Learn the most important mindset when positioning your CPG startup for acquisition.
Many of the successful startups we’ve talked to emphasized the importance of preparing an exit and acquisition strategy as part of their business plan. There’s a lot of interest out there for CPG startups because acquiring up-and-coming brands is a proven way for larger companies to innovate and evolve. But before that can happen, your startup needs to catch the eye of a potential acquirer.
Size could be one of the ways to prove your value. However, bigger isn’t always better. Smarter is always the best route to get yourself noticed.
What’s the smartest angle to get your CPG startup noticed by a potential acquirer? While they may be interested in your successes, market analysis, and long-term goals, they’ll really want to see one particular trait. If you keep it top of mind, you’ll be working smarter.
The most important trait—long-term growth & profitability.
Having the confidence—and a concrete plan—for scaling up within a reasonable timeframe is essential. You’ll need to demonstrate that plan to any potential investors or acquirers. While being big isn’t the most critical thing, possessing the potential to grow, and grow profitably, is paramount. How do you demonstrate this? By making sure you’ve proven all the key elements that deliver growth and profits.
Here’s how to demonstrate growth and profit:
Know your core consumers and evolve with them. Opt for a data-driven approach to show a deep understanding of your consumers. What they want, why they want it, how they want to get it, where and when. The more you relate to your consumers, the more effectively you can differentiate your product from your competitors. To an acquirer, this helps prove your product’s unique and beneficial attributes, which will help them see how profitability is on the horizon for you.
Be able to pivot your branding to appeal to various versions of your target audience as their priorities change. Maybe your target audience has historically been Millennials. They’ve evolved—they have kids now, they’re homeowners. Being flexible and adapting to the wants and needs of your consumers is part of proving your path to profitability
Set your product pricing to reflect value. Be strategic. You’ll be able to charge a premium price for your products if your consumers see their value. Once you acutely understand your consumers, your pricing should accurately reflect what they intend to pay for its perceived worth.
It’s not about being sneaky or tricking your consumers. It’s about understanding them from a socioeconomic standpoint. Also, realizing what is important to them and then translating that merit into profit for the long haul.
Work on your core. Focus on building out your startup’s core strengths and identify what drives your growth. Does your product have superior performance? Provide new benefits or better technology? Whether it’s sales and marketing or manufacturing, find out what you’re the best at doing yourself, then outsource anything that you can.
Precision is key. Whether targeting consumers or analyzing marketing data, honing your specific vertical, industry, or genre and becoming the best in your niche will give you that edge. That’s what matters to the next prominent investor, partner, or company that will facilitate the evolution of your business.
Know your company’s value. What makes your startup attractive? What do you bring to the table that other companies don’t? Why should an investor be interested in acquiring you? What you think you can offer to a bigger business may not end up being what they’re even after.
Your product and brand may add to their portfolio. Still, they may be more interested in your recurring revenue, deep consumer understanding, authentic connection to your community, or your deeply personalized, customizable products. Whatever it is, be sure that the attribute that makes your startup appealing is impossible to knock off.
Here are a few other practical tips for making your CPG startup stand out to buyers:
While still the most important trait, long-term growth and profitability won’t be the only consideration of a potential buyer. You want to be sure your startup stands out from the rest and ensure you’re strategically prepared for said acquisition when the time comes.
Make it a win-win. Find yourself a buyer that’s a good fit with your company. Make sure you see eye-to-eye when it comes to the essentials like culture, vision, and goals. The more aligned your values are with your buyers, the more effectively you’ll share one another’s resources and time. Remember, you want this acquisition to be positive for both, generating revenue and boosting morale. Your customers and employees should equally benefit.
Establish rapport with potential buyers. Build relationships in advance. Know their needs, motivations, and what they value. Find out what the bigger company wants from you, specifically. By establishing your own trustworthiness, reliability, and business savvy, you’ll convince them that their investment in you and your company will pay off.
Do your due diligence ahead of time. This is easier said than done. But if you have a plan where you’ve already spent time pouring over and documenting the minutiae, an acquisition can happen quickly. It’ll likely be more beneficial to you, too. Due diligence is time-consuming but required, so the more work you’ve done in advance, the better positioned your startup is for acquisition.
Be able to withstand scrutiny. Startups are known for their agility. That’s an advantage, but once you start to grow, you won’t be able to fly under the radar so much. If and when you’re ready to scale, you need to be able to demonstrate that you have your risk profile managed. If your business can’t hang with legal, regulatory, and quality control practices, you’re unprepared for an acquisition.
Be transparent. Be professional but vulnerable. Be confident but accountable. Be upfront with potential buyers regarding your culture, personnel, systems, and protocols. Most of these will look good and be part of your pitch, but it’s also good to share any pressing concerns and issues with buyers. They deserve to know what they’re getting themselves into, and this level of trust will help them respect you even more.
Make yourself expendable & set them up to succeed. You must situate your company to run without you because if you’re looking to sell it, that’s precisely what it will be doing. The best startups think about their exit strategy in the early phases of development.
Set up whoever acquires your startup for success. Be sure all of your systems are up to date. Meticulously document your procedures. Lose anything that isn’t clearly contributing to your results. Hire excellent accountants to ensure your books are up to date—track key metrics and beef up your internal systems. Make your startup low-risk and attractive to potential buyers. Evaluate recent sales trends, customer loyalty, and operations.
Whoever is expecting to take over your business wants to assume they’ll hit the ground running with continued success and stability.
Startups are always going to be appealing to larger companies. They’re young, growing, and full of potential. Larger companies know that acquisitions can help them drive innovation and enhance their capabilities. Small brands and startups fuel their evolution.
Your small but fast-growing startup may fill gaps in larger company’s portfolios. You might be their key to expanding into new markets. You could be just what they’re missing. With a focus on long-term growth and profitability, you can show your value to potential acquirers.
To learn more about how P&G’s startup studio can help make your ideas into reality, visit www.pgventuresstudio.com.