Efficient Exit strategy of Syntrillium
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Background of the organization
Syntrillium Software Corporation is a company that designs and develops computer software applications. The company's main activities are designing and developing sound and visual effects. David Johnson and Robert Ellison, former employees of Microsoft founded the company in 1995. Syntrillium Software Corporation has its headquarters in Scottsdale Arizona. Some of the flagship products of the company include Cool Edit 2000, Loop CD Sets, Cool Edit pro, and Red Rover. Cool Edit is the main product of the company. Cool Edit is a classic example of a success story in software development. The software application helps in recording, editing, and mixing music. The software application was extremely popular with producers. Cool Edit Pro a later version of the software that the company released later could work with multiple tracks. Prior to the release of Cool Edit pro v2 computers did audio processing in a destructive manner. This is because, at the time, computers were not powerful enough to perform non-destructive operations in real time. However, Cool Edit v2 supported real time non-destructive operation. This made Cool Edit be extremely popular with music products. Low price of the software application also made it become popular with producers and music DJs. These superior features made Cool Edit be the standard editing software application of consumers, musicians, DJs, production houses, internet radio stations, and videographers.
Problems facing the company
Founders usually develop a company until it reaches a point where for its continued profitability, their either have to hire experts to run the company or sell the company to larger companies. Syntrillium had reached a point where for continued profitability; the founders of the company should have either hired professionals to run the company or sold to a larger organization. In 2001, the market for computer audio editing software applications was beginning to mature. This was due to Cool Edit’s success and technological advancements that made computers have higher processor performance and memory capacity. Maturing of the market necessitated editing software applications to have video offerings or other addition to make them be competitive in the market. However, Cool Edit could not support video offering. The management of Syntrillium realized that without video offering or another addition to the software application would restrict the annual growth of the company. At the time, company was at the height of its success. This necessitated the company to choose an exit strategy to reap maximum benefits of the popularity of the product.
Analysis of the problems
Cool Edit was unable to keep pace with the rapid change in development of music editing software applications. The market was moving towards the use of editing software to support video applications. However, the company’s software developers could not make the software have capabilities that would enable it integrate video editing capabilities in its performances. The inability of the software application to cope with rapid changes in the industry necessitated the company to look for an exit strategy while they were still profitable. Exit from the market during this period would enable the company reap maximum financial benefits. Failure to exit the market the market when the company is still profitable, may make the company incur massive losses, due to reduced competitiveness of the software application. This may reduce the net value of the company. The company may choose several exit strategies depending on whether the exit strategy is for long-term or short-term involvement. Some of the long-term involvement exit strategies include letting the business run dry, selling the shares to other parties, and liquidating the business. Short-term involvement exit strategies include going public, merging with other companies, acquisition, and selling the business altogether.
The management of Syntrillium could have let the company run dry. Prior to exit the management may increase it bonuses and salaries to reap maximum benefit while the company is still operational. In addition, the company should pay its remaining debts. Once the company has settled all its debts, the company would simply close its doors and stop being operational. The company would then dispose off its remaining assets (Tomar 173). However, this strategy would not be beneficial to the company. This is because the company is still worth so much, letting the company run dry would not be profitable. Syntrillium has products that it can sell to other companies for a huge sum of money.
The founders of the Syntrillium and other partners of the company could sell shares of the company to other parties. Selling shares of the company would make partners leave the firm while it is still operational and make an enormous sum of money from the sale (Tomar 173). This strategy would make the new owners of the company device another development path of the company.
The company could liquidate the assets of the company and use the revenue generated to pay off any outstanding debt (Tomar 173). Companies that have gone bankrupt, use this strategy. However, since Syntrillium is still a profitable company this strategy would not be a viable option. During liquidation, no single company acquires all the assets of the liquidating company. Assets of the company are sold to different companies. Thus, liquidation makes firms sell its assets at a price that is a small fraction of its real market value.
The management of Syntrillium may also opt to go public as an exit strategy. Going public would cost the company vast sums of money (Tomar 173). One of the main reasons that make companies go public is to seek funds to facilitate further expansion (Bringham and Houston 42). Going public requires companies to have their development plans still intact, with the only withholding factor being lack of finances. Therefore, this strategy would not be beneficial to Syntrillium since the company has reached its peak. Additional capital would not alleviate the problems that it faces. The company needs an overhaul of its development plans to remain competitive. A new management team would help in formulating development plans that would enable the company remain competitive.
Syntrillium may also merge with other business organizations that offer it more value than one company does. In a merger, the assets of the company remain intact. After the merger, the management of the Syntrillium may continue leading the company, or they choose to use the merger as their exit from the business (Tomar 173). Should Syntrillium opt to merge with other companies, there would be a change in the management of the company. The new management may help in formulating a new development plan that would enable it tackle some of the problems that Cool Edit faces.
Acquisition is also a viable option that the management of Syntrillium may choose. Acquisition would make other companies keep the value of the company for themselves. Therefore, it is vital for the management of Syntrillium to offer the company for acquisition at a price that fits with the current valuation of the company. The management of Syntrillium should carefully choose acquirers, to enable it gain much more than it could earn if it decides to sell the company (Tomar 174). The acquiring firm may have more experience in the market segment and may therefore, help solve some of the problems that the company faces.
Syntrillium would have avoided the problems facing Cool Edit, if it had a philosophy of continuous evaluating its product. Continuous evaluation would have enabled the company identify faults in the product and undertake alterations to ensure that the product fits with the current market requirements.
Recommended basic solution
Acquisition is the most viable exit strategy for the founders of the company. The founders of Syntrillium have built the company from scratch up to its current position as the market leader in the sale of music editing software application through Cool Edit. The founders of the business have enable the company realize it maximum potential. Therefore to enable the company remain competitive, they should hand over the company to larger companies. In so doing, they will be leaving the company in capable hands and at the same time reap enormous benefits due to their effort in developing the company (Aldrich and Ruef 89). Founders who are not after financial rewards, usually have a sense of fulfillment seeing that their startups are performing well. They would not like to see their startups failing. Therefore, founders choose a company that would ensure their companies continue to perform well. The larger company may have the financial capability and technical knowhow that would enable it run the company successfully. Proper management of the company by the acquiring firm would lead to multiplication of the fortunes of the company. It is common for founders to sell startups, and after a few years, the companies are worth five or ten times their initial worth. Therefore, founders should efficiently time their exit and ensure that the acquiring company offers them a suitable sum of money.
Improved solution from the initial recommended solution
The founders of Syntrillium should ensure that the acquisition would not lead to the dwindling of the financial fortunes of the company. The existing employees of the company helped in developing the company up to its current position. Therefore, it is vital that even after the acquisition the acquiring company maintains the existing employees of the company. In addition, founders can negotiate with the acquiring company, to remain in leadership positions within the company even after acquisition. This would enable the founders offer ideas that would lead to improvement of the company. This is because, founders have extensive experience on the company, and can therefore help various problems that are unique to Syntrillium. Retaining existing employees of the company would help in maintaining the stability of the company. In addition, since software development industry is prone to theft of intellectual property, retaining the employees would not make some of the employees be poached by rival companies and leak some of the secrets of the company.
The acquiring company may use several tactics to retain employees. The acquiring company may increase the benefits that the employees have. However, this would be expensive to the acquiring company. In addition, the acquiring firm may make the job of various more appealing to encourage them to remain in the organization. This may be through changing various processes so that there is concentration of duties within a certain process on one employee. The acquiring company may also reassure employees who are vital for the continued success of the business to make them feel wanted. The acquiring company should accompany the assurances with other methods that would make the employee feel needed by the company (Kusstatscher and Cooper 145 – 146). It is vital that the acquiring firm does all that is necessary to retain employees of the company, as they are crucial for the continued profitability of the company. Syntrillium would face imminent failure if the acquiring company fails to retain the existing employees. This is because employees are the backbone of the company.