When you buy a ticket on a plane you have a destination in mind. When you arrive you get off the plane and it is the end of the flight. You have arrived and there is no ambiguity.
When you are taking off, the flight attendants tell you where all the exits are in the event of an emergency. If you’ve flown a number of times you have them memorized by now. Hopefully you won’t have to use them.
If your plane has to divert to another destination due to bad weather, you will have to make alternative arrangements to continue your trip.
Today, the subject of exit strategy came up in two different meetings.
A business is a bit different from flying.
When you start you have a destination in mind (your business plan). The problem is, once you take off and start flying your business, the destination often gets adjusted on the fly. Customers, the market, technology, competition, distractions, etc. can quickly make you lose sight of the destination or change it entirely.
How do you know when you have arrived?
Ideally you want to maximize the reward for the shareholders (i.e. yourself and others). There is probably an optimum point on the growth curve to sell. The problem is, unless you can see the future, it is very difficult to spot.
For example, when you are taking off, you are climbing rapidly. If someone came along and offered you a decent sum of money, you might be tempted to turn it down. Why? Because you are growing and the growth is accelerating, waiting may bring even more money if you sell it down the road.
Or it maybe not. You may be approaching your maximum cruising altitude.
When I attended a seminar put on by BCMS Corporate, they stressed that using simple multiples (i.e. industry standard valuations) was dangerous to your wallet as owner expectations get set too low. So is going with an unsolicited offer.
The reason is simple, there is no competition and competition drives up the price. So does finding a buyer that is complementary or can generate economies of scale for your offering increases the value of your company to them.
The best bet?
Plan your exit strategy when you start the business and review it regularly as part of your strategic planning process, at least annually. Consider triggers such as:
- Timeline – X years
- Sales – A dollar amount
- A significant change in outlook
If any of your triggers occur start working on an orderly sale of your business or change the triggers.
If you get an unsolicited offer, know what price will make you take it seriously. You are always balancing risk and reward. Sometime a bird in the hand is worth two in the bush. And sometimes you would be giving away the farm.
Know your business, keep your emotions out of it (as much as you can), be prepared and have an exit plan.