Exit strategies – the end is just a new beginning

“Begin with the end in mind” – Peter Drucker

I love start-ups! I admit it. The enthusiasm and energy created by the hope of new beginnings make you feel on cloud No 9. As the parents seeing their new born child for the first time, we are as emotional and driven the first time we set in motion our new project. Years pass and we are so proud of the first baby steps, every little achievement, in our eyes, is like an Oscar performance. But just as a baby does, the business grows and at one point it might just not need you around anymore. The new trends and directions could be unknown for you and you have to let go. That moment you could feel like a mother at her daughter’s wedding, just realizing the woman in front o her is not the child in need of protection she knew, understanding it is the best thing for her baby girl and even for herself.

Sometimes the best thing you can do is to let go. And it is not only a selfish decision; it is the best thing for everyone involved. Nothing lasts forever and it is better to have a plan and be prepared for the moment than be surprised. And exit doesn’t mean you ruined your business and all is over. Sometimes it can also mean you took it this far and now is time to cash in and enjoy a new challenge. And keep in mind that if you lose the window for a profitable exit, the other side of the coin could be bankruptcy.

Planning your exit can also act as a powerful motivator, you know why you work so hard and what is waiting at the finish line. The plan you make is also a great map from point A (Great I am an entrepreneur now) to point B (I worked so hard I need out). It is easier to find your way as long as you know the destination. The exit strategy you envisioned may not happen like that but as long as you are prepared you will exit victorious.

But how do you exit the business you built for so many years? What are the options you have not only to exit but also to come out rewarded for your hard work and all the new grey hairs? I identified 5 strategies, used and tested in the business world and they are rewarding and pain free at the same time.

Merger &Acquisition (M&A) – this could be the easiest way to exit. You have a company; you build and make it profitable and important on the market. After you reached a point where your competitors start to acknowledge your performance at least one of them might be interest in buying your company. In this way you can still be involved in the day to day operations of the company and this makes letting go a bit easier than just outright selling the company.

In an acquisition you also get the advantage of negotiating the price. In public markets you get valued relative to your industry; in this case the price depends on how bad the buyer wants your business. The downside of a merger: incompatibility between the owners/managers of the merged companies might lead to destruction of both companies. So choose wisely!

We have recorded big successes like the mergers between Pixar and Disney or Daimler Benz and Chrysler. That took the newly formed companies to new heights. At the same time there are some epic failures in the world of M&A, just take a look at AOL and Time Warner.

IPO – even if it has the most adrenaline and visibility, an IPO might just be riskier than the roulette tables at the casino. This used to be a short way to riches but some failures in the last 10-15 years made them less and less attractive. To have a better idea, out of the millions of companies in the US, only 7000 are public. And is also the most subjective exit strategy because after the moment you file your papers you can only wait and hope for a good outcome.

We have great IPO’s such as Google in 2004. In the case of Facebook, which raised 16 billion dollars, the situation is grey because stock price went from initial 38$ to just 24$ and things are still unstable.

Friendly Sale – this happens usually in a family owned business when the senior steps down and leaves the reigns of the organizations to a successor. In this scenario you have the comfort of knowing business will proceed as until now, with the same vision and principles.

Another scenario is that you are getting bored and tired and you leave the company to someone more skilful and with more interest. You get money, freedom and in time you can find your long lost enthusiasm in a new and challenging project. Just watch out when it comes down to the financial part of the transaction, it is a friendly exit but you may face the risk of asking less money based on feelings.

The Lifestyle Company – in the case of a small company we can see this trend. The owner cashes in all of the profits, doesn’t invest in the development of the business, limits expenses and only thinks about increasing profit. When this company stops bringing the profits the owner wants or the owner desires a new challenge, he will shut it down. We are talking about small consulting companies with very few employees. And we usually see this type of strategy in healthy economic markets, in times of economic growth and secure environment. One other alternative in this case could be finding someone to run the business for you , while you go out and enjoy the perks of ownership as well as the freedom of trying something different.

Liquidation & close – when the going gets tough the tough get going. But when the going gets really, really bad it might be time to say enough is enough. Yes the captain should go down with the ship, but why not salvage the ship and improve the situation.

Yes liquidation is not the most profitable exit strategy but it is fast and simple. You just sell everything, piece by piece, pay off creditors and maybe you can make some profit as well. I left this for last because it is not a desirable way to go but it is a plan worth to be put o paper. Economic crisis, 9/11 or some other uncontrollable events might put you in the situation to liquidate and better prepared than sorry.

I asked my friend, Dragos Roua, being an entrepreneur that experienced a successful exit, how did he reach the conclusion that an exit was the best idea. He told me this: “For me, deciding the exit was almost obvious: the moment I realized I was trying more to escape my own business than to build it, I knew that wasn’t my playground anymore. The rest were technicalities.”

 His answer should serve as a lesson to all entrepreneurs facing the Hamlet situation: to be or not to be. Yes it is your baby, your business and you have so much of yourself in there. But at the same time, you will know exactly when the time to let go and go play somewhere else has arrived. Start with the end in your mind, and work hard to make that end remarkable.