Making The Most Important Decision: An Exit StrategyBy Ron Cocquyt on August 26th, 2015 /
Once an entrepreneur determines that he or she has a product or a service that solves a problem and has the potential to evolve into a substantial business, the most important decision facing the entrepreneur is the Exit Strategy.
I know – you think this writer is crazy by putting the Exit Strategy at the top of the priority list. Before you have rented a building, created a website, or even ordered your first box of business cards, the entrepreneur needs to establish how they will exit the business. The Exit Strategy sets the ultimate goal, the ultimate destination.
When building our last company, my partner and I determined our Exit Strategy before we had even finalized the drawings for the medical device we were about to produce. After much deliberation, we determined that the best Exit for our venture would be to sell it to one of five Fortune 100 companies. Keep in mind, however, that none of these companies were aware of our existence or our product or our names. Yet it was at our very first meeting that we determined that the best Exit for us and the business would be to sell it to one of these five companies. We knew that these companies made significant acquisitions; they were always looking for businesses that had ongoing income streams and were focused on disposable medical products; and that our product could blend easily with the product mix that their sales team was currently representing. (By the way, we sold it to one of those five companies in slightly over eight years after we started.)
By determining the Exit Strategy this early, every decision and all the planning and execution were focused on making our company attractive to these five acquisition opportunities. This kept us focused and targeted. Having an Exit Strategy minimized distraction. It allowed us to create a Business Plan, Marketing Plans, Messaging Campaigns, and Sales Programs that were focused on both success and on making us attractive. There are multiple ways to get to the finish line, but the direct path is the most efficient, and having an Exit Strategy lays down that direct path.
Circumstances change, and Exit Strategies can change – nothing is cast in granite. For example, entrepreneurs often select an Exit Strategy that includes second generation ownership. Having sons or daughters take over an existing business is often an exciting and productive Exit Strategy. All plans are put in place to make sure that the second generation ownership is properly trained, motivated, and financed. But like the “best laid plans,” second generation may notify ownership that they are not interested in working in the business, let alone taking it over and running it. Therefore the Exit Strategy needs to change, plans and execution need to be modified, and the process moves on.
Exit Strategies help entrepreneurs to determine whether or not they are going to need outside financing and how this financing may come to be. Exit Strategies also determine the importance of identifying and protecting intellectual property. Patents and licensing, for example, become critical components to a successful Exit Strategy; protecting patents may determine whether or not a successful Exit Strategy is completed.
In order to identify an Exit Strategy and then develop the plans necessary to achieve it, I strongly recommend that the entrepreneur or small business owner find a qualified and experienced Business Coach with whom to work. The Business Coach is experienced in developing their own Exit Strategy and should have significant experience in assisting other businesses in identifying their Exit Strategy and developing the plans and processes necessary to accomplish it. Going it alone is risky and treacherous.