short sprint from Zero-to-Asset Sale is a completely different
route from Zero-to-IPO that involves building a company to
sell from the ground up with the focus on building up assets
and packaging them in a way that best appeals to a potential
"Would you buy an unprofitable business that was consistently
burning up cash, bearing in mind that after the acquisition,
the cash that was burning was the cash in your pocket? Whether
or not you wear fire-proof pants, this does not sound like
a very appealing proposition. However, in the technology sector,
it is possible to sell a company that’s unprofitable and cash-flow
negative. In fact, it happens all the time.
Imagine you own a national chain of pet stores with millions
of regular customers. You discover that a revolutionary new
recipe for dog food has been invented (probably in that secret
underground laboratory beneath Sand Hill Road, Menlo Park).
Evidence shows that dogs relish the taste of this particular
recipe and wolf it down it with gusto. It also has miraculous
properties -- just one meal will cure any canine illness,
restore dogs to the prime of health and make the pets more
loving and friendly towards their owners. You figure that
every dog owner in the world would want this particular brand
of food! Of course, this product would sell well on the shelves
of your stores, however if you could acquire it on an exclusive
basis, you’d attract customers from your competitors stores
as well – they’d have to come to you as you wouldn’t make
it available elsewhere. If you could buy exclusive rights
to this product, you figure you could double the size of your
business in 6 months, deliver humongous profits and your share
price would go through the roof. You need this product! However
your competitor, and deadly enemy, is also hankering to buy
it. The recipe is protected by patents, trademarks and all
forms of protection – it’s definitely only one of a kind.
Depending on how much you bid, either you, or your competitor,
will get to win the prize and buy this product on an exclusive
basis – it’s a winner-takes-all scenario. The recipe was developed
by a team of 10 nutrition scientists and belongs to a small
company that they formed for this purpose. Although it’s been
thoroughly tested, the product has not yet been commercialized
and the business is burning up cash at the rate of $250,000/month.
this sound like an appealing acquisition? How much would you
pay? Clearly, this product is of strategic importance to your
company. If you buy it, you get to dominate your market and
expand your business. If you don’t, you’ll lose your customers
to your competitor and you’ll struggle to compete. Of course,
the $250,000 per month cash burn is not too appealing, but
this should not prevent you from buying this company. There’s
much more at stake than a $250,000/month burn rate. Combining
this new product with your routes to market would boost your
business and, in the long run, could be worth billions of
dollars in sales and profits. You’d be crazy not to pay a
good price for this company, put its development team on your
payroll with non-compete employment contracts and get to own
the winning recipe outright.
In many ways, the dog food inventors have been very smart.
Instead of taking on the cost and responsibility of building
their own chain of stores, they focused all their attention
on building the product. This meant that they could avoid
having to hire a large team, keep costs under control and
steer clear of raising multiple rounds of funding. After creating
the product, all they need to do is prove that the dogs like
the dog food, protect the recipe from infringers and shop
the product, and company, to a list of existing players with
established routes to market."
The long haul to IPO is not the route for everyone.
In fact, the short sprint route laid out in this chapter is
probably going to be more appealing to the majority of entrepreneurs
and investors in the new millennium. However, taking this
route means questioning some fundamental principles of business
– it’s not for the faint of heart! This chapter provides a
complete roadmap and travel guide to this route:
- The philosophy you need to follow to target selling the
company from the outset.
- Detailed milestones and stepping stones that make up the
- Assembling a short sprint team.
- Structuring the company to make it an appealing acquisition
- Reducing the cost and risk involved in building a valuable
- How this route has the potential to offer a lower cost,
lower risk and quicker return for investors.
- Contingency plans – what can go wrong on this route and
how you can respond.
The Long Haul from
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