Quora Answer: How is Building a Business to be Acquired Different from Building a Business to Own & Operate?

The following is my answer to a Quora question: “How does building a business, with the goal of being acquired, differ from building a business you intend to own and operate?”

The first goal is always to build a viable business first.  Your foundations - financial, management system and customer base – have to be strong first.  The next stage is to focus on one of three main types of market leadership: best customer intimacy, lowest overall cost, or best innovation.

Once all that is addressed, then comes the decision to have an exit strategy, or to continue.  These two goals may not necessarily be mutually exclusive.  If your exit strategy is to sell the business, you need to make sure your balance sheet and market potential is attractive to an external investor. Investors are paying for your potential and where they see you.  Thus, you position your company in that direction.

For example, I am a director of a company that will eventually be acquired.  What we did was build up our position in a sector where we knew a specific company was pushing into.  As a smaller entity with greater market intimacy, we leveraged on that to build a very specific market share in a strategic market, and waited.  It is the equivalent of staking a claim with the intent to sell to the most attractive bidder.

On the other hand, I am also director of a company I have absolutely no intention of selling.  That company is my vehicle for specific projects. In such a case, we focus on slower, more organic growth.  The intent is to grow the business quietly, without attracting attention. In that sense, it is the opposite of the previous company.  We spend time grooming a management team, and are preparing a succession plan.  The exit strategy for this company could be an IPO, although that is unlikely; or taking a stake in a downline entity.