One thing many entrepreneurs and founders keep in mind as they’re scrambling to make products, set up shipping options, and keep customers happy is the possibility of an IPO at some point. One thing we hear often at Listing Partners is how big does a company need to be to take it public?
Many experts say when a startup’s revenue hits $100 million, it’s time to go public. But getting ready for an IPO shouldn’t rely on your revenue; rather, the metric to use is your growth potential.
Let’s look at an example. Say your revenue is at $50 million, but you have a clear path ahead to grow three or four times this size in the next three years. With that kind of growth potential, investors will be interested.
FOCUS ON GROWTH
What happens if you don’t have that kind of growth potential? Well, your options will be limited. In fact, you may need to think about pivoting or diverting resources. For example, maybe you need to consider expanding your market or building new products that customers want and need. You could also expand by partnering with or acquiring a company that has the market share you’re looking for.
The only time you’ll be really flexible like that is if you start when your revenues are small. You can assess your situation, make some changes, and grow in another way that’s clearer.
DIVERSIFY FOR GROWTH
Companies we strongly advise considering an IPO might start out exclusively offering one product. While they may do well, their market needs to grow for them to hit revenue targets. Instead, by diversifying into related markets, you can create an entire suite of products that attract an array of customers. The potential for growth is much greater.
So if you’re struggling to grow, perhaps you underestimated your prospective customer base or you’re not having luck getting your product to fit in the market. Having a game plan means your team is always experimenting with growth opportunities. What you want to avoid is getting stuck with your product or your messaging or positioning.
While you’re still small enough to change course and plan for real growth, you’ll be in a better IPO position if you have the foresight to find the growth opportunities where they lie.
FINAL THOUGHTS
One caveat about diversifying. We’ve seen startups with a very large customer, the loss of whom would wreak havoc on sales. Sometimes a single distribution partner or a supplier can be your downfall. The sooner you can diversify the better positioned you’ll be.
It’s hard for growing startups to diversity. Listing Partners has the experience and the knowledge to help you figure out the best way to diversify as soon as possible. We can help you be intentional about diversifying and attracting interested investors as a result. Contact Listing Partners today to talk strategy.
