How To Design Your Perfect Exit™

How To Design Your Perfect Exit™

Hey, there. Dan Martell here, serial
entrepreneur, investor and creator of SaaS Academy. In this video, I’m going
to share with you how to design your perfect exit. It’s a framework,
a process that I’ve used to exit my two companies
and helped dozens of companies exit theirs for the
maximum valuation. So you’re going to want to watch
this video very specifically to understand how to do that. And be sure to stay
to the end where we’re going to
tell you how to get access to my private training,
Fundraising Like a Pro. If you plan on raising
capital in the future, you’re going to want
to know the three phases of fundraising
and the right way to approach investors. [MUSIC PLAYING] So if you’re planning on
someday selling your company, you’ve probably got a ton of
questions around the process and what’s important
to potential acquirers, and what should
I be doing today. I know I did when I was
starting my companies, Flowtown and Clarity. I knew that I was building
a technology company to create a lot of
value, but I wasn’t sure what the process would ever look
like, maybe, hopefully, someday to exit. And what I want to
share with you today is the process that I not only
extracted from my experience, but having helped dozens
of my own coaching clients in the last three years
go through that process to really maximize the value. Just recently I had one of
my clients exit for over $90 million on about 900,000 in
monthly reoccurring revenue, which is a huge multiple. But the reason why is
because they understood working with me,
the value drivers for a potential acquirer
to make sure that they optimize those for that exit. And that’s why I call
it the perfect exit. Now, this is different,
different, different people. For you it might be
a public offering. It might be getting
acquired by a strategic, or it might be bringing in
a CEO to run your business. So a perfect exit is different
for every individual. But what I want to share
with you in this video are the strategies
that I not only learned through my own
experience, but I’ve had the privilege and pleasure
of working with my coaching clients to increase
the valuation for them using these five strategies. Number one, know your numbers. At the end of the day,
if you have a software as a service business,
a SaaS business, not a subscription business,
although those are really cool. They’re different. If you have a software product
that people pay you for, ideally or typically
on a monthly basis, there’s only three things
you need to know, is, how many new customers do I
add to my product every month? What percentage of those
people stick around? And third, how do I increase
the Average Revenue Per User, or grow that value equation? Essentially, it’s ARPU. Those are the three factors
that you’ve got to work with. If you haven’t Googled what
I call the churn flatline, or growth ceiling. I call it a churn flatline,
but essentially it’s a growth ceiling. Then go run your
numbers, because you may be on a path
in the near future, if you don’t increase
your acquisition, to hit that wall, that period
where you’re not able to add any new
customers fast enough to overcome the fact that
you’re losing customers. And that’s what a
growth ceiling is. There’s a wall and
then there’s the point where essentially
you’re going to max out and you’re just going
to go sideways for ever. So number one is just
know your numbers. How many customers
do we acquire? How many do we keep? And how much do we actually
monetize that current account today? Two, visualize maturity. Now, this is such a, to me,
a pretty obvious question. But I love to ask my
clients, it’s, what do you look like when you grow up? As a software
product, and maybe you have this really cool feature,
this tool that you do today. And I have a client that does– they just told me they
just cracked 600K in MRR, and they do this one
very specific thing in the real estate space. My question to
him was, what does this look like in 10 years? What is the product suite? What problems do you want to
solve for your core customers? Because if you don’t visualize
what the business looks like at maturity,
then it’s really tough to make decisions today that
are going to align with that and it’s really easy to just
get focused on doing this one trick, this one– you know– you saw
this one problem. You do it really well and
everybody knows you about it, but then all of a sudden
there’s competitors, and they show up in the market. And I’ve seen this in
every– especially in MarTech marketing technology, everything
from landing page competitors, to email automation competitors,
to chat bot competitors, you name it. If you have a hook
in the market today, you will not have it
in two to three years, other people will
see the opportunity, come in, do a little thing
better, have more funding, better product in
UX, and they’re going to take you out if you
don’t understand and visualize the maturity of what
your business looks like and where you’re going
to get you there. Number three, become the person. So one of my favorite things– I was working with a
founder the other day, and they were struggling
with some marketing stuff. And I said, look,
we’ll solve that. Those to me are–
those are skills, those are things
that are repeatable, like, there’s a process that
I’ve built out in our playbook that you can just use to get
results in your marketing. What I’m more
interested in is who do you need to become to
be successful executing that marketing strategy, or if
you’re a non-technical founder, who do you need to become
to lead a development team? And those questions
are more interesting. Wherever you’re at in
your business, what I know is that for you to
get to the next level, you’re going to have to grow. You’re going to have to
add some new mindsets, some new belief systems to
allow you to show up as the kind of leader that can not only
attract the team that’s going to execute your vision for you,
because at the end of the day, you’re not going to do
it, or you shouldn’t. So not only do you need
to attract those people, you also need to be
the kind of person that can lead those people
and collaborate to create those outcomes. And too often what I
see is just ineffective leaders, ineffective
founders that have not asked themselves the question. If I’m here and I
want to go up there, who do I need to become to
be the kind of person that’s running that kind of business? If that’s 10 million in ARR, or
50, or like some of my clients, over 100 million in annual
reoccurring revenue. Think about that, 8
to 10 million a month in revenue through their
software every month. What kind of
founder do you think that individual is to be able to
run that level of organization versus the person that’s
starting with five to six staff people on their team? Like, those are two
different people. They approach their
day differently, different mindset, different
communication style, et cetera. And the question you
need to ask yourself is, who do I need to
become if you truly want to create that perfect exit. Number four, invest ahead. So one of the biggest
mistakes founders make when they’re going after
and they’re creating value is they’re not investing ahead. What they’re doing is
they’re trying to be prudent. They’re trying to build
a successful business. So you read all these
accounting books, or these financial
books, and they say, we’ve got to be making 15%
net profit, or 20% net profit. And I totally agree. The guy who wrote the book
Simple Numbers, Greg Crabtree, does all my financial modeling. I understand that
stuff, but I also understand this, is there is a
thing called return on equity, essentially $1 left
in your business, how much return do you get on
that equity over a 12 month period. And for some businesses
it’s very low, like 30%, which is high if
you consider the S&P 500, or whatever kind
of returns you’re getting in the stock market. But the best businesses can get
200%, 300% return on equity. And the reason why is because
they’re investing ahead. They’re looking at their unit
economics of their business model. They’re saying, yes, this
works, this is profitable, we can do this. And then they’re
taking all that money and they’re plowing it
forward into the business. How are they doing that? They’re doing it through
their team they’re hiring. They’re doing that through
investing in acquisition. They’re doing that through
investing in retention. They’re doing that through
investing in expansion revenue. All the things I mentioned
at the beginning, when you need to know your numbers,
if you understand them, then you can understand
how to properly deploy $1 to get a return. So you have to invest
ahead of your growth if you want to get
the best possible exit for your business. One of my clients actually
told me, I left $100 million on the table by not
building this function in my organization, because
when he went out to the market to essentially exit, one of
the things that they said is, we’re going to add this– as soon as we
acquire you, this is one of the big things
we’re going to add that you don’t currently have. And he looked at what the impact
would have been on his business based on their comps and it was
$100 million potential upside valuation, because
they would’ve added that revenue to their
business that they would have got valued on on exit. That’s huge. Instead, he just tried to
make it extremely profitable and take money off the table. I’m not saying
that’s a bad thing, but you can understand, when you
take that dollar off, you might be giving up, $10 in the
near future because you didn’t reinvest it in growing
your monthly recurring revenue. Number five, drive value. For any acquire,
there’s two things. There’s value drivers
and value detractors. There’s things that
[INAUDIBLE] acquire– it thinks it’s really
valuable, and then there’s things that they go,
oh, this is not so good. So for example, not so good, a
contract that you signed that fixed the price for 10 years
with a very large fortune 50 company, et cetera, that
just doesn’t make money. That would be a value detractor. Or the fact that you
don’t have a CTO, because you didn’t properly
invest in your team and you outsource all your
development to another company. That would be a value
detractor on exit. What our value drivers– are definitely the numbers that
I mentioned, but those are just like the baseline foundational
conversation to start. I mean, what people want to
look at is how you innovate, what’s your product roadmap
look like, et cetera. So just understanding by
talking to a potential acquirer, and saying, hey, I know
we’re really small today, but in the future
we’re definitely going to build this
business and we’re going to probably
eventually look at partners to connect
with to do more. When you’ve bought other
companies in the past, what are things
you looked at that really felt attractive to you? What did you value? And if you don’t
feel comfortable going to a potential acquirer
to have that conversation, then just reach out
to any M&A banker. So search M&A banker
SaaS in your city, and you’ll find
probably one or two. There’s some great
ones out there. But they will–
and a lot of them have content on their website,
because its content marketing, to explain to software
founders like yourself how to understand the value
drivers versus the value detractors to optimize
your potential exit. So that’s a huge thing, is
drive value in your decisions today to increase the potential
outcome in the future. So five steps to design
your perfect exit. Number one, know your numbers. Number two, visualize maturity. Number three, become the person. Number four, invest ahead. And number five, drive value. As I mentioned in
the beginning, I want to share with you an
exclusive resource called Fund Raising Like a Pro. It’s essentially my three phase
process for raising capital. One of my tenants, my rules,
my principles in life, is investors don’t
want to meet you, they want to be
introduced to you. So I’m going to
share with you how to reach out and get those
introductions the right way. I’m also going to share
with you the phases for how to build a high level of demand
in the right time to raise. There’s only two. You either do it here or there. And also the right way to pitch
your company when you sit down with an investor. Those are all available. So click the link below
to download that training, Fundraising Like a Pro. If you like this video, be sure
to softly tap the Like button and subscribe to my channel. If there’s anybody that you
think this video could serve, feel free to share
with them directly. And as per usual, I want to
challenge you to live a bigger life and a bigger business. And I’ll see you next Monday. You probably have a lot
of questions that are, kind of, big empty
question marks– you probably have a lot of
questions– da-da-da-da-da.

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About the Author: Oren Garnes


  1. SaaS founders: If you want to exit your company one day, then you’ve got to get a maximum valuation… In this video, I’ll show you how!

  2. This content keeps getting better just when I thought I had heard it all!
    I am watching you all the way from Kenya,keep up educating the world and stay blessed 👊

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