Many entrepreneurs start businesses without an end game. They see an opportunity and go for it, often thinking of feeding their family first, and sometimes propelled by the idea of becoming a millionaire. Too often, these visionaries don’t think of the start up phase will end and may even feel challenged if someone brings up the topic.
When I started my first Internet Marketing company, I was the same way. I knew I had a great idea and knew I could make a good living doing what I was doing. This was back in the late 90′s and the online marketing business was on the verge of exploding. I recall going to my first big Internet Marketing conference and coming back with several hot leads and consulting gig offers. I really knew I was on to something, but I did not have an end game in mind.
Fast forward a few years, I had taken on partners and the business had continued to grow. What I had not planned for was my exit. I assumed I would just work the business until retirement, but life was moving me in another direction. Thankfully, I had very gracious business partners, and I was able to sell my shares of the business to my partners and move on. Many times it’s not that easy.
There is a book called Start at the End by Dave Lavinsky, founder of Growthink. I encourage you to pick up a copy and learn how to build a business that has an end game. Dave’s book will help you grow your business with an exit strategy in mind. Typical exit strategies include:
Acquisition. Some people let their pride hold them back from being acquired. I say “bring it on” as long as the terms are right. You won’t immediately recognize the right terms if you haven’t through it through. My wife and I had a chat just yesterday about what it would look like for my company to be acquired. Of course, she was a bit worried and asked if that meant I would be investing the same amount of time adn energy starting another business (she knows me well.) I reminded her that our primary business was set up into several entities, so one could be sold off and the others would still remain with their revenue streams. I also reminded her that the buyout would have to be large enough for me to share the earnings with the people who helped grow the business (since they might be now out of work) and also take at least 6 months off to try to recoup some of the time that we lost as I had built that business. Lastly, with the financial resources of a buyout, combined with the experiences of growing a business successfully in a very tough economy, starting a new business would be much easier. Scott Jones, founder of Cha Cha wrote a great article on exit strategy recently which I encourage you to read here on Inc Magazine.
In an acquisition, the founder(s) often end up with key positions at the acquiring company. As a part of your exit strategy, you should identify the role that you want to have in the new company and also be prepared to explain to the buyer what value you bring to that specific position.
Merger. Similar to an acquisition, this is when two companies feel that they would function better as one entity. I use the word feel, very specifically. And if you feel that way, there is lots of work to do to ensure that the feeling is based on some solid data.
Those with whom you do business currently often make ideal candidates for a merger, but there are other factors to consider aside from what the two businesses can contribute to a greater good. Strong consideration should be given to the missions and values that the new entity would embrace. If you are one who is fully committed to your mission, how would that change your work life if that mission changed? If your business is based on your core values such as faith and integrity, but your proposed partners business is not, how will that impact your ability to keep your personal integrity as you move forward in business? What if it doesn’t work out as you expect? Is there a fallback plan? And what about your pride of ownership? Are you ok with someone else having the CEO title that you formerly had? Lot’s of factors to ponder here, but this can certainly be a good thing under the right circumstances.
IPO (Initial Public Offering). This is what some people dream of and others steer clear of. Running a publicly traded company is a lot different than running a privately owned company. There are lots of rules and regulation,s and the cost to take a company public is quite significant. According to an article at Start Up Nation, “you can easily spend half-a-million dollars on attorney and accountant fees” in the IPO process. The article also goes on to state “if your business is outside of the tech sector and has less than $50 million in revenues, we strongly advise you to consider a different strategy.” If an IPO is in your future plans, I encourage you to get a coach or advisor as soon as possible (in addition to your attorney and CPA) who has been down that road and can help you navigate the hurdles. I’ve heard it said before, that you if you want to accomplish something you’ve never done before, you should talk to someone who has done it before.
Liquidation of Assets. For some people, having had a great income over time that allowed them to build a retirement that they can enjoy is rewarding in and of itself and it’s to be celebrated just as equally as the IPO. Why? Because its about reaching your goals, not someone else’s. For many solopreneurs, this is the road chosen. Some may pass the business along to a family member, but many just close down with the pride of knowing they earned a decent living outside of the rat race called corporate America.
Sadly, a liquidation event can also occur when a business fails to be viable or meet it’s goals in order to satisfy investors requirements. Growing a business isn’t easy. It can be stressful and can even be detrimental to one’s health and their personal relationships. A liquidation exit can be refreshing and freeing, if your business is causing you stress.
My advice is to get good counsel on your exit strategy LONG before you think you will need one, especially if an IPO is your intended route of exit. It’s far better to have a concrete road map to your exit strategy, than to start to figure it out under pressure.
I believe that every entrepreneur should watch Shark Tank. It is a great show and features some very successful entrepreneurs, turned investor. It also can be a glaring example of what not to do when approaching investors for money. Being prepared is so crucial and below I want to share 7 tips based on mistakes I saw presenters make on the show. I wanted to mention each participant or company to give them a “shout out” but I didn’t want people to get the wrong impression and think I was putting them down for the mistake they made. What they did took guts, whether they were well prepared or not.
1. Have a Realistic Valuation of Your Business. The value of your business is not a just a number you pull out of air, or what you “want” or “feel”. You have to have numbers to back up your valuation numbers, and not all businesses are valued using the same method. Most people believe their business is worth more than it is from what I have seen.
2. Be Focused. Just because you have had success in a certain area, does not mean you are qualified to expand in another area. An investor would rather invest in you and your core competency, than your next unproven idea.
3. Get a Buy In From Those You Know. If your friends and family won’t invest in you, strangers will be less likely to invest in you. There are several stages of investment, and “friends and family” should come before outside investors.
4. Be Passionate. If you are not passionate your business, your investors will not be passionate putting their money behind it. I know it’s basic, but I have seen some lethargic and uninspiring entrepreneurs. If you need a good “face” for the business, get a partner who has passion.
5. Know Your Numbers. I was amazed to see business owners who did not know how much it cost to acquire a customer or other key information such as profit margins and fixed costs. That’s just a bad sign when you are in front of investors. You’ve got to know all of your numbers, and know them well.
6. Know Your Industry. Similar to not knowing your numbers is not knowing your industry. Investors are sharp, so if you tell them “you have no competitors”, you better be sure. Almost every time I hear someone say this on the show, one of the sharks actually knows a competitor, and it goes downhill from there.
7. A Confused Answer is Always NO. I learned this from one of my business coaches. If an investors says “I am not sure what you are offering”, that’s a bad sign. Even worse if you can’t clearly articulate what your plans are for the money (and I hope it’s not just a nice salary for you), your chances continue to decline. You have to be clear in your presentation of what you offer, what problem you solve, and how you will use the investors money to make them more money.
Whether you are planning on raising money or not, Shark Tank is on my “must watch” list for entrepreneurs. If for nothing else, it’s great entertainment, but if you listen and watch closely, you will learn a thing or two.