David Levine was thinking exit before his wireless lighting startup, Mr Beams, was even operational.
“It forced me to lead the company in a wholly different manner,” says Levine, who co-founded Mr Beams with Michael Recker in 2004 and later sold to the home security company Ring (which Amazon bought last year for over $1 billion). “Because of the growth of private equity and all the money following private equity, it’s a unique opportunity in our country’s history to build a business to the point you’re capable of and then pursue exit opportunities.”
Levine is now president of Amazon’s Ring Beams, the line of smart outdoor security lights that employs his innovative lighting technology. In this week’s Dealmaker Strategies, Levine talks about planning your exit, saying no to investors and the risk of feeling dangerous.
Manage your financials
It’s pretty simple: When you’re a startup entrepreneur, you need to structure your company as if it’s going to be sold to private equity, Levine says. That begins with clean, audited financials and clearly documented processes. You need to be ready when the time to make a deal arrives. “You’re building the organization to ramp up more quickly, meet criteria that are important to private equity firms, and then have everything clean enough to exit,” Levine says. “The worst situations I’ve seen are when companies count on a deal happening and they leave their financials and their cash situation in a tricky area. All of a sudden, if this deal doesn’t come through, you’re in really bad shape. You have to have a healthy balance sheet.”
It’s OK to say no
When Levine was building Mr Beams, investors pushed him to raise a round of venture capital funding. “We never did,” he says. “We just funded ourselves at $100,000 or $200,000 a clip. Had we taken more money at any point, we were pointed in the wrong direction and it just would have accelerated our movement in the wrong direction. That’s a big problem when people do that, and you see it fail quite a bit. Unless you have the soul of the business down and you really know who you are and what your purpose is, you’re probably pointed in the wrong direction. And any fuel at that point is just going to get you more off course.”
You’re not Baker Mayfield
It’s one thing to feel dangerous when you’re the star quarterback of the Cleveland Browns. It can be quite risky when you’re an entrepreneur who has an unshakeable belief in your latest idea. Levine developed a power screwdriver that 15 out of 16 people in his focus groups did not like. He went ahead with it any way and the product was a success. But his hubris could have easily come back to bite him. “I’ve been wrong on ideas like that just as often,” Levine says. “It can get dangerous. Too much market research will hold you back and you’ll miss out on a number of innovations. But getting arrogant enough to think you completely know better is also dangerous. You have to team with people who have a mix of both. Too much of either one is going to hold you back.” Related story: Lessons learned on the right way to sell your business