Unless you are passionate about your business project, it is unlikely to succeed. However there’s a big difference between a passion project and a good investment. Successful entrepreneurs understand that their passion for a business may not last forever, and that at some point they may wish to exit. They also know that the best opportunity to secure a stress-free and profitable exit in their own timeframe occurs before they make the commitment to invest time or energy into the business.
Business owners are entrepreneurial by definition, but tend to belong to two major groups. The first group are really just looking for an income, and are happy to work within someone else’s guidelines and systems. This group is ideally suited to owning franchises, and of course we know that a good franchise always has an exit. If you do a reasonable job as franchisee, someone will buy the franchise from you when you have had enough.
The second group is essentially made up of creatives, passionate about an idea which they hope to turn into a successful business. Sometimes they devote so much attention to the success of the business they forget about their longer term future. In particular, they don’t worry about their exit, let alone how that might be achieved. This is only natural, as the sky is the limit for new business ideas, but in reality it can be many long and tiring years before a new business achieves true profitability.
With businesses in the early growth phase, there is usually a very strong focus in making sales. This is logical, as sales means cash flow, and every business will die without cash. Passion is necessary to be able to make sales. However unless the owners simultaneously build scalable infrastructure to support growth, eventually the business will collapse under its own weight.
Although it may go against the grain for passionate entrepreneurs, achieving the best outcome longer term requires cooling things down from the start.
No matter how small the business is, the following questions must be addressed:
- Where do we want the business to be in 2 years, 5, 10, 15 years etc.?
- Who will be the shareholders at these milestones?
- What assets will the business have at each stage?
- What will our annual turnover be?
- What management will the company need to meet growth projections?
- Which of the team is best suited to be responsible for:
- Day to day executive decisions
- Staff and team-building
- Sales and marketing
- Technical issues
- Partnerships and collaboration
- What checks and balances are there between the shareholders, and between the shareholders and management?
As well as immediately improving the business, thinking about these questions and working towards finding the answers is the foundation to a successful and enduring business exit strategy, both for the founders and for successive investors.
The same factors that make larger companies attractive for investment or acquisition apply equally to smaller ones. Every potential investor or acquirer will want to be sure that the business has:
- Growth prospects and a realistic future plan
- Good management
- A strong team
- Technical expertise
- Adequate financial backing
- A supportive partnership network
- Undisputed ownership of the tangible (but more importantly the intangible) business assets needed for profitable future growth.
Summed up, exit strategy is all about having choices. Small business can be hard, never more so when there appears to be no easy way out. And realistically, it is normally difficult to profitably exit an early stage business. However, if sufficient time and effort continues to be devoted to the exit strategy at every stage of the business’s life, all stakeholders can feel confident that each day they are getting closer to their chosen end game.