Opinions expressed by Entrepreneur contributors are their very own.
Let’s face it: as an entrepreneur, you dream of a profitable exit. Whether or not acquisition or IPO, we dwell and die by constructing companies that scale.
However how have you learnt it is time to promote, or learn how to promote, or who will purchase your enterprise?
A profitable acquisition is hard. As an entrepreneur, you know the value of your business. You recognize the within and outs of each course of, however you are additionally biased by the blood, sweat and tears that obtained you right here.
On this article, we’ll zoom out through the use of the expertise platform house to indicate how expertise platform executives can efficiently promote their platform.
Precept 1: You possibly can’t time timing, however you possibly can spot patterns
Whether or not promoting a sizzling canine or a enterprise, it is higher to promote when the market is hot slightly than having a stellar product when the market is chilly. Whereas there are basic financial forces, every business additionally has its personal forces.
Within the case of expertise platforms and the overall freelance economic system, 5 forces make the atmosphere appear ripe for acquisition.
First, there may be precedent. Within the final yr, Talmix entered right into a strategic partnership with eTeam; Randstad acquired Torc, a software program improvement expertise platform; Toptal acquired Growth Collective, a advertising and marketing expertise platform; Workday acquired HiredScore; Multiverse acquired Searchlight; Podium acquired Untapped.
Second, there’s a systemic and generational shift of people selecting independence that’s globally constant and has continued by way of the challenges introduced by 2023 and 2024.
Third, there are enterprise success tales. Since 2011, NASA has launched 300 freelance projects with value financial savings averaging 80%, and UST reported {that a} freelance mannequin diminished their undertaking timelines by as much as 50%.
Fourth, conventional expertise gamers are going through declining markets. Staffing Trade Analysts predict the US staffing market will decline by 10% this year, whereas SIA Chief Analyst Barry Asian famous that “the previous few years have been powerful for staffing. Trade income fell by 14% in 2023 and can seemingly drop one other 10% in 2024, based on SIA forecasts. The decline has been so widespread that we are actually again at 2014 ranges of round 2.7 million employees.”
Fifth, expertise platforms are experiencing progress with important potential for enlargement. The global market for freelance platforms is predicted to broaden at a compound annual progress charge of 16.5% between now and 2030.
Thus the enterprise case is obvious. There’s a giant, rising, systemic shift away from conventional expertise options and towards flexible workforce solutions.
Associated: There’s a Major Shift Happening With Independent Workers — and Business Owners Who Ignore It Are at Risk
Precept 2: Have comparables, however be prepared to coach why they need to belief your discretion
Shopping for a home is comparatively easy. The information is understood, the multiples are identified, and there are many instruments that will help you. Shopping for a enterprise is way from easy, and the expertise platform business faces headwinds of complexity that make it powerful for leaders to worth their firm.
Expertise platforms must cope with the under headwinds.
- There are over 800 expertise platforms globally, with 14 totally different segments, creating the notion of a saturated market.
- There are not any “unicorns,” and over 80% of talent platforms are bootstrapped. The result’s that almost all expertise platforms don’t have any enterprise capital precedent.
- Upwork and Fiverr, which went public in 2018 and 2019, each are buying and selling under their IPO costs (on the time of scripting this). The issue is that platforms is likely to be tied to this efficiency, despite the fact that newer platforms have basically totally different fashions which can be sticky, have excessive enlargement and low churn.
- Expertise platform multiples most probably lean in the direction of staffing, consulting and low expertise comparables, despite the fact that expertise platforms leverage expertise to scale in environment friendly ways in which conventional staffing, consulting and headcount-based fashions cannot.
- Acquired founders cite that the elemental paradigm of an unbiased community is usually seen as a weak point slightly than a energy in negotiation. The result’s that expertise platforms have to coach fundamental ideas, like the truth that expertise platforms can have larger retention charges than company full-time staff for the reason that flexibility retains expertise of their community.
The implication for expertise platform leaders is that they must battle more durable than most industries to coach why their distinctive traits are strengths slightly than weaknesses.
Precept 3: Perceive who’s shopping for
Similar to gross sales, it is essential to know your purchaser. To date, Non-public Fairness has been the main investor in expertise platforms.
Within the US, Primus Capital made a major minority growth investment into MBO Companions, who subsequently raised $100m from PE in 2022. In 2021, Align Capital Companions made a progress investment in We Are Rosie. And in 2023, hourly employee expertise platform Instawork raised $60 million in a Series D funding round.
In Europe, this yr, Non-public Fairness agency CVC invested in World of Talents, an HR expertise platform, Amsterdam-based Samen Slimmer AI invested in Qneiform, an AI-based expertise platform and UK-based JustGroup invested in 55/Redefined, a expertise platform specializing in over-50s.
By realizing your purchaser, you then want to know the mindset of your purchaser. Within the case of expertise platforms, the non-public fairness mindset is centered round income optimization. This has two main implications.
For individuals who need to be acquired by non-public fairness, how do you maximize income in 2 to five years by having an inflow of money and a non-public fairness community?
For individuals who need to additional disrupt the expertise platform, what’s the implication of most expertise platforms being bootstrapped or owned by non-public fairness corporations? One main implication is income maximization. Thus, investments in main expertise or long-term partnerships is likely to be a weak point to take advantage of.
Irrespective of your business, understanding your purchaser, their mindset, and the implication of that purchaser is essential for a profitable acquisition.
Precept 4: The place is the puck heading?
Whereas gross sales is a good analogy to promoting your organization, relationship is one other. Similar to relationship, the place folks say “the perfect time to seek out somebody is while you’re not wanting,” the perfect time to promote is likely to be while you’re not seeking to promote, however as a substitute are forward of the curve since you’ve been so targeted on shifting in the direction of the place the puck goes.
Within the case of expertise platforms, it appears to be like just like the puck is headed towards conventional expertise options buying expertise platforms.
In September of 2024, US-based staffing agency TalentBurst invested in marketing talent platform Publicist. In Might of 2024, Randstad Digital acquired LATAM-focused software developer platform Torc. Early outcomes of this acquisition show strong success. Six months after the acquisition, Torc noticed 4x group progress and based on Torc CEO Michael Morris, now has entry to 300 of Randstad’s Fortune 500 prospects.
There is a clear enterprise case for each events. Conventional expertise options like Allegis, Adecco and Randstad have current buyer relationships with out an express platform or versatile expertise play. In the meantime, expertise platforms generally do not have the wanted enterprise insurance coverage necessities, expertise stack necessities, or total gross sales timeline runway to broaden to ranges conventional gamers can. Mixed, they’ll broaden every enterprise account by combining entry to the rising versatile workforce, new expertise and geographies and a platform expertise.
What deep insights do you may have about the place the puck goes? Do not shrink back from making that express.
Associated: What You Need to Know to Buy the Right Business and Acquire Your Empire
Precept 5: Do not lose what makes you distinctive
One final analogy, I swear. Consider an acquisition like a prepare. When you miss one prepare, most probably, there’s one other. We have all heard tales like Google attempting to promote in 1999 for $1 million {dollars}.
The caveat is that you want to have a great enterprise with sturdy fundamentals.
Within the expertise platform house, a number one elementary for platform success is what I name founder-market-fit (FMF). FMF implies that a founder is an professional of their area of interest. They’re talking at business conferences. They’ve business credibility, and their expertise platform is how they permit different corporations to leverage their experience.
The second main elementary for talent platforms is an interconnectedness throughout the shopper expertise. Quite than doing only one factor, they permit end-to-end experiences by way of shut partnerships.
What are your enterprise fundamentals?
It doesn’t matter what they’re, right here is my final piece of recommendation: do not wager the enterprise on one acquisition. If your enterprise fundamentals are sound, there shall be one other alternative. And who is aware of, perhaps you may be Google and chuckle 20 years later about attempting to promote for under $1 million.
