Many entrepreneurs paint a picture in their mind of a strategic acquirer swooping in one day and paying an outrageous amount of money for their business. In reality, most businesses are of little value until one of two things happen: a) they have multiple years of sustained profitability, or b) they are growing fast and have at least $5 million in revenue (see The Magic of $5 Million SaaS Run Rate). Unfortunately, most startups won’t be able to find a strategic buyer.
Here are characteristics of a salable business:
- Large, established base of customers
- Repeatable customer acquisition process
- Proven management team
- Little reliance on any one person
- Consistent profitability and operating history (e.g. three years of results)
- Strong recurring revenue (not required, but very desirable)
- Market with logical, complementary acquirers
As you can see there’s no reference to cool technology, innovative products, or hot ideas. Those things help, but most acquisitions are methodical and financially driven. While some acquisitions are emotional, most are not.
What else? What are some other characteristics of a salable business?