Sunday, April 14, 2013

What if you don't have an exit strategy?

Have you pondered the question: "what if I don't have an exit strategy for my startup?" If you don't have an exit strategy or haven't at least pondered one, you're not ahead of the market, and thus are doomed to fail.

Not to worry, you might still have a lot of time, if you take the initiative to rescue the situation. Many startups constantly have this problem, and can lead them not having any money (and being in debt), if/when their company fails - or if they decide to sell the business/retire.

Not to discourage anyone, but something must be done if your business strategy does not include an exit strategy. Don't make the same mistake most new startups make: saying that they don't need an exit strategy because "my business won't fail". Then, a few months to a year later, they find themselves in a pickle, or lost at sea.

I've conjured up a list of potential rules that you can follow to get on it and create a competitive, correct exit strategy.
  1. Plan ahead

    Well...I think I mentioned this in a previous paragraph, to plan ahead. For those not planning ahead of time, you should have known already that you were doomed to fail (unless if luck let's you walk under its umbrella).

    Anyway, define what you want in the long term! Also, if you're planning on selling your business one day, for example, it might be nice to know how you plan on selling it. Acquisitions happen all the time, but only those that have the best strategy and best futures for their market, are the ones that get acquired. Just in case, in the very rare chance, that you get acquired, note down what to expect.

    It's very important to know what to expect when dealing with a good exit from your business. Let's say, for another example, you're prepping for a retirement in the next 20 years, how do you want to safely exit out of your business? What if the business is so popular, people would hate you for shutting it down just to retire?

    Instead, (in this same example) assign the business to someone else, so when you're ready to retire, you don't have to wait another long time just to find someone to run it. You need to know these things well ahead of time to avoid interruptions and disfigurements.
  2. Define your potential buyers or inheritors

    IF you're planning to sell the business in the end, or hand it down to a family member, or even handing it down to a top executive in your company - be sure to define who's going to buy it, or who it's being handed down to. You'll need a few choices probably.

    Make realistic choices, if you have some. If you're handing it example, "my CEO at the time when I'm ready to retire, will become Owner & President" or "my son, currently a teenager, will be going to get his MBA, and should be able to take over, once he's graduated".

    You want your company in only the best hands. If you're selling it, an example might be, "I want to sell off 80% of the company to the buyer, want 15% of my stockholders to keep stake, while I keep 5%". By creating a plan such as this, when you go to sell it, you can pitch a deal like this, in hopes to be successful in the end.

    If you're planning retirement, and don't have a huge IRA/401K, then 5% of the company's stake (such as you just sitting in as a board member, advising) might be the way to go. Stockholder figures can vary, actually, so that number was just an estimate to get some perspective.

    Sometimes, though, you'd be lucky to get 5%, especially if the company is making huge revenue. They might only agree with 1%. Whatever the case is, analyze the deal at the time of the sale. But, at least if you plan it ahead of time, you'll be able to defend your side of the deal. It's not easy at all trying to sell a company, especially if you have any emotional ties to it.
  3. Consider selling parts of your business?

    If you don't want to sell your entire business, let's say if only part of it fails, then just trim off what failed and move along. For example, people get mad if they see an awesome company doing bad things. Some of these things might include a bad product, a poor selling product, or a bad reputation on a certain product. In order to maintain your business correctly, separating yourself from that bad product might be the only way to get headed back up.

    Anyway, keep in mind that you can sell parts of your business without selling it in full (although this is mainly for larger businesses with more complicated strategies). You can divide the ownership into a couple different types of shares. The types of shares I speak of would be voting and non-voting. In this case, you'd still be in control of the major decisions.
If you have no exit strategy, you have a job that you can't leave!

Get in control of your strategy, and craft your exit strategy today. Any questions, or comments? I'd love to help you understand better. Please fell free to leave a comment below.

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