I’ve been hearing that phrase, exit strategy, for about 30 years now. I used it a lot as a standard component of business plans back in the 1980s when I made a living writing them. And I ignored it myself as I built my own business, for really good reasons, for a long time. I figured out what it really meant, fairly late in the game, but in time for me. I think I can make it easier for you.
1. The exit is when you sell the business.
Sorry if that’s obvious, but not everybody understands. In the classic high-tech high-end startup context, it’s either going public (meaning you get all registered up and sell your stock on a stock exchange, to anybody who wants to buy it) or being acquired by a larger company for publicly traded stock or money. In the small business, it’s selling the business to a buyer, or, in some cases, passing it on to the next generation of your own family.
If you don’t need outside investment, and you’re in the business for the long term, you might think you don’t need an exit strategy. You’re right, at least for a while. But even the long term becomes short term eventually.
2. Investors need exit strategies.
If you want outside investment then you have to have an exit strategy. Real investors don’t make money on your healthy company unless it sells all or part of itself. It’s cut and dried with outside investors: either you have a believable exit strategy, or investors don’t make money.
By the way, maybe I should say “if you need” outside investors instead of “want outside investors.” If you don’t need outside investors, believe me, then you don’t want them.
And if you don’t need outside investors, exit strategy can wait. But it will come.
3. Every entrepreneur eventually needs an exit.
OK, you’ve noticed I have a theme here. You need the exit strategy for sure, and right now if you need outside investors. But even if you don’t need outside investors, you’ll need the exit eventually.
You get older every day. Eventually you’re going to exit, whether you like it or not. Better to plan it. You get tired, you get health problems, you get older, and life changes. I was lucky, because we had a hard-working, loyal, smart next generation ready to go. That was more from good luck than good planning.
Think ahead. Look for the right opportunities. For example, there are some baby-boomer entrepreneurs feeling the need to sell during the great recession, having to take what they can get during a very bad market. I’m not saying they could have predicted the recession (black swan, in my opinion); but they could have been thinking about exit or succession.
Ultimately, it’s about people. Nobody lasts forever. You can aim for a business that survives a succession, or one you can sell. Aiming and planning doesn’t mean it will happen; but it can help.
(Image: Eugene Sim/Shutterstock)
Bonus material: 6 tips for involving your kids in your business