Pushing your way into a market is hard enough. Don’t let ignorance of market conditions be your downfall. When working in time-sensitive markets like software and technology, this last point is especially poignant. We all joke about it: Oh, the iPhone XX is out, I better upgrade from my XVIIII! … Seriously. So when you’re operating out of an industry where you’re making mad cash on quick growth, take a step back and consider the implication of running your business from trend to trend.
Whether it’s paying payroll from your credit card or searching out the customers or capital you need to keep your business afloat, do it. You’re an entrepreneur, so you’ve already established a need going unfulfilled and have an idea of how to correct it. Why let anything block your way? Remember that not all businesses succeed, but not all need to fail — if you haven’t already generated a business plan, you should do so now to give yourself the best chance possible.
In the software as a service (SaaS) market, that’s even more crucial. Your plan should include who your customers are and where you’ll find them, what services you’re offering on a recurring basis or as one-offs and the longevity in the market for the service you’re providing. You’ve ridden in on a market trend, so what’s stopping you from going out on one
The better plan you have for these contingences and eventualities (because, yes, eventually you will leave your business whether you want to or not), the more solvent and less risky your business will be. If your customers and potential investors see you as a strong market presence, they will be far more likely to give you their money — and at some point, you’re going to need a lot more of that.
Capital, Capital, Capital
Investing or growing, you need money. From an entrepreneur’s standpoint, you’ll need capital when you want to expand, develop a new product or service, or if you come across a major set-back or dilemma. Roger Sippl is the first person to tell you there are unexpected costs associated with running a business which the owner still needs to make him- or herself aware of. He discovered the joys of lawyers’ fees for publicly owned companies, for example, when he received trumped-up “strike suits” accusing him of fraud for liquidating some shares before a coincidental market downturn.
No matter where you’re at in operating your business, you need capital. If you don’t have it yourself or from immediate and trustworthy sources, perhaps it’s time to consider an investor. Roger’s career path has led him to the investing side of business, and he admits that it is yet another learning curve — but it’s one with which he already had some experience due to his experience with acquisitions as a business owner. So you can take another type of lesson from pairing with the right kind of investor: investing is a good way to stay involved in the growth aspect of a business and allows you to keep your finger on the pulse of the industry (or industries if you fancy yourself a bit of a business Casanova).
Where you find your cash is an important point to consider. We regularly hear of someone getting private equity involved or an angel investor or a venture capitalist, but what does that really mean for you? Each type of investor comes with different stipulations and requirements before making that investment; and there is usually some caveat for the repayment period or which way the repayment is to happen. So you need to ask yourself a few key questions:
- How long do you plan to operate your business for? Following that, how long will your business continue to run in the way it is run now and will that influence your repayment period?
- Do you have the future forecast to handle the repayment method and time line?
- What is your contingency plan if your business goes belly-up?
- Is the individual or firm you’re partnering with the right fit for your desired growth plan (including how much control you wish to retain over the business)?
These are but a few of the points you should consider before getting into bed with someone for their money. In many ways, getting an investor is a lot like marriage and if you don’t have a good working relationship, the next 10+ years are going to be trying to say the least and crippling to say the worst. Plan carefully!
Get Out Now, Your House Is On Fire!
So about that market trend you really were enjoying for the last two years. How’s it going? Is it as strong as it was, or (if you do an honest look) can you see some signs that the market is drying up? In software, chances are you’re at least getting close to the latter if you haven’t already experienced the former. The turnover in this industry is insane, and the demand for innovative products continues. Eventually someone will do the thing you didn’t do and will eclipse your success… unless you’re keeping that mojo going and pushing for new/better products and services from your own business.
If you’re not set up to grow your company like that, have no fear. The benefit to having a product or service that is at its zenith is that you can sell for top dollar and someone else can pick up the reins to push the company to new heights — or they can fail on their dime while you enjoy yachting or competing in charity golf tournaments. If that doesn’t interest you, then think about what you can do with your exit money and new-found free time! Want to start another business? Have at ‘er. Mentor? No problem. You have the ability and go-getterness to do whatever your heart desires, so why haven’t you given though to what it is you want in your life when the business is no longer the center?
There may come a day, ready or not, that you have to get out of your company quickly. In SaaS, it often happens when a new service comes out that does that one single thing yours doesn’t (or makes your products obsolete) or when a competitor comes along and goes “Oh, you have something we need” and buys you up. If you don’t have your exit plan in place, you’ll be left in the lurch. If the market turns against you or you receive an unsolicited offer, do you know what to do?
In the case of the market turning against you, there’s not much you can do if you are caught unawares. However, if you haven’t gotten there yet and can do a little planning, you can look at your business’ strengths and weaknesses in the current market and do a little research into what the trends are — does your business still hold up, or do you see some pretty big hurdles coming your way in the next few years? If it looks like a mountain is approaching, perhaps it’s time to sell. If you miss your exit window, you may not get the same favorable terms and value for your business. No one in today’s market would invest in a company like Blockbuster, but we’re ready for the next Netflix already.
Are you approaching Blockbuster status, or are you still operating like Netflix? Plan your exit accordingly. If you get out on top, you’ll get the most out of your exit which will fund your next steps in life. Maybe, like Roger Sippl, you’ll come out and do investing; maybe, like me, you’ll start a podcast about your experiences and therefore engage in another building exercise.
No matter what you want to do next, the path is clear: make a path. And then make a plan for another path should that one not work out.