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6 Tips On Building A Business For A Successful Exit

The price of your business is simply what the highest bidder is willing to pay.

At Bonova Advisory we interview Industry experts, C-suite and Influencers on various topics in Finance and Banking.

This Week I had an opportunity to interview Sean Byrnes CEO Outlier

Sean Byrnes is the CEO & co-founder of Outlier, the leader in automated business analysis which is the use of artificial intelligence to automatically analyze business data. Sean was the co-founder of Flurry (acquired by Yahoo in 2014), the largest mobile analytics company in the world. In his free time, Sean advises some early stage technology companies and invests in many others.

Thank you so much for doing this with us! Can you tell us a story about what brought you to this specific career path?

I’ve always been interested in a wide variety of subjects and skills, and specifically the intersection of different ideas. I’ve tried working in different jobs ranging from academia to large companies, but being a founder is the only career I’ve found that challenges me in different ways everyday and lets me explore and celebrate those idea intersections. I started my first company, Flurry, a few years after I left graduate school and I have been a founder ever since.

On any given day I get to work in marketing, sales, design, and engineering and I can’t imagine doing anything else.

Can you tell us a story about how you were able to build, a business from scratch, scale and sell it to a bigger firm?

I started Flurry in 2005 with two friends to be the first of a new generation of mobile application companies that built easy to use products designed for consumers. 2005 was years before the iPhone so this was a time where the carriers controlled the mobile industry with an iron fist and the most popular phone was the Motorola RAZR. Everyone thought we were crazy to try and build apps in that ecosystem and maybe we were.

Over the first three years of the company we found a lot of success with an email app called Flurrymail that allowed users on basic phones to access their email. Remember, at that time the only way to get email off a computer was to buy an expensive Blackberry so Flurrymail as a free product was revolutionary. We never did find much success in the US but we were extremely popular around the world, especially in Indonesia and India.

By 2008 we realized that it was going to be very hard to make money in mobile apps, especially in the developing markets where Flurrymail was the most popular. At the same time we saw an entire movement of app developers building similar products but who lacked even basic analytics tools to measure consumer consumption and behavior. We had built some advanced metrics tools at Flurry and decided to pivot to becoming an analytics and ads platform for other apps based on what we had made for our own apps.

We launched that in 2008 right after Apple launched the App Store, which was amazing timing. Over the next 6 years Flurry Analytics doubled in size every six months. We had a front row seat for the massive explosion in the mobile ecosystem and became the dominant leader in this market. Over time we rolled out a series of advertising tools and products to help app developers make money from their apps and in doing so became a very large business.

Flurry was acquired by Yahoo! In 2014 to become the cornerstone of their new mobile strategy and the platform. The brand still exists today as part of Oath.

Can you share a story about the funniest mistake you made when you were first starting? Can you tell us what lesson you learned from that?

When we were starting Flurry, we decided that picking a name could wait until later so we started out as SVB Technologies which was simply the initials of the three founders. Over the next two years we struggled to find a name (and a domain) for the product we were building with very little luck. It was such a little thing that ended up consuming way too much of our effort and time.

For my new company, Outlier, I vowed to never do that again so I chose the name and bought the domain before starting the company.

Can you share with our readers the “6 Things You Need To Know If You Want To Build, Scale and Prepare Your Business For a Lucrative Exit”. Please give a story or example for each.

It is hard to focus on only 6 since there are so many factors that go into building a big business. Here is my best try at picking only 6:

1. Focus on differentiation.

The only thing that matters about your company is what makes it different from all other companies. It might be your product, your technology, your pricing or your marketing but it better be so radically different from other companies that it gives you a strong competitive advantage. When an investor, acquirer or even potential employee look at your company all they will see is that difference. At Flurry, it would have been easy for us to expand from mobile apps to websites, etc. but we knew that the biggest difference between us and everyone else was our sole focus on mobile apps. By continuing to invest in that difference we made it harder and harder for companies to compete with us in the mobile market as it exploded.

2. Don’t sweat the details.

No one has ever been acquired because they paid their bills on time. Many first-time founders I meet spend a lot of time on business operations, and as a result build very well functioning companies that are not very interesting. While you should pay your bills, almost all your effort should go into building competitive advantages and growth because that is what will make your company valuable. At Flurry I made the mistake of focusing too much on learning Quickbooks in the early days when we had very little revenue and as a result did not focus enough on building the business.

3. Be aggressive.

When you start a new company, by definition you have nothing. Even as you grow, you will never have enough resources. Large enterprises have nearly unlimited resources, so you cannot compete with them by working harder or spending more. Instead, you need to be aggressive and take risks they cannot take. The biggest the risk you take, the larger the competitive advantage you will have if you succeed. At Flurry, it was a huge risk to bet everything on mobile apps in 2008 as everyone believed the mobile web would replace apps in short order. Facebook, Google, et al all bet on the mobile web while Flurry bet everything on mobile apps. By the time everyone realized that mobile apps were going to win, Flurry was a big company and it was hard to catch up with us.

4. Study your market.

You should be one of the foremost experts on the market where your business operates, because this will allow you to stay ahead of changes and competitive threats. Before launching Flurry Analytics, we studied the website analytics market and saw that the price of analytics tools was consistently falling over time and rapidly being commoditized. We suspected the same would happen with mobile application analytics so instead of charging for the product and fighting commoditization we decided to launch it as a free product and commoditize the market ourselves. This was one of the biggest factors in leading to our dominance in the market and eventual success, and was a direct result of studying the market.

5. Plot the course.

Many founders will focus too much on today and not enough on tomorrow. When you are raising a round of financing, you should start thinking two or three financings into the future. If you are raising your Series A, what will the company look like after Series B? Series C? Understanding that evolution will help you build a business that is lucrative for everyone. I have met founders who don’t think ahead and end up building enormous businesses where they own almost nothing, and when the company goes public they don’t make any money at all.

6. Don’t give up.

Persistence is the defining characteristic of successful founders. Regardless of how big your company gets or how much success you find, there will be crises and problems that would cause any rational person to give up. It is in those moments, and how you overcome them, that you will build the most value by simply surviving. Flurry was a huge exit, but over the course of the 9 years we were building it the business was insolvent twice. If I had given up at any of those points we never would have been a success.

Can you give a few examples of things to avoid when trying to build a business to sell?

If you want to sell your business, the most important thing to avoid is focusing on selling your business. I know it sounds confusing, but companies are acquired because of the value they have built and the competitive advantage they maintain. Focusing on trying to get acquired almost certainly guarantees that you will not focus on the core business fundamentals and in doing so compromise exactly what would make an acquirer interested in you.

Survival is one of the biggest factors in having a successful exit for your company. In the case of Flurry, we survived the 2008 financial crisis when a vast number of startups failed. As a result, much of our potential competitors went out of business before finding an exit while we were able to thrive and grow.

What are some of the differences in approach for building a service based business versus a product based business with an intent of selling the business at a lucrative price?

Almost no services businesses are acquired for a lucrative price and it’s for a very good reason: leverage. A product company can invest into a product and then sell the finished product over and over again for an ever increasing profit margin as it scales. A services business can only generate as much revenue as it has people, so it cannot scale quickly and in fact grows more slowly the bigger it gets. Even when a services company gets to scale, what is an acquirer buying? The people can walk out the door tomorrow and there won’t be a business left. In comparison, buying a product business means buying the product, the technology/patents behind it, the distribution networks created and the customer base that is already using the product.

How does one go about the process of finding a buyer?

In almost every company acquisition I’ve seen the buyer found the company, not the other way around. While you can hire investment bankers to try and find a buyer for you, it is very hard to do. The reason is simply that a lot of factors have to converge at the same time for a buyer to be interested in your company:

  1. The buyer needs to feel your company is in an area of important strategic focus.
  2. The buyer needs to have the capital allocated to purchase you.
  3. The buyer needs to have enough urgency to feel they need to buy you instead of build it themselves.

Those factors rarely align at the same time you want to sell your business, which is why it’s easier to wait for a buyer to approach you after those factors have already aligned for them.

How can one decide if it is better to build a business in order to exit, or if it is better to stick around for the long term and let the company bring in residual income or go public?

Since you cannot control when a potential acquirer will be interested in buying your company, the only strategy you can pursue is to build a fundamentally sound business that can grow indefinitely. If you do that, exit opportunities will present themselves along the way. If you don’t, you will likely run out of capital and runway before finding a good exit option.

Can you share a few ways that are used to determine a good selling price for the business?

The price of your business is simply what the highest bidder is willing to pay. The same company may be worth massively different amounts to different potential acquirers because some may value the product, while others value the team and yet others value the customer list. No two potential acquirers will have the same resources and structure, so the value of what you bring to each will determine the price they are willing to pay.

If you are very lucky you can find a few potential acquirers who need your company as part of their strategy and a bidding war can erupt. When that happens you will definitely maximize the sale price but it’s not something you control.

You are a person of great influence. If you could inspire a movement  that would bring the most amount of good to the most amount of people, what would that be? You never know what your idea can trigger. 🙂

The Tech industry is plagued by systemic racism and sexism. This problem will not solve itself, we have to take a stand and actively work to address it. All of us can help by not avoiding the problem, and instead make sure that companies realize that racism and sexism have directly negative economic impact on their business. When you interview at a company, ask them about diversity and look around the office. If you don’t see a diverse workforce, don’t work there and tell them why. If you are a founder, look at the partnership of potential investors and if you don’t see diversity let them know it’s an issue for accepting their investment.

Together we can change the industry, but it requires all of us to stand up and say “no more.” Until we do, the status quo will continue to reign.

Can you please give us your favorite  “Life Lesson Quote”? Can you share how that was relevant to you in your life?

“Truth is relative, honesty is absolute.”

This phrase has always meant a lot to me because it tells me that I can’t control the world around me but I can control how I behave in the world. I control whether I am honest or lying, and regardless of how the world changes around me I will always know which I chose. This is the driving force behind my personal philosophy of honesty and transparency in everything I do.

How can our readers follow you on social media?
You can find me on Twitter as @sbyrnes and I write a free daily newsletter called the Data Driven Daily.

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