The Covid 19 crisis has had a massive impact on the global software industry. Many software companies have struggled to survive as the customers they serve have seen major revenue decline. There is now a distinct feeling of optimism as general industry begins to recover. The Dow and Nasdaq are powering forward and publicly traded software firms are leading the charge as their stock is at all-time highs and they are awash with cash.
What do software entrepreneurs do to take advantage of this perfect storm and leverage the market conditions to catapult their business forward? They need a strategic plan. Most software CEOs are heads-down focused on creating innovative content and securing new customers. Most have very little experience in understanding the various options they have available to them to help them achieve their dream and see their "baby" survive and grow. In addition, they are being inundated with calls from lenders and investors, dialing for dollars, promising them spectacular valuations. CEOs need to get ahead of the game rather than be whipsawed in this way, they need a strategic plan.
Every effective strategic plan needs to have an end game, a mission and vision that includes an exit plan. What is the final objective of the plan? In addition, an effective plan will have opportunities to adjust course as prevailing conditions change. This is particularly important in the software industry as technology is changing so fast. Key questions need to be answered and frank conversations need to be had with the face in the mirror. What is my end game? Am I building this company to an IPO, or am I looking to sell the company in the next 2-3 years? What working capital and growth capital do I need to accomplish this objective without giving up equity? Who might I talk with to get this insight?
To go it alone is foolishness. Software CEOs are generally great technologists and, in many cases, great salespeople. They can wax lyrical about their solution and how it will change the world. Selling software and having a multi-year sales plan focused on revenue growth is totally different from having a solid strategic plan for the company. In many cases the CEO will have early stage angel investors that have helped fuel the financial needs of the company in its early growth stage and they will want to see a plan for their reward in doing that. It is time to get the help of a "spirit guide" to be the CEO's trusted advisor to help develop the plan and help navigate through the shark infested waters of software M&A.
Companies are sold not bought. The statistics in software mergers and acquisitions clearly support this. If a potential buyer for your company knocks on your door and you are taken in by his or her pitch, it is likely that it will not end well. One buyer is no buyer! To single thread the process to one buyer means that they are controlling the narrative. They will suck you in and consume enormous amounts of your valuable time and at the end of the day it is very unlikely that they will come close to your valuation of the business. To get the optimum exit there needs to be competitive tension and to accomplish that you need a process. The anticipated M&A process needs to be part of the strategic plan.
A pre-cursor to a successful M&A process could be a step to calibrate the market. An initial executive summary can be created that talks to the value proposition of your software solution to a potential acquirer. This summary can be initially socialized with a subset of financial (Private Equity) and strategic (Trade) buyers on a no name basis and this can provide valuable insight on how your business is being perceived. In many cases this market calibration can quickly stimulate multiple interested parties and the formal M&A process can be implemented.
In summary, it is vital that a strategic plan be constructed and implemented. Current stakeholders in the business will be satisfied that the business is being run effectively that will result in a good financial return for their investment. In addition, Future investors/acquirers will appreciate that this is a well-run and highly valuable asset and if they don't buy it, their competitors will.