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If you are thinking about defining the exit strategy for your company focus on getting acquired, not an IPO from the very start and design your business correspondingly.

I recently read “Strategic Entrepreneurism: Shattering the Start-Up Entrepreneurial Myths” by Jon Fisher, and wanted to share my take-aways.

Your business goal shouldn’t be to go for an IPO, but you should aim for an acquisition as your target exit strategy. Acquisitions get you the most amount of return in the shortest amount of time. An IPO on the other hand gets you greater return, but it takes much longer, and the risk is also much higher. This doesn’t mean you should aim for an IPO and  settle for an acquisition, it actually means you should aim for an acquisition because it will impact how you run the company.

Partner up with carefully selected customers. Find customers for your product who are also customers of your potential acquirer or are customer your potential acquirer would also want as a customer.

In most cases  your target customer should be an enterprise (or large company) rather than individuals. You get more return from one single large customer than many small customers given the same amount customer acquisition cost/time. Also, a large customer has the added benefit that you get to ride their brand recognition. Once you have one large customer it is much easier to acquire more large and small customers, while the reverse is not true.

Partner with your customer to define the product/service together. Any book written from a Silicon Valley vet post dot-com bubble will tell you the same thing. Don’t build a business by blowing through money first, rather, focus on building the product for a specific problem for a specific customer. This is the same message I’ve heard every modern startup chant. It is also the same that is formalized by the Customer Development process in Steven Gary Blonk’s ”The Four Steps to the Epiphany” (or the short-hand version). If that’s what you are looking for, go to the bible of the process, and don’t seek it in “Strategic Entrepreneurism”

Minimize dependency on VC funding. This is rather obvious as getting external funding means that your shares are diluted, the VC’s get the preferred stocks, and you lose control of the company.  This is important because VCs want to aim for an IPO and make decisions to grow-fast, but slow-and-consistent growth is more optimal for acquisition.

Focus on consistent growth of your business. Trying to build your business quickly, that is, front-loading product/service development heavily while having negative cash-flow is high risk because the customers may not come (or come fast enough) and therefore leads to a rapid demise. Instead, make sure that your expansion is consistent and driven by reinvestment of profits. The former strategy is typically associated with trying to go for an IPO as your target, while the latter is more targeted for an acquisition. Potential acquirers obviously want a company that has consistent growth of customers and not hemorrhaging cash.

Hire veterans from potential acquirers. This obviously makes it far more obvious to the acquirer that the company will easily be able to integrate into their business post-acquisition.

If you are thinking about exit strategies and you have some basic knowledge of startups I would just recommend reading chapters 4 and 6, “Strategically Designing Your Company for Success” and “Design A Company to be Acquired.” Much of everything else is intuitive or heavily covered in other books/blogs/etc.