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.
One of the key ingredients of a successful business plan is how you will eventually exit. The business plan should then be your growth plan to get you from where you are today to that eventual exit. Recognizing that many variables, if not all, will change and you would need to pivot accordingly. On the question whether you need a consultant, from my experience you could rather spend time in understanding how other successful businesses in your industry/similar ventures have exited and replicate the successful ones as a starting point.
The reality it that a business in concept that is not profitable and or growing at 20% in sales per year is that very attractive. Moreover, without the visionary it is always less attractive. I would first hire a consultant to make sure you have the management in place and sales strategy and salespeople for success. ONCE THAT engine is running you can full back to more a a visionary and management role. I should be done little by little. This wary when you go to sell it it is a fully functioning machine that someone with a added or different vision can take over.
You will not have a viable exit strategy if the business isn't successful. Exit strategies are a function of your own personal desires. Typically, owners want to get out at one or two points in the natural evolution their businesses. Either when the business begins to mature, or when it becomes obvious that no one else wants to take over and you want to get out.
Hi Rob, I am in the same situation as you are where I am planning to move from my existing Senior Mgt. job into my own practice. The way I am doing this is to get the experience and business going on the side before I do the leap - not easy but the best way to do it. Jumping straight into a new business might be quite stressful if it is not going to produce profit immediately. Happy to chat with you.
Executive Coach and Professional Facilitator
I thought of two scenarios. First if you are looking at a strategy to move from your current roll into your venture then it is wise to have this in place.
Secondly, having a back up plan or exit strategy is crucial covering all areas of your business. Nobody opens a business thinking they may falter however it unfortunately happens. If something were to happen to your business, the longer you wait to react the more money you or your investors will lose. As for the consultant, if you know your business you shouldn't need one. You should have you attorney help review your legal options.
Best of success with all your endeavors.
I think you should have 'some idea' of what/if there is an exit strategy before you get started in the business. Also depends on how much you know about the business, and how long you'd like to be involved, or not.
You should always plan for exit strategy in any situation.You should have several options in the event your business don't go as plan and in the event it turn out better than plan. The ideal exit strategy depends on what ventures you're in and what your interest is. Because sometimes your exit strategy don't have anything to do with your current business. So, I still would like to have a three legged chair to stand on.
You definately need to start now.
It determines focus, startegy and organisation. Why waste time, years even by not understnding where you need to get to.
Treat your exit strategy target just like any other customer, what will provide the best value proposition at the end to the customer, they are the ones that are paying at the end of the day. If you answer that, then you know how you will build your business.
Does a builder construct without knowing what it is he or her are building?
Rob, Your business plan is your road map.
Just as you plan mile stones along the way up.
You should be putting in place Points of concern.
With then you should also plan what "counter measures" you would consider to turn things around. (It's a bit like a "Disaster Plan")
Within that side of the planning you will finally end up at the point of "No Return"
Many people become extremely burnt simply because they
1) Failed to read the sign posts.
2) Failed to plan - (have a action plan in place)
3) Became to emotional or attached.
The time to overcome all of this is at the beginning, when you are thinking before you are doing.
A great business plan is balanced on both the positives and the negatives.
No body want to go there, but it you are not prepared. your not prepared.
Short answer (given by others as well) is "right now."
The longer answer is to have a plan of what you're doing with your life beyond your "next venture" - and the venture after that...
I suggest developing a hierarchy of outcomes: a) going up (bigger chunk) and b) going down (smaller chunk)
To go up, what's your answer to the question "What will your next venture give you?"
What ever your answer is (say it's "Financial security, and a sense of achievement") feed the answer into the same question form: "And what will 'Financial security and a sense of achievement' give you?"
Keep repeating this format until you can go no higher.
To go "smaller chunk" ask, "in order to have your next venture, what do you need to do first?" And feed the answer int the same format.
This gives a hierarchy from something really tiny (like "pick up the phone") to something massive and unconscious like "Peace, purpose"
It should also let slot your ventures and consequent exit strategies into the broader, unconscious plan of what you want to do with your limited time on this planet.