Do you know that if you’re in this situation, you could actually make some last bit money off it instead of completely killing it?
Startups die for many reasons, not just for the lack of product/market fit. You could run out of cash, be terrible at marketing, unable to scale sales, bad at hiring, or simply a shift in focus onto another project.
Sometimes it’s brought up on by external forces and sometimes you want to cut loose.
There are many founders that simply let the product die a natural death and don’t do anything about it. But did you know that if you’re in this situation, you could actually make some last bit money off it instead of completely killing it?
You could even revive the product/startup without having to partake in the daily operations.
Here are some ideas of what you can do if you’re currently in a similar situation.
Partner with a performance-marketing firm
Performance marketing refers to online marketing or advertising where the agencies get paid based on the performance of the campaign — which could mean payment as a part of sales, leads generated or clicks to the campaign.
If lack of sales is your core issue for the startup’s under performance, this could be a great way to work with a company that believes in your product and can help you get traction with a share in revenue.
The share could be as a percentage of sales or equity or a mix of cash and equity. It depends on how risky is the engagement and that would define the commission or equity percentage the agency would retain.
Your best bet is to collate enough data about the product, its product/market fit, customers and the market when pitching to performance marketing agencies.
Phil LaBoon is the founder and CEO of one such agency who’s built and scaled many brands and startups via Eyeflow. In his experience, “Performance marketing is a huge win-win if you have a great product or service and the only issue is lack of sales. Before we take on a performance partnership, we research throughly to make sure it’s a good fit for our style of marketing (mostly Facebook and Instagram).
For example we look at: what are customer reviews saying about the product brand? Can they scale quickly if the campaign is successful? Is the company able to create cool unique content for us to build the brand?”
Sell the startup
Given up all hope? Don’t think there’s anyway you’d be able to revive your startup or has the market dynamics changed for you to move on?
Also Read: Poor business ethics, lack of innovation are key reasons for failure of startups in India: IBM study
Whatever be your reason, there are a couple of ways to make back some of the money spent on your startup while building and getting traction, depending on whether you’ve generated any income or not.
Typically, startups or products sell for anywhere between 1.5x to 4x earnings. Which means, not only do you have to be generating revenues, but also be making a decent profit to attract a buyer. M&A firms aren’t going to be interested in smaller deal sizes but you’ve got hope.
There are online brokerages such as FE International that help facilitate buying and selling of online businesses. The brokerages would have a network of buyers they can connect you to.
If this is the route you’d like to take, make sure you’ve got your financial documents about the startup and all company related paperwork ready for a faster due diligence by the potential buyer.
Sell the code for equity+cash
Now, I’ve seen many a tech business that have a product but don’t necessarily have any traction. Or even if you do have users but no revenues, it’s going to be very tough for you to sell the startup.
Of course, there are certain product categories that may be tough to monetise in the initial stages such as a social networking product and require one to scale to a sizeable user-base before monetisation — in this case too, it’s not going to be easy to sell the product unless you can find a buyer for whom the product fits just right into their company’s strategies.
But if nothing works and you’d want to offload the product with no traction or revenues, there are a couple of things you can do.
One, you could just sell off the entire code with the IP at cost price, just to recover the money spent on building it. You can sell it on a self-serving platform such as Flippa.
Two, you can sell your product at a cost price with the code and IP to an individual or a company such as Arkenea Labs that feels it could make something off the product. An interesting deal would be to do part-cash and part-equity where you retain some amount of equity in the product.
If the buyer is able to succeed with the product, you too have an upside in it.
Whatever you choose to do, don’t just give up hope and let the startup die. Help it find a new home, possibly one with a win-win for you and the other party.
Image Credit: imtmphoto / 123RF Stock Photo
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The author Rahul Varshneya is the co-founder of Arkenea, a technical partner to motivated non-technical founders. He has helped 150+ founders build and launch a successful tech business. Rahul has been featured in Forbes, Inc, Huff Post, Thrive Global and CIO Review, among others.
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