emotionally invested in their business and even though they know the time is right to get out, it is not easy to let go.

I always ask founders, if they looked at the business as a stranger in five or ten years, what would they want to see? Some answer in terms of income or profit. Others talk about maintaining company culture at scale, improving product quality by leveraging the acquirer’s R&D capabilities, or increasing customer satisfaction by giving them access to a broader ecosystem.

Only once the vision is clear can founders determine what a successful transition looks like—in terms of customers, employees, products, and financially—and begin to craft the story around the exit.

The Dilemma: Optimizing for Profit or Growth?

A compelling exit narrative must be backed by the facts about the company’s performance. This is the ideal time for founders to focus on optimizing the business, but it’s important that they stay true to their playbook when putting their exit strategy into action.

Self-managed companies have been optimized for profitability from the start, and while it can be tempting to turn to a full-growth strategy in an attempt to maximize interest in the company, this approach can backfire if it runs counter to organizational culture. and DNA. .

Kühn says: “After being turned down many times by investors, we worked with a profit mindset throughout our journey. We were very hesitant to spend money, even on things like marketing, until we were confident in the kind of return we could expect. So while we redoubled our marketing efforts while looking for an exit, we continued to optimize towards profitability, for example, requiring ROI [return on investment] within three months for any marketing investment.”

Uncertainty: Who am I once I no longer run my company?

Having completed the transaction with Ubisoft, Kühn and his co-founders have committed to stay for 18 months to help the organization adjust to its new environment. “We were still involved in the company and we spent a lot of time developing new games to take it to the next level,” he says. “It felt good to continue contributing our ideas and accompanying the great developments of the company.”

What Kühn describes is not easy. For many founders, it can be a struggle to adjust to a world where they are no longer in charge. Some continue to call the shots from the bench, creating confusion for their former teams. Others feel trapped and powerless, regretting their commitment to stay.

The lesson here is twofold. First, founders need to think carefully about the length of their post-exit period. Remember, most acquirers want to retain the knowledge and ideas of the founders for several years, either as executives or non-executives. Disappearing too quickly could leave the new leadership team exposed. However, a prolonged tenure in an executive position could turn into a prison sentence, preventing the founder from moving on with his life.

Second, founders must determine what life will be like after exit. Many self-employed entrepreneurs cannot distinguish themselves from their business and really have no idea what they will do with themselves after exit.

Thinking of a way out? Look for a self-sufficient founder

Much of this recent work with freelance founders has reminded me to “work from first principles”: out of the spotlight, they don’t take anything for granted or pretend to know anything. It’s worthwhile for founders with or without VC backing to connect with their fellow startups to understand their perspective on exits.

Julius Bachmann is a Berlin-based executive coach focused on working with entrepreneurs. He is also a co-founder of JRNY.

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