How early should you start thinking about and planning your exit strategy?
Should it be included in a business plan? Should you start thinking about best and worst case scenarios before you launch or after you've been at it for a while?
An exit strategy should be included in the business plan from the beginning. When planning to create an organization, you must think of the end-state in mind. Always start with the end, then work backwards to figure out how to get there.
The moment you get the inspiration to start a business or a start-up, you should have an exit plan. It is essential to be prepare for the unelectable.
At this early stage, I would only spend a small amount of time reviewing your expectations in concert with those on your team who will have any ownership interest in the enterprise; as it is important for you to know what they will expect - and when. That being said, I would counsel against putting any plan for exiting (or other similar expectations) in anything viewable by your investors or your (future) employees. As has been noted in the other comments you have received, the investors want you (and your team) involved because you have the "vision" and, more importantly, because they believe that you have the capability to execute your plan. You want them to believe and anticipate that you will be there for the long haul. Later and in the event that your enterprise makes it to the VC stage, more than likely, they will inform you when you will be exiting - not the other way around.
In conclusion (and please pardon the philosophy), life has a way of changing our needs, expectations and circumstances. Give yourself the freedom to change your mind if you see fit.
All the best.
If your company is but a thought, and you haven't generated the first dollar yet. Don't spend too much time thinking about the exit, and definitely don't spend time telling potential investors about your "exit strategy". Talking about exit strategies at this point is premature, and it makes you look like you're trying to flip dollars, rather than build an innovating and self-sustaining business.
From day 1!!! How you will exit your business defines the requirements of how you build your business. Here is a blog post that discusses the importance of starting exit planning early. http://yoursmallbusinessgrowth.com/2011/08/1-reason-exit-planning-is-so-critical-when-starting-your-business/
The purpose of a business is providing return on investment. You should clearly indicate in a business plan submitted to investors if their return on investment will come through an exit or not. This will influence the profile of investors that will look into your proposed business opportunity.
Surely, if you are proposing a return based on exit, the nature, probability, way to and estimated value of the exit should be discussed in your business plan. This section in the business plan is as prompt to changes as the rest of it.
While preparing your business plan.
The exit strategy should be a part of your business plan. If it is not then the earlier you think about it and put it down the better.
The short answer is as soon as you begin your business. I am not being flippant, but every business owner will someday exit his or her business. The sooner you begin, the more you will control your destiny and maximize your return.
In most cases, it should not be part of the business plan, but should be a separate exercise and document that is updated regularly as circumstances change and evolve.
If you want to talk, i help business owners work through this process, and would be glad to see what i can do for you. You can contact me at email@example.com, or 248.677.1159.
Ed Allon, Partner, B2B CFO
Right away, and it should always be in the thinking. For example, it partly informs your partnerships and what form they take. (You don't want to enter into partnerships, for example, that would exclude or inhibit other potential acquirers.) Pretty much every business decision should factor in how it affect the likelihood, timescale, and size of your exit. On the other hand, generally speaking, most everything you do to build value in your company will accrue to your exit, but you should always think strategically about it.
I think you always have to have an exit strategy in mind. Otherwise, you do not know what your goals are. If you want a lifestyle business, you are going to run it very differently than if you are hoping to be acquired in the next five years. For example, if you need to maximize revenue to get the top purchase price, you are going to live very lean for five years and put everything you can back into increasing sales. A lifestyle owner would not do the same. Rather, he or she would be more likely to run the company to maximize ongoing profit. Would you spend $100,00 to get $100,000 in additional revenue? As a lifestyler - no. As a potential seller hoping for a 4x revenue sale - absolutely.
This is not to say that you should only have one exit strategy. It is probably better to have a couple. If the business does really well for the next 3 years, I will look to sell at 5 years and use the proceeds to start a new business. Thus, I will plan to have all of my ducks in a row for a cash sale. If growth is more moderate and the business environment does not favor a high valuation, I will look toward a merger or an acquisition in which I remain with the new company, etc. Thus, I will structure things so I will continue to carry the baton for the next five to seven years.
Regardless of which pathway you are on, you need to know which one it is. There are too many things about strategic planning which depend on where you are headed.
I would never invest in a business plan that includes an exit strategy for the founders. If and when such might be appropriate should not be determined in advance.
I fully agree with Mark Cuban's first two rules for Startups...
1. Don't start a company unless it's an obsession and something you love.
2. If you have an exit strategy, it's not an obsession.
Presuming that you're not building a lifestyle business, I think that you have to have the end in mind right from the beginning. If it isn't clear to you who might see value in purchasing your business if you are successful in building it, you would probably be well advised to rethink the whole thing.
To be clear, it is highly likely that your business will morph, and all of those initial plans will in no way resemble what your business becomes, but I highly recommend addressing this early on as it will force you to think of whether not value is being created.
In the envisioning of the ideal interactive design plan at the start. I actually don't know if it works or possible, and am experimenting currently. I offer to get back to you in August 2013 and share results. Please remind me if interested?
I agree with the suggestions of including and exit strategy with the business plan. To plan for success without the possibility of failure is an opportunity for disaster.
You should always have a exit strategy but this, like all things, changes over time.
1.In you business plan you have one that deals with possible failure and buy outs for VC or partners that wish to cash in.
2.Later you need one to protect the future of the company from owner illness, death, or company sale.
3. Further in the future you need one for retirement, IPO, or company sale.
Having a exit at all times shows that you are planning for all contingencies and made plans for the expected and unexpected. This is just part of running a business. It should not be viewed as a negative but as a positive for all businesses no matter what stage of growth they are in..
Right at the beginning! I have read the suggestions and agree it should be part of the business plan.
Yes, The exit strategy should be in the first business model/business plan for yourself based on your own goals and ambitions and definitely if you are seeking private equity(PE)/venture captal (VC) investors. In my business planning activities I call it exit strategy & value realization. However, it does not necessarily mean you have to sell the entire business nor to sell your entire shares in the business. But PE/VC investors need to know a pathway to exit and value realization for their shares.
Usually PE/VC investors will seek to sell some or all of their shares at subsequent investment capital raising rounds (to other PEs or VCs) since their business model and obligations to their own investors is to show a return on investment over a limited timeframe.
An initial public offering (IPO) is another value realization for all investors. But most companies do not have an IPO. Other exits include a strategic sale, merger or acquisition.
If you have a partnership or Limited Liability Company then you would usually include in the operating agreement the conditions for sale or approval of new members or shareholders, as well as the right and conditions for buying out the other partners.
Dissolution, or closing your company, is an exit by winding down operations. This may be done for both profitable companies or for failing companies.
So you can see an exit strategy is important for all stakeholders and applies to both successful and failing companies.
Yes...It needs to be part of your business plan for many reasons. It will act as your guide for your outcome. Think of the outcome as the goal of the goal. A few examples are:
If you take VC money then the exit strategy is to grow it and sell it.
If it is to be passed on to your children then your strategy should reflect it.
If it is a lifestyle business then this will help form your plan.
If it is to grow it then this will be the objective.
The bottom line: Have an "end in mind" to keep you focused on the ultimate goal.
I try to have many exit plans.
As your venture progresses, you need exit strategies in case of failure. Failure includes a profitable company that cannot grow enough, a company that is losing money, a company that cannot achieve sufficient resources to make it, etc.
Success does not need an exit, though determining fair exit values is helpful to avoid getting caught up in over exuberance.
I have read a book by someone very experienced in this and he says your exit strategy should be in your initial business plan, it usually involves a trade sale of some kind.