At first consideration it seems to be counter intuitive. Formulating a plan to exit a new start-up business before the start-up of the new business? For the true entrepreneur, the experience of a new start-up is exciting, exhilarating and even intoxicating. For most, it’s what they do, who they are and is much more a result of DNA than MBA. Why, at a time when the focus is on planning the complexities of development and launch, should we consider a strategy for selling out or diluting our future participation? Why should we spend time and effort now on the end game?
A failure to see it coming. – Making assumptions about future unknowns is a common element of planning and forecasting. A well-developed and implemented business strategy is a key to determining success or failure of even the most modest of visions. In the event that original assumptions fail to generate the anticipated outcome, the process of getting out and successfully surviving for another opportunity will be measured by a predetermined plan that includes a contingency for exiting the situation. An effective exit strategy should be planned for every positive and negative contingency.
Making a transition. – The operational skill sets required to initiate and launch a new venture is markedly different than those required to successfully guide and maintain a business through subsequent stages in the businesses life-cycle. Entrepreneurs love the experience of the start. But the job requirements of management change overtime. Attracting talent or investors with specific skills and experience needed to move the operation into the next segment is critical to making a successful transition to the next stage in the cycle. Often it will be necessary for the dreamer, the creator or the artist to give-up all or part of their responsibilities or participation in day-to-day management in order to attract the new talent. Preplanning for this inevitability can assure a more successful, efficient and timely transition for the venture.
Where are you going anyway? – A map without a destination is not a plan for a successful journey. It’s a plan to wander around. A business which is wandering around in a competitive and dynamic business environment is likely to arrive at failure, not success. A transition that involves selling to new investors through an IPO, selling to existing employees or stakeholders, preserving the organization as a family heirloom or taking an IPO path requires various routes to achievement, each unique but each requiring decisions to be made from the outset of the new start up. For emerging businesses it is important to link the marketing strategy and the exit strategy in one cohesive plan.
Alignment of business strategy is critical to investors. – Aligning the exit plan with the overall business development plan is significant because the choice of exit plan can influence business development choices from the outset. The desirability of each choice is dependent on the initial form of ownership, the original intent of the business, market conditions and company performance. The exit strategy is also very important to investors. “An exit strategy isn’t just relevant, it’s essential. One of the biggest worries of angel investors is ending up with a minority share in a company that doesn’t want to exit. In that scenario you can end up with your money stuck forever as stock that will never be traded, never be liquid, and therefore will never be a return on investment,” said Tim Barry, Founder of Palo Alto Software. “What you want is as much evidence as possible that you understand the importance of the exit, the factors that make the exit more or less likely, and the vital link between the exit and the investors’ making a return on their money.”
The answer can be quite simple. The exit is, in reality, the goal. Aligning an exit strategy cohesively with an overall business and marketing strategy is critical to achieving the ultimate objective. The very best reason for an exit strategy “is to plan how to optimize a good situation, rather than get out of a bad one.” An exit strategy allows a startup to focus efforts on things that make it more appealing and compelling to future acquisition.
“When working with start-up companies on business plans and growth strategies, we always start by asking what the business looks like today; what the goal is for the business in 3 years; and what is the exit strategy,” comments Julie Gareleck, Junction Creative. “Our clients always seemed surprised that we ask about the exit at the beginning. We’ve successfully navigating our clients from Start Up to Exit – and achieved the very goals and objectives we set at the very beginning.”
As entrepreneurs, it’s ok to love the process and relish in the rise of success. However, never lose sight of the exit.
To learn more about Junction’s success stories, contact Julie@junction-creative.com!