Business owners who prepare their venture for sale and keep it ready for transfer improve their return on investment. They are ready in the event of a great surprise offer or if some calamity occurs that could force a sale.
If entrepreneurs design and build their Smart Exit into their strategic plan as an ongoing learning project, the chances of success increase.
Entrepreneurs beginning new ventures are very focused upon the start-up. Ongoing business owners focus upon year-after-year revenue growth. In both cases, their minds are frequently closed to the possible conclusion of their venture.
We all create learning projects. We do it routinely. We get a new cell phone, start a new hobby, read a book or take a class in college. I propose that if business owners approached their Smart Exit and operations as a learning project, they’d find it easier to succeed in the beginning and the maturing of the business as well as at its conclusion.
Everyone knows that the closure rate of businesses is above 80% in the first few years of operations. There is a huge cost to individuals and their families who risk everything on ventures only to suffer bankruptcy and even home foreclosure. The loss from failed businesses extends to investors, employees, customers and vendors.
Creating and building a business is a complex enterprise. While much has been learned about improving business success in the last 25 years, globalization, technology and cultural change is constantly increasing business complexity. Many entrepreneurs don’t study business before launching a venture. They may hear of venture capitalists, but don’t generally learn that professional investors don’t enter ventures without a clear path out with a return on their investment to take into their next venture.
Typical entrepreneurs focus so heavily upon start-up and growth, business closure and project completion is a foreign viewpoint and one worked against, not pursued. Most small businesses are crafted and grown by two or more principals. A buy-sell agreement is typically low on the priority list: “We love each other, and we love the business, why would we need to think about buying or selling?”
Another Smart Exit element is periodically evaluating the value of the business. Business valuation is often another overlooked tool which can facilitate moving on from a venture successfully. Cash flow to debt ratios are still another tool to measure the current health of a business for you now and later for you monitoring your protege as you step away from operations. Cash flow-to-debt is a method banks frequently use to evaluate the sustainability of ventures seeking loans.
It’s only through sophisticated business education or multiple venture experiences that entrepreneurs grasp the value of beginning with the end in mind, and increasing the odds of having a satisfying experience in business rather than personal crisis.
In my experience, when a person starts a learning project, they consciously commit to being open to new perspectives. When entrepreneurs are genuinely curious, they can be more resilient to surprises and slip ups. Being curious about your customers, vendors and employees can lead to a healthy business culture. Curiosity about business dynamics and learning from others helps us to craft new ways to solve customers’ needs and our own.
Making a Smart Exit requires several significant shifts in understanding and focus to successfully build a team to operate the venture, identify a new leader to replace the founder and transfer ownership gracefully so the entrepreneur can move on to a new project. Entrepreneurs need enough courage, conviction and confidence to have the determination to start a business. At the same time open-mindedness and curiosity are required to adapt, learn and be willing to help others succeed. The business’ mission is to help its customers be successful. Specific effort to inspire employees to align their personal goals with your business goals stimulates teamwork and collaboration far exceeding any kind of external motivation.
Ongoing staff training reduces turnover, and allows individuals the opportunity to excel and demonstrate leadership potential and ability. As you work with staff to increase their capabilities you may identify a new leader to further mentor and train. Someone with special interest can become a manager, first in operations relieving you from more and more daily responsibilities. Stock option vesting and small initial stock sales can be experimented with to discover if that manager has the interest and abilities to become a minor partner. With this foundation, you can see if that manager can then learn to become “an owner.”
If you demonstrate coaching and mentoring staff with a collaborative perspective, you can help a new leader-in-training to connect with staff and explore new directions for the company they will gradually be buying from you.
In conclusion, business owners at any age or stage of their venture, are well served to approach their Smart Exit as a learning project. Like a car or house, keeping your business well maintained makes it more enjoyable to operate now, increases its value and makes it easier to transfer when that time comes.