How to think about exiting as a bootstrapped founder

When we talk about tech entrepreneurship, it’s normal to gravitate towards the high-profile, sexy world of venture-backed startups.

However, bootstrapping – where the business is financed through its operations – is often a better business strategy. This gives founders more control over their destiny, and more reward for their efforts when they decide to leave. However, these businesses are often built away from the public eye, so it’s rare that other founders learn from their successes.

That’s why I thought it would be helpful to share insights from the work I’ve done with bootstrapped founders and teams working toward an exit.

So how should these founders think about and prepare for the exit process? How should they tell their story to prospective buyers and sell the exit to employees?

A big thanks to Janosch Kühn, cofounder of Berlin-based Kolibri Games, who kindly shared his coming out story as part of this piece.

The reason: Why come out? Why now?

Bootstrapping requires a significant amount of heavy lifting for entrepreneurs to grow and sustain their businesses to the point where exit becomes viable.

Unlike VC-backed entrepreneurs, who typically operate with a predetermined seven to ten year horizon, the end of the bootstrapping journey is not always clearly signposted.

Through my coaching work, I’ve identified five key motivations why bootstrapped founders might consider exiting:

  • Need a growth partner. There are huge growth opportunities that they cannot meet without more resources or investment.
  • Capitalizing on incoming interest. People are knocking on doors to buy the company.
  • Relationship breakdown. The cofounders could no longer see the future of the business, and these differences proved irreconcilable.
  • Recognizing their limitations. They took the business as far as they could, and they recognized that they didn’t have the right skills to move it to the next level.
  • It’s time. Whether due to burnout, illness, the desire to spend more time with their families or pursue other opportunities, they know the time has come to move on.

But whatever the motivation, things eventually boil down to one question: does it make sense to get out now?

Down the line, founders will be tasked with telling the exit story to their teams, customers, partners and prospective buyers or investors. If they can’t convince themselves that this is the right decision, they will have a hard time bringing in these viewers.

The path: What are the exit routes?

When a founder is committed to an exit, the next step is to evaluate different options.

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After a five-year rollercoaster ride, Kühn and his cofounders, Daniel Stammler and Oliver Löffler, left Kolibri Games in 2020, having sold the studio to gaming giant Ubisoft for more than $100m.

When thinking about exit strategies, he explained, “It’s always a trade-off between financial investors and strategic partners, so it’s important to be clear on your real goal. We need strategic support , first and foremost, and Ubisoft is the perfect partner in that sense.

Most bootstrapped exits take the form of a trade sale/acquisition, either by a strategic acquirer — as is the case with Kolibri Games — or a private investor, such as a private equity fund. Bootstrapped companies Possible list to the public, but – like any adventure – the probability is small. As Kühn says, in most cases, exit involves removing the right balance of strategic and financial support.

The length of time for the completion of this transaction will vary greatly depending on the appetite of the acquirers. We often hear the boilerplate estimate that venture rounds take about six months; for the founders I worked with, the exit process took closer to 12-18 months. A longer timeframe is not always a bad thing. This gives the founder the opportunity to strategically manage the exit and prepare everyone for the disruption that is likely to follow.

The deal: How can we create cofounder alignment and a shared commitment to exit?

All entrepreneurs have different reasons for considering exit, and in the case of cofounded businesses, these reasons don’t always coincide.

In my experience, the best way to achieve alignment is for cofounders to go through different exit scenarios and explore all the possibilities. For example, could a sales strategy, or outside investment represent an alternative way forward? Is it possible for a founder to be bought out by the remaining partners? The founders must be aligned before making any further decisions.

One company I worked with had three founders: two had been in the business longer than one and had more personal investment at stake. They are willing to take some of their chips off the table and spend more time with their young families. Another founder joined the group partially and was at a different stage in his life. He really wants to stay and see where the success story goes.

Kühn of Kolibri Games explains: “Although we were pushed by our friends and family, my cofounders and I never disagreed on the timeframe for the departure. Our goal was always to reach a level where an exit would be both beneficial for us and make strategic sense for the company. With this alignment, we were all on the journey together.”

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The story: How do we shape the narrative around the exit?

An important part of preparing for release is getting the story right. Founders need to be able to talk about why it’s time to sell, and shape this story to teams and potential buyers. If you’re crossing a river, you need to be able to show people what the bank looks like on the other side and convince them that it’s worth the effort to get there.

Remember that exiting can result in job loss or changing roles, so internal communications are just as important as external. This creates a great deal of uncertainty, and founders shouldn’t tiptoe around this reality — but neither should they go too far and wide, too early, in their communications. In the case of one company I worked with, they built their entire internal comms strategy around listening to the team’s concerns, just to make sure everyone was heard.

Of course, sometimes the person who needs the most convincing is the founder himself. They are emotionally invested in their businesses, and although they know it’s the right time to leave, letting go isn’t easy.

I always ask founders, if they were to look at the business as an outsider in five or ten years, what would they like to see? Some respond in terms of earnings or profits. Others talk about maintaining the company’s culture at scale, improving product quality by tapping into the acquirer’s R&D capabilities, or boosting customer satisfaction by giving them access to a more vast ecosystem.

Once the vision is clear, founders can define what a successful transition looks like — in terms of customers, employees, product, and financials — and start crafting the story out of the exit.

The dilemma: Optimizing for profitability or growth?

A compelling exit narrative needs to be supported by facts about the company’s performance. This is the perfect time for founders to focus on business optimization, but it’s important that they stay true to their playbook as they develop their exit strategy.

Bootstrapped businesses are already optimized for profitability from the start, and while it may be tempting to pivot towards an all-growth strategy in a bid to capitalize on interest in the company, this strategy can backfire if it conflicts with the organization’s culture and DNA .

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Says Kühn: “Since we were rejected many times by investors, we worked with profitability in mind throughout our journey. We were very tentative about spending money — even on things like marketing — until we are confident about the kind of return we can expect. So as we increase our marketing efforts as we pursue an exit, we continue to optimize towards profitability, for example, requiring ROI [return on investment] for three months for any marketing investment.”

The uncertainty: Who am I when I no longer manage my company?

When the Ubisoft transaction was completed, Kühn and his cofounders pledged to stay on for 18 months to help the organization adapt to its new environment. “We’re still involved with the company, and we’ve invested a lot of time in developing new games to take it to the next level,” he said. “It feels good to continue to contribute our ideas and accompany the great developments in the company.”

What Kühn describes is not easy. For many founders, it can be difficult to adapt to a world where they are no longer at the helm. Some continue to call the shots from the sidelines, creating confusion for their old teams. Others feel trapped and powerless, regretting their commitment to stay.

The lesson here is twofold. First, founders should think carefully about the length of their post-exit stint. Remember, most acquirers want to retain the knowledge and insight of the founders for several years in either an executive or non-executive capacity. Disappearing too quickly could leave the new leadership team exposed. However, a long tenure in an executive position can be a prison sentence, preventing the founder from moving on with their life.

Second, founders need to determine what life looks like after the exit. Many bootstrapped entrepreneurs can’t separate themselves from their business and really have no idea what to do with themselves after exiting.

Thinking of a way out? Find a bootstrapped founder

A lot of this recent work with bootstrapped founders reminded me of “working from first principles”: out of the spotlight, they don’t take anything for granted or pretend to know anything. It is useful for founders with or without VC backing to connect with their bootstrapped peers to understand their perspective on exits.

Julius Bachmann is a Berlin-based executive coach focused on working with entrepreneurs. He is also the cofounder of JRNY.

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