Four key success factors to exit a startup successfully

What I learnt from selling my first startup at the age of 22

TOPICS: Entrepreneurship , Funding , Mergers & Acquisitions , North America , Specialised Products , Sports Goods , Toys & Games

by Mike Zhang

The odds of dropping out of university only to sit at the helm of a company generating $20 million US dollars in annual revenue only four years later are probably the same as hitting the jackpot playing the lotto. Through sheer determination, hard work, and a lot of luck, I was blessed with the fortune to do just that very early on in my life. As an immigrant who grew up in Beijing and Shanghai, I moved to Los Angeles when I was seven years old. As I reflect on the fortuitous events that have dotted the path to success, I’ve recognized the importance of my upbringing and the values instilled in me by my grandparents, chief of which were to work hard and take care of your family. A strong work ethic played an important role in facilitating the successful sale of my first startup, Airsoft Megastore. That, coupled with an empowering feeling of being able to take care of my parents, provided the necessary motivation to push through the darkest moments during the eight years I spent building the company. 

Exploring a sale would allow us to seek a new equity partner who could help us execute the company’s next stage of meaningful growth, while achieving our respective financial and career goals. 

At the age of 22, I sold Airsoft Megastore.  I was only 14 years old when I started the company, which began as a small business run out of our family’s apartment. I didn’t even have a bank account in the beginning, let alone an exit strategy; it was only when the company flourished and matured later that I began to think about an exit strategy. As Airsoft Megastore grew to become the largest pure-play eCommerce Airsoft retailer in the United States, experiencing a 47% CAGR during the four years leading up to its sale, it became an attractive acquisition target. 

We were among the first in the industry to leverage the growth of social media platforms to create a highly-engaged online community of Airsoft aficionados and customers centered around Airsoft Megastore TV– an online content channel dedicated to producing and releasing entertaining video series featuring hundreds of the company’s products. Combined with solid business economics, the company profitably bootstrapped its way from $2.8 million in revenue in 2008 to over $20 million in revenue in 2012, without any outside capital. 

Yet, beyond the revenue growth and business expansion, what drove me to sell my company was much more personal. My parents risked nearly all of their life savings in 2004, which amounted to $25,000 at the time, to fund the first purchase order I placed; it was a bet on the company every bit as much as it was a bet on me. Over the years, as the company grew, so did the delta between my individual financial goals and those of my parents. We were in different stages of our lives and respective careers and ultimately, exploring a sale would allow us to seek a new equity partner who could help us execute the company’s next stage of meaningful growth, while achieving our respective financial and career goals. 

When evaluating an acquirer, I started by reviewing their track record and whether we had business principle alignment. Since I was nowhere near ready to retire at the time of the sale, I wanted to find an acquirer with a wealth of knowledge running larger organizations and someone from whom I could learn how to transform a high-growth start-up into an enduring enterprise.

While there is no “best and final” formula, through my own experience I have learned what I believe to be the crucial ingredients in place in order to successfully sell a company: 
 

  1. Significant edge that meaningfully creates a competitive moat, in one or more of the following: business model, product, scale, and intellectual property.
     
  2. An experienced internal management team who can handle the day-to-day operations while pursuing an exit which is a time-consuming and often, emotionally draining endeavor. This is more true in a closely-held business where the shareholders are often active operators in the company. 
     
  3. Credible financials. 
     
  4. Better-than-market growth, which can serve the dual-purpose of validating the “edge” I have developed.

I feel extremely fortunate to have been given the opportunity to undertake a successful sale process early on in my career. It was one of the most humbling experiences I’ve ever experienced because of the sharp juxtaposition of the enormous volume of effort and the deeply rewarding outcome. Personally, I remember feeling extremely proud to have been able to help my parents achieve a degree of financial independence they had never previously thought possible. Professionally, it created a springing board for my subsequent endeavors, opening up windows of opportunity that would not have appeared if I were still mired in the day-to-day operations of our closely-held business.

Despite the positive financial outcome, there is always a price to be paid for focusing excessively and obsessively on any one interest or pursuit. 

Airsoft Megastore was my first company, built with money that my parents had struggled so hard to save in the decade prior, so every single business issue that came up was treated as an existential threat that warranted a fire drill in my mind. In 2008, after attending two short months of university at UC Berkeley, I dropped out to work on growing the company full time, and while I would have otherwise continued developing my personal and intellectual interests from childhood, instead I worked 80+ hour weeks; as a result, I fell out of shape and dealt with debilitating amounts of anxiety and stress. It took me the better part of the last 5 years to get back in shape both physically and mentally, and re-incorporate all of the important practices and habits that are important to maintain the ability to succeed in the long run, focused primarily around optimizing physical and mental well-being. 

Finally, I’ve learned that should the need to raise capital – whether in the form of a sale of your company or simple growth financing – there are a few simple principles that can be helpful in guiding you through the process. Be persistent, but rational. If a few potential investors tell you no, don’t give up. If a sufficiently large group of them all tell you no, rationalize the responses as they may warrant a shift in the business model or product offering. More importantly, don’t give up. Embrace the challenges as opportunities to learn how to use failure as a weapon to inform future success. If edge is defined by a means of gaining an advantage or defending yourself in a conflict or contest, then hopefully, I can inform your future success with the knowledge that everyone’s personal journey is the key to developing your very own unstoppable edge.


 

About the Author

Recognized for numerous awards including Impact 100 honoree, Ernst and Young Entrepreneur of the year finalist, Bloomberg Business Week top 25 under 25, Mike co-founded Airsoft Megastore in 2008 and grew it into one of the largest pure-play eCommerce retailers of Airsoft and tactical shooting sports products in the United State.  He successfully executed a sale of the company in 2012 when he was only 22, and has since founded and invested in a few startup.  Mike is now the co-founder and CEO of Shift Ventures, a global consumer products company.