Justin Cowan of Oracle NetSuite: Five Things You Need To Know If You Want To Build, Scale and Prepare Your Business For a Lucrative Exit

As a part of our series about “Five Things You Need To Know If You Want To Build, Scale and Prepare Your Business For a Lucrative Exit, I had the pleasure of interviewing Justin Cowan.

Justin Cowan is the VP of Strategy for Oracle NetSuite, responsible for bringing all of NetSuite’s products to high-growth customers across the HR, finance, accounting, inventory management and retail functions. He brings over 20 years of experience running all facets of software companies at an executive level, including his tenure as the founder and CEO of Light CMS, acquired by NetSuite in 2013. He holds a Bachelor of Science in Computer Science and Finance from Southern Nazarene University.

Thank you so much for doing this with us! Before we dive in, our readers would love to learn a bit more about you. Can you tell us a story about what brought you to this specific career path?

Straight out of college I started my first company, LightCMS, a cloud software startup that ran more than 250,000 websites for organizations around the world. After more than 10 years of being an entrepreneur and running my own company, I decided to sell it to NetSuite in 2013, before we joined the broader Oracle family. I initially only expected to stay on for a year or two to help my team transition. Fast forward more than eight years, and I’m still working with NetSuite in a role that allows me to do the work that I love doing at scale — working with our other acquired companies and bringing our cloud business platform to fast-growing organizations across a variety of industries.

Can you share a story about the funniest mistake you made when you were first starting? Can you tell us what lesson you learned from that?

When launching LightCMS, I wanted to find a way to give back by offering free websites to nonprofits. A few months into the work, I realized that good news spreads quickly and before long 70 to 80% of the work we were doing was free and therefore my startup wasn’t turning a profit. It taught me a valuable lesson on finding a mix of balancing both our purpose and profit, which keeps us in business long enough to keep giving back.

Moving forward, I didn’t want to abandon our work with nonprofits altogether, but I knew LightCMS needed to set a cap of how much free work we were doing. I learned I couldn’t say “yes” to every project and instead set an annual budget. This gave us constraints without removing a core piece of our identity.

Can you please give us your favorite “Life Lesson Quote”? Can you share how that was relevant to you in your life?

“Hard work beats talent, when talent hardly works.”

This quote resonates closely with the way I build my teams. It is awesome to have rock stars with all the talent in the world, but that doesn’t mean anything unless they’re also working hard. I’d rather have reliable talent that works hard instead of one rock star who isn’t willing to put forth the work.

Long story short: hard work goes a long way.

Can you tell us a story about how you were able to build a business from scratch, scale and sell it to a bigger firm?

When I first started LightCMS, I didn’t have much experience under my belt and building the company organically took longer than necessary. It worked however, because we followed the most basic principles of business: solve a problem, implement a go-to-market strategy and develop a sales model to get your product or service out there. These principles when executed properly can bring you a long way but scaling and selling a business requires much more thought, creativity, and sometimes more help from external parties. We had always planned for an exit but there are many factors we didn’t necessarily envision. We ultimately were able to sell the business to NetSuite because we had matured our product and services, had created a solid foundation of recurring revenue, had growth mapped out, and ultimately knew our numbers and had the right infrastructure in place that backed our ability to scale.

Nowadays, having worked with so many founders through NetSuite who also find themselves on a path to a sale, IPO, or direct listing, part of making your business attractive is having the right technology infrastructure in place and demonstrating the ability for your business to grow. Whether it’s addressing reporting needs from investors, compliance requirements that come with a sale, or simply just being able to effectively open your books and show growth — it all starts with having the right foundation in place which technology plays a big role in.

Based on your experience, can you share with our readers the “Five Things You Need to Know If You Want to Build, Scale and Prepare Your Business for a Lucrative Exit”. Please give an example for each.

1. Define your exit strategy early. When starting a business, it is important to have an overall strategy for where you want to take the company. Is this company stemming from a hobby and is it something you want to stay involved in? Or is your goal always to find an exit? While selling doesn’t need to be decided on day one, it does need to be considered early on. The earlier you understand your exit strategy, the path to scaling will follow. For example, investors can help your business grow from A to B and provide a plethora of resources, but every time you take an investment keep in mind you are diluting your shares.
2. Never stop growing. No matter what your exit strategy looks like, you don’t want your growth to peak or decelerate by the time you’re looking to sell. It’s extremely important to map out long-term growth strategies years in advance. As a smaller company, it’s easier to demonstrate year-over-year growth, whereas larger organizations will likely require additional investment to maintain growth. For example, understand what your marketing and sales model will require for at least the next year out so you have the capital or funding in place to keep the engine to your growth running. Be aggressive in setting goals for growth to set yourself up well for the long-term.
3. Identify your preferred investment partner. When building a list of potential buyers, consider organizations that your business can “fill the gaps” with. For example, software startups should seek out technology partners where their software can easily integrate into or offer something new for the buyers’ current userbase. Direct competitors are also good targets to seek a merger or acquisition with. The research and due diligence behind finding the right partner takes planning. Be prepared to create a list and know that it will evolve over time as the market changes. Keep in mind there might even be partners who aren’t on your initial list but could be the right fit.
4. Before you exit, get your house in order. The importance of having a strong and comprehensive financial foundation goes without saying. It’s a big value we bring to our own customers, many who rely on NetSuite as they’re scaling to an IPO or sale to keep their accounting, finances and overall organizational infrastructure in one place. But this practice is more than solely cleaning up your books and sorting through any (potential) red flags. The more due diligence done in advance of the sale, the fewer delays or surprises throughout the process. Intellectual property is a good example of this and can often be overlooked. Employment agreements, key employees, contractors who might need to be converted to employees, and even locations of employees in today’s remote world are extremely important. It’s critical to make sure you’re shoring up these areas to make the transition more seamless.
5. Don’t be afraid to shop around. Before committing to any sale, you should always explore all options and don’t be afraid to walk away from a deal if it isn’t the right fit. In my experience, I would be more afraid of leaving money on the table rather than offending an acquiring company. This is an opportunity to explore all avenues — start high and negotiate hard. Advisors are key here, don’t try and go at it alone. Find a firm or attorneys who specialize in your industry.

In your experience, is there a difference in approach for building a service-based business versus a product-based business when you have the intent to eventually sell the business. Can you explain?

The approach for building and scaling a service-based business and a product-based business is usually the same. Understand that when selling a service-based business, the buyer is purchasing the people doing the work and fulfilling the service. The brand, reputation, and employees are key. In a product-based business, the buyer is purchasing the product or Intellectual Property, therefore these companies can sell for a significantly higher multiple to revenue than a service-based business.

Regardless of how your company makes its revenue, to maximize your multiple when selling, demonstrating annual recurring revenue will go a long way. For product and service-based companies, introducing a subscription model that guarantees sales on a recurring basis or having customers on contracts rather than month-to-month or one-time sales is ideal for any acquirer. You always want stable forecasts that show minimum churn to maximize your valuation.

How does one go about the process of finding a buyer?

For businesses serious about selling, a list of potential targets is a critical early step in planning the exit strategy. These targets can include a partner business, a competitor or a large multi-national conglomerate. By the time your business is ready to sell, you shouldn’t have to hunt for a buyer, and you should know who the right buyer is well in advance of the sale.

How can one decide if it is better to build a business in order to exit, or if it is better to stick around for the long term and let the company bring in residual income, or if it is better to go public?

While exit strategies should be determined in a company’s infancy, plans for the business can certainly evolve and situations can change. As a later stage company, odds are you’ve brought on investors who will play a role in defining this step with you.

For those willing to see how big they can grow the business, transitions of power still need to be sorted through. At this juncture, the “exit strategy” can include selling (even if it wasn’t previously determined) and the business can walk through the merger and acquisition steps as normal. There is no right or wrong decision in building a business to sell versus building a business to go public — but when planning an exit strategy, there are certain steps that need to be followed for a successful merger.

You are a person of great influence. If you could inspire a movement that would bring the most amount of good to the most amount of people, what would that be? You never know what your idea can trigger. :-)

While I don’t think I can start a movement, I can echo the best advice from my dad: “see everything through other people’s eyes.” Empathy is incredibly important to have on an individual level and when serving as a leader. A big part of leadership is being able to understand how to enable the success of the people and teams around you, and being able to put yourself in their positions and understand on some level what drives and motives them. This goes a long way in creating not only a successful team, but strong overall company culture.

How can our readers follow you on social media?

You can follow me on LinkedIn, and check out NetSuite’s social channels including Facebook, Twitter, and LinkedIn.

Thank you so much for joining us. This was very inspirational.