Software Growth

Exit strategy

An exit strategy is your plan for how and when you leave a business, whether by selling it, merging, passing it on or shutting it down, and what you want from it.

An exit strategy is the answer to "how does this end for me?" Common exits are an acquisition, a sale to a private buyer or marketplace, a management or employee buyout, an acquihire, an IPO (rare), or simply running the company for the cash it produces. Deciding early shapes funding, pricing and how you build the business.

Why decide early

  • Funding choices lock in outcomes. Venture investors need a large exit; see venture capital and liquidation preference.
  • A business that depends on you personally sells for less. Jason Cohen of A Smart Bear built his company intending to sell it, as he describes in a Mixergy interview.
  • Buyers pay for clean books, low concentration, documented operations and steady retention. These take time to build.

Routes for a small SaaS

  • Sell to a private buyer or via a broker or marketplace. Priced on SDE or an ARR multiple.
  • Strategic acquisition. A larger company buys for customers, product or distribution.
  • Keep and hire a manager. You become an owner and take distributions.
  • Wind down. Sunset gracefully, with notice and data export.

The human side

Rob Walling and Sherry Walling's book Exit Strategy treats selling as a personal transition as much as a financial one. In their podcast episode on the book, they describe three phases (before, during and after the sale), including the stretch afterward when you work for the acquirer and face questions about what to do next. Plan for that, not only for the wire transfer.

Practical steps

  • Write down what a good outcome means for you: a number, a timeline, a role afterward.
  • Keep records that survive due diligence from the start.
  • Reduce your own indispensability: document processes, hire support, and share customer relationships.
  • Expect part of a price to be deferred through an earnout or seller note.

This is general information, not financial, tax or legal advice.

Related terms

Sources

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