How to Craft the Ideal Exit of Your Business

How to Craft the Ideal Exit of Your Business

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When you’re building a company from scratch, the most painful body blows can turn out to be the most valuable experiences.

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This punch to the gut came for my company in 2012 when one of our anchor clients, accounting for about a third of our annual revenue, dropped us in the most ruthless, opaque manner imaginable.

The U.S.-based financial institution had been a great customer for three years. Then new leadership decided to centralize its processes and began cutting our workload. When confronted, the company admitted what was happening, but assured me it would at least give us work until a certain date. Then they abruptly cut us off two months early with no explanation or apology.

It was the toughest single setback in my journey with Blue Umbrella, which I founded in Hong Kong in 2009 to provide due diligence services to financial firms operating in Asia. In retrospect, it was a watershed moment that helped pave the way for the firm’s acquisition this July by AML RightSource, whose technology and advisory services help financial services companies fight money laundering and other financial crimes.  Before the deal, my company had grown to about 250 employees from three and achieved compound annual revenue growth of our key technology product of 77% between 2015 and 2019.

Doomsday scenario

When a firm is backed by private equity or other deep-pocketed financial partners, losing a core client can be managed with less risk to business continuity. But for a company like Blue Umbrella, which I bootstrapped along with two friends, it’s anxiety-inducing. I’d already dug deep into my personal savings to establish the company and fund growth opportunities.

When you lose a third of your revenue overnight, it’s impossible not to start imagining doomsday scenarios and considering scary options that will impact your family, like mortgaging your property.

When the hammer dropped, we immediately cut cash expenditures and started bringing in more cash from current accounts. We also planned layoffs. That was tough. Not only had I personally interviewed and hired every employee, but I knew their families and their financial situations. Luckily, I didn’t need to resort to this mitigation measure: Our sales team was able to land a new client, resulting in as much revenue generation as the client that left.
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The timing was also fortuitous in relation to the board’s reaction to the crisis. When the client pulled out, we had already been devising a new three-year plan together. They didn’t see this as an existential crisis, but rather a focus for moving forward.

Even so, the lesson cut deeply and set the stage for a new era. We adopted a far more strategic approach to growing the business. Until then, we had been laser-focused on ensuring a strong market fit for our due diligence and compliance products.

The new 3-year approach

The setback made us realize that product fit is no substitute for having a strategy to grow in a way that drives value. From that point on, our three-year plan focused on identifying and implementing strategic opportunities to create maximum value. This approach helped lead us to an ideal exit.

Let me be clear: We never grew the business with the primary goal of exiting. However, the way we ran it from then on ensured that it would be an attractive opportunity for a buyer one day. We made sure the business ran clean, with no personal expenses, random investments, or pet projects that would distract us from our business goals. We instilled a growth mindset at the core of the company’s DNA, impressing on employees that they needed to embrace that or look elsewhere.

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We created our three-year plans entirely in-house. In retrospect, we would’ve been well served to use an outside advisor but, at the time, we were very much bootstrapping. Perhaps this was what made our approach even more potent – we all bought in and committed to the idea this was the right plan to move forward.

Find the inflection point

What also made for a successful sale was that we did it for the right reasons and with the right buyer.

We had reached an inflection point where we needed more capital to pursue opportunities and a partner which could help us further expand into our markets. When we examined the company through the lens of our three-year plan, it became clear we had reached a stage where bootstrapping and elbow grease simply weren’t going to be enough.

We had grown from providing due diligence to Wall St. firms, to generating a significant percentage of revenue from tech-enabled services in a much broader compliance market. We had a laundry list of requirements, ranging from AI technology to servicing new frontiers like ESG and data privacy, that could only be achieved with a strategic partner.

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We didn’t go looking for a buyer purely for financial gain, but rather searched for a strategic partner that could help us progress beyond our current capacities.

Reject the ‘soul-destroying’ deal

Acquisitions are too often soul-destroying events for staff when they result in culture clashes and redundant technology or positions. Having built the company for over a decade, I had a strong duty of care to our staff and customers. That’s why we were only willing to sell to a buyer that aligned with us both culturally, as well as organizationally. 

To be sure, there were missteps along the way, and I didn’t always make the right decisions to position Blue Umbrella perfectly for a sale. I regret not seeing the need to take a more strategic approach earlier and I wish I’d had a better understanding of how the anxiety and demands of founding a company can affect family – in my case, requiring a disruptive move back to North America in an effort to be closer to our clients.

Overall, though, I feel we got the big calls right and have left Blue Umbrella with the right ownership and executive team to thrive in the years ahead.