How to think about exiting as a bootstrapped founder

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

And yet bootstrap – where the business is financed through its operations – often a better business strategy. This affords founders more control over their destiny, and more rewards for their efforts when they finally decide to quit. But these businesses are often built away from the public eye, so rarely do other founders learn from their success.

That’s why I thought it would be helpful to share insights from the work I’ve done with bootstrapped founders and teams on their way out.

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

Many thanks to Janosch Kühn, founder of Berlin-based Kolibri Games, who kindly asked for his exit story as part of this piece.

Reason: Why quit? Why now?

Bootstrapping requires a significant amount of heavy lifting for entrepreneurs to grow and sustain their businesses until their exits become viable.

Unlike VC-backed entrepreneurs, who typically operate on a predetermined seven- to ten-year time horizon, the end of the bootstrapping journey is not always clearly marked.

Through my training work, I have identified five main motivations why bootstrapped founders may consider an exit:

  • Growth partners needed. There are major growth opportunities that they cannot address without more resources or investment.
  • Capitalizing on inbound interest. People who are banging down the door to buy the company.
  • Relationship breakdown. The cofounders no longer see eye to eye about the future of the business, and these differences prove irreconcilable.
  • Recognizing their limits. They have taken the business as far as they can, and recognize that they do not have the right skill set to move to the next level.
  • It’s time. Whether due to burnout, malaise, a desire to spend more time with their family or to pursue other opportunities, they know their time has come.

But regardless of the motivation, eventually things boil down to one question: does the exit make sense now?

Further down the line, the founder will be tasked with telling the story out to their team, customers, partners and potential buyers or investors. If they can’t convince themselves that it’s the right decision, they’ll struggle to win over this audience.

Route: What is the exit route?

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

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

When thinking about the exit strategy, he explained, “It’s always a trade-off between financial investors and strategic partners, so it’s important to be clear on your ultimate goal. We need strategic support, first of all, and Ubisoft is the perfect partner in a sense that.

Most bootstrapped exits take the form of a trade sale/acquisition, either by a strategic acquirer – as is the case with Kolibri Games – or private investors, such as private equity funds. Bootstrapped Company ordinary general list, but – as with all businesses – the likelihood is slim. As Kühn notes, in most cases, an exit will involve striking the right balance of strategic and financial support.

The timeframe for completing this transaction will vary greatly depending on the appetite of the acquirers. We often hear boilerplate estimates that venture rounds take about six months; for the founders I have worked with, the exit process has taken closer to 12-18 months. A long timeframe is not necessarily a bad thing. It gives founders the opportunity to strategically manage their exits and prepare everyone for the disruptions that are likely to follow.

agreement: How can we create cofounder alignment and shared commitment to exit?

All entrepreneurs have different reasons for considering an exit, and in the case of established businesses, these reasons may not always coincide.

In my experience, the best way to achieve alignment is for cofounders to walk through different exit scenarios and explore all the possibilities. For example, the strategy to sell, or can external investment represent an alternative way forward? Is it possible for one founder to be bought out by the remaining partners? Founders must agree before making further decisions.

One company I worked with had three founders: two had been in business longer than the others and had more personal investment. They are ready to take some of their chips to the table and spend more time with their young family. Another founder joined the group a little later and was in a different phase of his life. He definitely wants to stick around and see where the success story can go.

Kolibri Games’ Kühn explained: “Although we were encouraged by friends and family, my founders and I never disagreed on the timing of the exit. Our goal is always to reach a level where an exit will be both worthwhile for us and will make strategic sense for the company. With this alignment, we can all be together in the journey.

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

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

Remember that one exit can lead to job loss or changed roles, so internal communication equally important as external. That creates great uncertainty, and founders should not tiptoe around this fact – but neither should they go too far, too early, with their communications. In the case of one company I worked for, they built their entire internal communication strategy around listening to team concerns, 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 when they know it’s the right time to quit, letting go isn’t easy.

I always ask founders, if they saw the business as an outsider in five or ten years, what would they like to see? Some respond in terms of revenues or profits. Others talk about maintaining a company’s culture at scale, improving product quality by tapping into the acquirer’s R&D capabilities, or improving customer satisfaction by giving them access to a broader ecosystem.

Only once the vision is clear can the founders determine how the transition is successful – in terms of customers, employees, products, and financial – and start crafting the story around the exit.

Dilemma: Optimizing for Profitability or Growth?

A compelling exit narrative should be supported by facts about the company’s performance. This is the right time for founders to focus on business optimization, but it is important that they stay true to the playbook when implementing their exit strategy.

Bootstrapped businesses have been optimized for profitability from the outset, and while it may be tempting to pivot towards an all-out growth strategy in a bid to maximize the interest of the company, this approach can backfire if it runs counter to the organizational culture and DNA. .

Kühn said: “After being rejected several times by investors, we worked with a profit mindset throughout our journey. We were very tentative about spending money – even on things like marketing – until we were sure about the kind of return we expected. So while we ramped up our marketing efforts as we continue one out, we continue to optimize the direction of profitability, for example, requiring ROI. [return on investment] in three months for any marketing investment.

Uncertainty: Who am I once I’m no longer running my company?

After completing the transaction with Ubisoft, Kühn and his cofounders committed to stay for 18 months to help the organization adapt to its new environment. “We are still involved in the company, and we invested a lot of time in the development of new games to bring it to the next level,” he said. “It feels good to continue to contribute ideas and take part in great developments in the company.”

What Kühn describes is not easy. For many founders, it can be a struggle to adapt to a world where they are no longer at the helm. Some continued to call shots from the sidelines, creating confusion for their old team. Others feel trapped and helpless, disappointed in their commitment to stick around.

The lesson here is twofold. First, founders should think carefully about their post-exit length. Remember, most acquirers want to retain the founder’s knowledge and insight for several years either in an executive or non-executive capacity. Disappearing too quickly can leave a new leadership team behind. However, a long term in the executive office can be a prison sentence, blocking the founder in life.

Secondly, the founder must determine how life after exit looks like. Many bootstrapped entrepreneurs can’t separate themselves from their business and really don’t know what to do with themselves after exiting.

Thinking of going out? Find a bootstrapped founder

A lot of recent work with these bootstrapped founders reminds me of “working from first principles”: outside the spotlight, they don’t take anything or pretend to know anything. It is useful for founders with or without VC backing to connect with bootstrapped peers to understand their perspective on the exit.

Julius Bachmann is an executive coach based in Berlin focused on working with entrepreneurs. He is also the founder of JRNY.

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