“If we're going to build to sell, I have to make myself irrelevant. Otherwise there's not as much value in the business if it's all tied around me.” Trajectify client and TAB Board member Frank Shultz, Founder and CEO of Infinite Blue, told our team that in a series of conversations we had with clients about their growth strategy.

Shultz’s comment gets at a key question that so many of our clients are asking themselves — am I building for growth or am I building for sale? And what’s the difference in the day-to-day way I run my business?

Traction and momentum

There are two parts of growth as an early stage startup: traction and momentum. In those first days, weeks, and months, you figure out if you have a model that works, whether you can get people to buy your product. And whether that process is repeatable. That’s traction.

Then, with the right mix of skill and luck, you hopefully reach scalability. You’ve built a process that is now repeated many times, and you grow. That’s when you have momentum — and a sustainable business.

Just like every other element of running your own business, reaching that goal creates a new set of challenges as you scale.

And eventually you have a chasm to cross. The big question is what’s on the other side.

Do you build a trajectory towards growing big? Or do you build a trajectory towards selling to someone else?

You won’t always pick the right spot. You might end up a little upstream or downstream of where you wanted to be. It’s not uncommon, and you’ll create a new trajectory.

The benefit of picking the spot is that now at least you’re closer to where you want to be, and hopefully on the other side of the chasm.

Aligning your personal vision and your business vision

It’s much easier to follow the path when your business’s vision aligns with your personal vision. When it doesn’t, it sucks all the energy out of you and you’re much less effective.

As a leader, you’re taking risks and making investments all the time. And each one has an opportunity cost. You may not spend as much time with your spouse or your kids so you can drive the business forward.

So how do you get the business to a point where it does what you want to do in life?

Adam Stokar, the founder of Club OS, didn’t realize at first that his personal vision and the business’s vision were moving apart. “When I first built the company, every morning was just so exciting. I couldn’t wait to get up and go work on it,” says Stokar.

Over the course of the next several years, things changed.

Stokar’s brother, a co-founder of the business, had a health emergency that took him away from Club OS for the foreseeable future. His absence left a big hole. Stokar and his brother had balanced each other out, and Stokar didn’t enjoy the company as much without him.

It didn’t help that the bigger the company got, the harder it was to evolve. Stokar wanted to make changes to their software at a fast pace, and that was becoming increasingly difficult.

Finally, and perhaps most importantly, he wasn’t meeting his own personal financial goals. “At the end of every year, I basically had to ask myself, ‘do I want to give myself a raise or keep this company going’?” In the early days, it didn’t matter much. He and his wife were young, and they had enough to live on.

Once they had kids and wanted to buy a house, Stokar realized what he was making at Club OS wasn’t enough to support his family the way he wanted to. “We just couldn’t get the margins big enough where I was able to give myself personally what I needed. I kept skimping what I’d give myself because I’d rather hire another engineer.”

He was burned out.

Around that time, Stokar and I ran into each other at a local falafel joint and started talking.

As we talked through his personal vision, it was clear that it wasn’t aligned anymore with his company vision. At that point, he didn’t want to get big. He wanted to sell.

So Stokar had a conversation with his CFO and his in-house counsel. They agreed to begin looking at what the market would offer them. I helped as they built that trajectory and coached them through the process.

Eventually they did sell. “It depends on the person’s personal life situation,” says Stokar. “There’s no blueprint to do this.”

Who are you building for?

Once you decide whether your trajectory is pointing you toward sale or big growth, the main difference becomes who you’re building for.

Who are your key constituents?

If you’re building for growth, your key constituents are typically your customers. As you grow, you’ll have to keep in mind your current stakeholders as well as your future ones.

You know your early customers — the early adopters that got you some initial success. On the other side of the chasm, you’ve got to go mainstream.

What customers do you hope to be serving in a year? In five years? What do you need to do to serve them?

If, on the other hand, you’re building for sale, your key constituents are acquiring companies. Of course, you have to continue to satisfy customers, though some startups don’t go mainstream until they’re acquired. What are those acquirers looking for and how do you build a path that makes you their prime target?

Your employees are also your constituents.

Before Frank Shultz, the CEO of Infinite Blue, did a Series A round, he was always thinking about how much he could put back into the business, just to keep growing. “Let’s just keep doing what’s right for the employees and the customers. Then at some point there’s a perspective shift,” he says. “How do I do what’s right for the business and what’s right for my team?”

Having investors changed the calculus a bit. Shultz couldn’t always prioritize the employees above all else, which was how he’d operated in the early days of his business. “When we became accountable to external investors, I had to figure out how to bring together the team and the company to do what’s right for everybody. That leads to some difficult conversations sometimes.”

Employees are always impacted by a sale. Are you building an organization that has the right people, the right processes, the resilience to be part of that? Do you have a team that looks attractive to acquirers? Is your team self-managing so they can thrive during the acquisition period and beyond?

You don’t always land where you planned. One of our TAB Board members recently sold to a $12B public tech company. That wasn’t the trajectory he was on, but they made him an offer he couldn’t refuse. Fortunately, he’d built a fully remote team and an employee-first culture. They went very quickly from a startup to a big public company. The resilience of the team allowed them to manage themselves and represent the products and brands that got acquired, and kept the business sustainable.

Making the appropriate investments

If selling the company is the trajectory that aligns with your personal vision, then you may need to make some investments of time and money to prepare your business for that process.

When the Club OS team began seriously considering institutional funding or a change of control, they had to rethink the way they were positioning themselves.

“We couldn’t get [Anytime Fitnesses] on the platform fast enough. So we would talk about how we’re developing an onboarding system to make it more automated so we could go from twenty new clubs a month to a hundred new clubs a month. And then showing them how much more revenue that would mean,” says Stokar. “That was all going on while we were running the acquisition process.”

They also had to do some basic accounting work. They had different customers on different plans and wanted to make things more streamlined. “You definitely want to have your financials in order before you have these conversations, and make it easy to export things and share information,” says Stokar. Do you shift from cash basis to accrual? Become GAAP-compliant?

Adam Sher, the CFO for Club OS, had been preparing for the potential sale or funding round for years beforehand. “Beginning in 2013, we were getting inbound calls from different types of investor groups who were interested in learning about Club OS,” says Sher. “So between the time period of 2013 and 2017, I’d been cultivating a list of potential investment partners for some unknown time in the future, as well as reaching out to some. And then obviously we had relationships with strategic partners because we were working together on the tech side.”

When it came time to do a Series A round, Sher already had a list of companies Club OS had relationships with.

When a Series A didn’t work out, they ended up capitalizing on a change in the market and repositioned themselves for a sale. They got eight bids and chose to sell to EverCommerce.

“I needed the three years of developing the relationships so that when the time came to have a transaction, I could do it and didn’t have to start from scratch or hire a banker,” says Sher.

Final thoughts

Every startup has to focus on many of the same concerns -- keeping the lights on, making sure there’s more coming in than going out. And at the same time, every startup has its own set of goals and objectives.

Plotting a trajectory to a landing spot makes it possible to be clear about who your constituents are, and be better able to set the right goals and invest your resources in the right places. Plus, you’re also able to see when your personal vision changes, especially if it no longer matches the goals you’ve set for your business.

We’ll be exploring more about the acquisition process in our next few articles, so stay tuned for guidance on choosing an acquirer and understanding the acquisition process.