4 tips for preparing for a successful IPO or sale

Two CEOs offer guidance to entrepreneurial founders for preparing for a company’s exit.

In brief

• Setting clear goals well ahead of a potential transition process can help founders stay on track, minimize distractions and optimize the journey.
• The ability to achieve these goals, as well as execution timing, may depend on how prepared a company is for its future state.

Founders know the importance of setting goals and sticking to them, including for their transition strategy. We spoke with Elisabete Miranda, CEO of CQ fluency, and Michael Praeger, CEO of AvidXchange, about some tips for founders as they begin to consider plans for transitioning their companies to their next chapter.

Defining and executing the longer-term strategic course for a company can be extremely challenging for founders and their organizations alike, particularly given day-to-day pressures and the seemingly regular occurrences of exogenous events. Company transitions can take many forms and be structured in many different ways: As part of their evolution, CQ fluency pursued an outright sale transaction, while AvidXchange sought an IPO.

Both options require considerable preparation and are steeped along the way with significant choices and ramifications for the company, its stakeholders and its prospects for success. Generally, the IPO route requires preparation for the transition to life as a public company and may be more of a new beginning or an inflection point for the company and its founder, while a sale often requires critical management succession planning. 

Miranda and Praeger offer several key learnings:

1. Carefully define your parameters for success.

Do you want or need to step away, and what is most important to you aside from financial rewards? Is the company ready for a new direction in its journey? These questions and many others will determine the transition path you pursue, the structure of the deal and what the transition period will look like. 

In a private sale, the decision of whether the founder will stay with the company for some period of time will have a major impact on the organization and the transaction. Although Miranda was ready to transition to the next phase of her personal and professional life, she was determined to ensure that the company remain a minority-owned business and to maintain a role with the company until it was best positioned to thrive after her exit. With that in mind, Miranda passed on several potential buyers that couldn’t continue her minority ownership legacy or who wanted to take immediate control, despite the lure of greater valuations presented along the way. For an IPO, Praeger shared the importance of defining realistic and achievable capital requirements that adequately support the company’s growth model.

2. Be prepared to walk away if the proposed transaction doesn’t meet your needs or those of the company

Miranda says it’s important to be ready to say no and continue to look for a path or a transaction that will achieve the goals you set forth for yourself and the company. But it’s a fine line. She adds, “If you are too difficult in the negotiations, you could sour the future relationship with the buyer, particularly during a transition period.” Even though it may feel like the wrong decision at the time, Praeger notes that founders need to do everything possible to position themselves and their company to be able to wait for the right opportunity in case the transaction presented falls short of predefined valuation thresholds, liquidity requirements for the entity or shareholders or other hurdles.

3. Build your company to achieve its future state

Companies pursuing an IPO are generally better positioned for success by recruiting key leaders who have significant public company experience. Before its IPO, Praeger prioritized hiring a CFO with extensive IPO experience. At the same time, he says that it’s also important to make the tough decisions to transition employees who will not be successful as the organization takes the next step by helping them find new roles whenever possible. In a sale transaction, Miranda notes that identifying a successor can be one of the most important decisions a founder can make in their career.

4. Prepare the organization for a successful transition

Both Miranda and Praeger emphasize that companies should do all they can to prepare their organization for a successful transition. But they also note that businesses need to continue to perform during the preparation period, and remaining laser focused during this period can be extremely challenging. Praeger credits holding seven quarters of mock earnings calls as a critical step in the transition process that required considerable effort but was necessary to establish the new normal. Miranda says that she held multiple town halls to help existing employees understand her transition plan, which naturally created a significant diversion for the organization. Both also note that leading by example in maintaining a consistent focus on what made the company successful prior to the transition was the key to not allowing the side show derail the broader mission.