How to Build a Company You Can Sell: 4 Rules
Around this time last year, ShareFile founder Jesse Lipson was in the middle of a big transition. He did what many entrepreneurs dream of doing: He built a company and sold it--and to not just anyone. Citrix acquired his cloud storage company (for an undisclosed amount).
I recently interviewed Lipson and he gave me his top four tips for building a business to sell.
Don't start too big.
Some entrepreneurs point to companies like Facebook and Twitter as examples of how a start-up can hit it big in a few short years. But these companies are exceptions to the rule. If you want to succeed, start a business that succeeds first on a small scale. And forget Facebook. Look at companies like Papa John's for inspiration, Lipson says. He points to the fact that Papa John's didn't set out to be big; it set out to be different from other pizzerias by using fewer and better ingredients. Don't let scale provide your value--focus on creating a company that could succeed whether or not it ends up becoming huge.
Stop obsessing over funding.
Remember, most businesses will never actually acquire start-up capital--don't cripple yourself right out of the gate by thinking you're the exception. Often, venture capitalists aren't willing to make small investments--instead, they'd rather pour millions of dollars into just one company. Even if you could land that much funding, it violates the first rule: Don't try to start too big--in terms of your ideas or your expectations for funding.
Get into established markets.
You don't want to make your life harder than it needs to be, so stick to starting a business in markets that are already established. When you're just starting a company, there are a slew of other responsibilities to focus on--learning how to do payroll, sales, marketing, management, etc. Trying to run with an idea no one has succeeded with before can add more risk than benefit. Lipson's first business was in the Web development industry--not a new field, but one that already had customers and set prices--meaning all his company had to do was differentiate itself.
Don't rely on advertising.
It's unwise to rely on a business model that makes money only from advertising, Lipson says. This type of model is simply unsustainable in the long run. Focus on creating a quality product or service in a well-established market first and foremost, and you'll have a much easier time landing sales.
Above all, remember: You're not going to be the next Facebook. Violating these rules can mean the difference between building a self-sustaining company and one that crumbles quickly.