What Business Owners Get Wrong About Exit Strategies
Exit strategy insights for purpose-driven leaders.
No matter your age or stage of business, now is the time to start thinking about your exit. It may seem like something you can safely wait on and deal with in the future, but that future will come faster than you imagine, and the decisions you make today will affect the options you have when the time arrives. And it will arrive. Every owner exits. It’s one of the few inevitabilities in business. Yet, if you’re like the vast majority of owners, you devote almost all your time to building a successful business without paying much attention to the final chapter.
But have you thought about whether, for example, you want your business to live and remain independent beyond you? If you do, there are issues of financing and management you should be acutely aware of from an early stage of the company or you simply won’t have the opportunity to do what you want later on.
In writing my book Finish Big: How Great Entrepreneurs Exit Their Company On Top, I realized how complex this topic really is — and how little attention entrepreneurs typically give to planning ahead for what can be a sensitive, stressful process. For many, especially members of the Small Giants Community, building a company is their life’s work. When you fail to plan for your exit, you take the enormous risk that you’ll eventually walk away unsatisfied with and unhappy about how it all turned out.
So what is the difference between people who wind up happy after their exit, and those who are burdened with deep regrets? What characteristics do good exits share, and what can we learn from them? Keep reading for the exit strategy insights purpose-driven leaders should be aware of.
When you fail to plan for your exit, you take the enormous risk that you’ll eventually walk away unsatisfied with and unhappy about how it all turned out.
The Characteristics of a "Good" Exit
If you want to understand the difference between good and bad exits, you must first identify the factors that allow owners to be happy at the end of the process. After interviewing dozens of former owners who had left their companies, I could see that the happiest among them had four — or, in some cases, five — different responses to the experiences they’d been through:
- They felt the exit process had been fair and that they’d been appropriately rewarded for what they had put into building the company.
- They had a sense of accomplishment and could look back with pride at what their companies had contributed to the world and how they’d enhanced the lives of others.
- They were at peace with what had happened to those who had accompanied them on the journey.
- They had found something to do after leaving that gave them a new identity and sense of purpose and that they could pursue with the same energy and enthusiasm they’d put into building their businesses.
- For some, but not all, it was also important that their former company was continuing to thrive, proving that they had successfully managed the most difficult transition any business can face, namely, the transfer of leadership and ownership.
On the other hand, all it took to wind up unhappy and full of regrets — that is, to have a “bad” exit — was to miss any one of those characteristics.
How to Prepare for a Successful Exit
So what can entrepreneurs start doing now to prepare for a successful exit? What do owners who have good exits actually do differently from those who have bad exits? I was able to identify seven key factors.
Know who you are, what you want out of business, and why.
This should be a familiar refrain for entrepreneurs in the Small Giants Community. But some people spend their whole lives trying to figure it out, and it may take a bad experience to make you realize what you wanted all along. It’s more difficult to make decisions about your eventual exit if you haven’t figured out what it is you want from this journey. In that case, you’ll be forced to answer this question as soon as you leave.
Build a sellable company.
By “sellable,” I don’t simply mean a company it’s possible to find a buyer for. To have a good exit, you need to be able to sell to whom you want, when you want, for an amount you consider fair. That’s fundamentally different from what’s called a “forced” sale — that is, a sale you are forced to make because you can’t stay in business if you don’t. That can happen for a variety of reasons. Maybe you come down with a terminal disease. Maybe you are running out of cash and have no other sources you can turn to. Forced sales are far too common in entrepreneur exit stories, and a lack of preparation is almost always to blame.
To have a good exit, you need to be able to sell to whom you want, when you want, for an amount you consider fair.
Give yourself plenty of time.
A good exit takes years to execute, especially if protecting your company’s culture is a priority. Many owners view their exits as an event, when it’s really a phase of the business. So much goes into preparing a company for a sale, especially if you need a successor to run the business. Nearly everyone makes a mistake the first time they’re choosing a new CEO, so you should give yourself enough time to fail on your first try.
Get the right kind of advice, including advice from people who have been through an exit themselves.
You’ll need help from a variety of experts to have a successful exit, including people with legal, accounting, insurance, and financial planning expertise. But it’s wise to seek counsel as well from erstwhile owners who have had their own exits. You can do that, for example, by getting involved with organizations that sponsor exit roundtables of owners and former owners. For the specialists, remember, the “exit” is over then there’s a deal. For the owner at that point, there’s still a whole other stage of the exit to go through, namely, the transition from being the owner to doing whatever comes next. It helps to be guided by people who have faced that challenge themselves.
Think about what, if anything, you and your company owe to the other people who’ve helped you build it, especially employees and managers.
The sale of your company will deeply impact their lives. In order to have peace of mind after your sale, consider whatever responsibilities you have to them. Different owners will come to different conclusions. What’s important is that you think it through and reach a conclusion while you can. Once the deal is done, there’s no going back.
Do as much due diligence on potential buyers as they will do on you.
It’s important to know the real reasons buyers want to own your company — and they may not tell you. If there’s competition to do the acquisition, would-be buyers will be selling themselves. They will tell you what they think you want to hear, and they may not be completely honest. But if you don’t understand buyers’ true motivations, you can’t anticipate what they will do after the deal closes. At that point you will have no ability to stop them.
The owners who have the happiest exits either know in advance what they’re going to do after they leave or figure it out fairly soon afterwards.
Figure out what you are going to do after you leave.
Many business owners don’t realize everything they get out of running a business until it’s gone. Your company gives you a sense of identity and purpose, and a roadmap for what to do next. It puts structure into your life and provides you with a tribe of co-workers you see everyday. When you suddenly don’t have any of those things anymore, you may feel lost and confused. The owners who have the happiest exits either know in advance what they’re going to do after they leave or figure it out fairly soon afterwards. Many decide to spend their time helping other business leaders navigate their own exits.
Small Giants are people who have chosen to build a certain type of company: your priorities are different, and you want more out of a sale than the maximum amount of money. The people who make up your business are some of the most important people to you in the world, and your eventual exit will deeply impact them. You can’t avoid it, so it’s best to prepare for it. Great entrepreneurs who finish on top don’t do it on their own — my advice is to look around the Small Giants Community and find role models who have been through it themselves.