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 firstname.lastname@example.org, 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.