At what point should I start thinking through an exit strategy?
I'm thinking through the business plan for my next venture and I'm not sure what the ideal exit strategy should be. Should I work with a consultant and decide ASAP or can I afford to wait and see how the business pans out first?
You don't have to know the exact exit strategy because you can't predict the future, but you can plan for it. I think you should think about how long of a venture you want this to be, you should explore the different types of exit strategies i.e. different investor plans, acquisition, IPO, do you want to stay private forever or are you thinking about going public?
I think it is really important from the get-go to understand what your options are so when the time comes you are prepared.
It also allows you to properly plan and execute your plan. There are big differences between a 9 month app venture and a full-fledged business that could end up being more than just a venture.
I don't think you necessarily need to work with a specific consultant for an extended period of time, I just think you should spend some time thinking and doing some research on the different types of exits and how they apply to your venture before you move forward with the business.
You can't predict the exact final destination but you can prepare for the journey!
First - I commend you on including your Exit Strategy upfront like this. I would not wait until you see how the "business pans out first" only because it's like asking "should I wait to see how large the fire gets before having a fire escape plan".
Your current "exit strategy" doesn't have to be 'ideal' right now. Just start with something and continue to improve it as you go along. Since this is your "next venture" - start out with lessons learned from the exit strategy of your last venture. Then as you add affiliates, venture partners, and programs, draft out the exit strategy for each addition. Keep improving until you feel it's "ideal" (progress refinement versus trying for perfection all at once).
The exit strategy can greatly vary depending on number of executive partners you have. The % of total shares or input each member puts into the business are also very important aspects to identify before even developing an exit strategy. In the beginning stages of the business, you also have to list all of the stakeholders of your venture on whom your business is dependent. For example, stakeholders other than partners could also be any investors, venture firms or incubator/associate institutions, banks ,etc. that provide any funding or capital resources to get the business up and running. You need to know all your primary and secondary stakeholders (see:http://ctb.ku.edu/en/table-of-contents/participation/encouraging-involvement/identify-stakeholders/main) The short answer: Yes, you need at least two exit strategies, one for how your going distribute funds if you close your business yourself and one in case of bankruptcy. What you put into your venture is what you get, and that will apply to all partners. However, "no" you do not need an exit strategy right away but you do need one as soon as possible to have a legit business plan. Some start-up ventures don't even form an official business plan until 18 to 22 months into their operation, so you have plenty of time to put your chickens in a row, but it's best if you get your plan set-up within that timeframe.
It's never too early. In fact, you should have been thinking about your exit strategy before you ever started your business. Begin with the end in mind grasshopper.
None of us is going to run a given business forever. Knowing what you really want to do when you grow up is a great guiding thought and principle.
I suggest you read Tony Hsieh's excellent book Delivering Happiness. After he sold Link Exchange to Microsoft and netted $30 million-plus, he felt unfulfilled.
Before getting involved with Zappos, first as an investor and then as CEO, he realized that what he really wanted to do was meet and interact with exceptional people and create memorable experiences for himself and others. That realization has guided him through Zappos' growth and it's acquisition by Amazon for $1.2 billion.
He's now having a great time delivering happiness to millions of people. I wish the same for you Rob.
Although 95% of the folks here are saying start with an exit strategy, my advice is to focus your start up on building value. You are likely to change your business model several times before you figure out what it will be in the longer term. Once you have a robust business that is producing clear value for customers, then you can have a serious conversation about optimizing it for a buyer. At his point you don't even know what you will be exiting.
As someone who has made a successful exit, I believe the core of your business needs to be defined and stable first. Then you can decide who would benefit most from owning it and start to redesign it to accommodate their specific needs.
And timing is everything. You have to hit the market when businesses are actually selling, and this is a cycle. That means you might need to hang on 5-10 years longer than you think, so make sure it is a business that is solid. If you are positioning it as a business to be sold, to flip, your leverage in a deal is weak because you have to sell it. Better to be a business that is so highly profitable that you are reluctant to sell because your money is working hard there.
I have been working with a client for almost 4 years on an exit strategy. That business was mature but the point was that there were several deviations along the way, details not known or considered at the point. For a start up if you aren't sure if you want to be in it for 5 years or 15 then you might not be looking for a strategy that is solely about time. What I do for clients is to create "Trigger Metrics (TM)" that allows decisions and actions to be hinged to measurements, whether they are financial or operational so they may or may not be time specific. But really, most important is do not hire a consultant unless you have a strong idea of what you want, when you want it or what conditions create actions and opportunities for you otherwise you risk money less well invested. I only do exit strategy plans, for example, if a client can answer those basics for me then we do the detail, otherwise you might be doing what you think you should be doing but not what you need to be doing.
As soon as you want to ensure it goes off without a hitch.
Ideally it's part of your business plan and end game big picture. That way you know what your business needs to be when it's time.
Working back from the end shows you whether you are on track and your marketing and business development and sales and partnerships and profits are going to get the company where it needs to go.
Your exist strategy also needs to align with your personal goals, too. So you need to reflect on that a bit and not just be driven by the business aspect.
Also remember that anything you decide on now can change in the future. Strategies can change. Markets can change. Economies can change. Priorities can change.
You know all that already, but keep that in mind any time you start thinking things are looking really solid. Plan for the future and expect some unexpected issues now and then so needing to change unexpectedly doesn't crush any hopes and dreams.
Rob, If the new venture doesn't "pan out," you will definitely need an exit strategy and you will need one FAST! So here's my take...In the beginning there was planning and it was good. And the planning held me up in the face of darkness (not panning out).
At the beginning!
You have to know where you're going... to get there. :)
I've always been advised to start with the exit in mind, but be flexible and ready to pivot if need be. Just have an idea of how an exit would look.
One of the last projects I worked on my plan was to seek out a strategic to acquire the project, or potentially seek out someone in a similar market who would see the project as a complimentary service to diversify their current offerings.
Being successful is still important, so I put exit strategy lower on the list of priorities, but should still be considered in the early stages.
Exit strategy is more important if you have investors or funding because that exit strategy will be how they get their return on what they've invested. So it depends in part on your structure early on.