Exit Strategy
You may think it odd than the first chapter in the book is dedicated to a discussion of exit strategy. Interestingly, this is an illustration of an essential theme you will see again and again in this book. That theme is to always know where you are trying to go and what you are trying to do. Call it planning, thinking ahead, or just dreaming; but having some concept of what you want the future to bring is essential to business success. It is a cornerstone "small step" and should become part of your business DNA.
Whether you are an entrepreneur starting a new business or an executive taking a new job or role, considering an exit strategy as part of the initial evaluation is a smart idea. Over the course of my career, I have seen many entrepreneurs who wanted to retire or move on but had no clear way to exit their company. In some cases, there was no one trained to take over, in others, the accounting practices were so lax that the owner could not document sales and profits adequately to get a fair selling price for the company. While these problems can be fixed, it takes time to fix them and, meanwhile the owner's life is on hold. Similarly, corporate employees looking for promotions find themselves locked into jobs because they have not trained a successor or developed written procedures for the routine portions of their jobs. Some people think falsely that this is job security, but I encourage you to think of it as getting yourself stuck in a job. In some cases, managers have had to change companies when their bosses felt they were not promotable simply because there was no one to take over!
A Corporate Case
In the corporate world, consider the case of "Roger". Roger took a position as an IT director for a division within a big company. The IT department was a mess and needed some serious cleanup, which was Roger's forte. However, Roger did not want the job long term: just for the cleanup. Roger had some experience running a small company and had an MBA from a good school. In the long run, he wanted to run a division for this big company and be viewed as a general manager with IT expertise, not just an IT person. Roger discussed this with the hiring manager and other key executives during his interviews and found them receptive to the idea. So when he took the job, he knew he had to train a successor and keep reminding the executives about his goals.
Obviously, Roger needed to do the primary turnaround job; then establish processes and procedures to assure continued success for the department in the hands of the successor. Roger followed his initial strategy and was successful in getting a divisional management role in the second year he was with the company. If Roger had not planned for that in the beginning, he may have found himself stuck in an IT role. By addressing his goals as part of the hiring process and identifying the need to train a successor early on, Roger enabled his own promotion. That was his exit strategy. As he moved into the new position, he considered the exit strategy from that job and discussed his career path within the company once more with the executives who interviewed him for the new role, starting the process again and setting the stage for his next promotion. Roger could have chosen other exit strategies like seeking a new position with a vendor or competitor, starting his own business, or even just keeping the position until he reached retirement age. The point is, he took responsibility for the next step and helped make sure the direction was his choice.
Entrepreneurial Exit Strategies
Entrepreneurs have a harder time envisioning and selecting an exit strategy. Entrepreneurial companies can move through a succession of growth stages, or get deliberately or accidentally stuck at one stage. While a detailed discussion of growth stages is beyond the scope of this book, a brief discussion is worthwhile to illustrate entrepreneurial choices. Depending upon who's talking, there are three to five, or more, business growth phases. Larry Greiner, a long time professor at the University of Southern California, is probably the most recognized expert in the field. Greiner's focus is on the organizational and management issues at each of 6 stages. Bob Beale, founder of Beale International, Inc. in Denver is an expert in small business organization and growth. Beale espouses only four phases; but that is probably because his focus is on smaller businesses.
Entrepreneurial companies by definition begin as startups, usually with a founder or two doing the heavy lifting for product development and sales. This is a phase of creativity and leadership from the founders and is not particularly focused on business organization. In the next stage, companies "professionalize", adding managers. The addition of managers means the entrepreneur needs to set direction (lead) and deal with delegation and the associated management control issues. Later, the autonomy granted through delegation leads to decentralization. Later still, the company reaches a point where the individual business departments and units are (perceived as) overly decentralized and there is an effort to add coordination and accountability and to provide incentives for cooperation among the diverse business units.
As entrepreneurial businesses progress through these stages, founders have opportunities for exiting from the various roles they may play. Sometimes the exit is because the founder failed to progress to the next stage: the business fails; the founder is ousted by investors; or the founder sells the business in frustration.
Businesses build value through product innovation, customer acquisition, physical asset acquisition, and by building an organization that sustains the business. As businesses pass through the various phases of growth, value is built by the organizational development and opportunities for the entrepreneur to exit the company are presented. For example, a company moving from the entrepreneurial to professional management stage becomes more marketable simple because the organization becomes sustainable without the founder's presence. The founder could use this opportunity to exit or, alternatively, to grow into an organizational leader.
What's Your Exit Strategy?
While the entrepreneur's exit choices are infinite in degree, there are only two basic choices: stay or leave. If you stay, you want to know what role(s) you expect to assume as the company grows and changes. You need to manage that much as Roger did in the corporate world. Even if you decide to stay indefinitely, you will still want to have an exit strategy for retirement; or, for the true workaholic, semi-retirement.
If your strategy is to leave, you'll want to have a financial plan for getting your equity out of the business. You could take the company public and convert your equity into marketable shares of stock; sell privately to a competitor, family member(s), or employees for cash; or dissolve the company, selling assets to cash out. The choices depend upon your wishes tempered by the market forces and opportunities applicable to your business and industry at the time you exit. However, if you plan the exit well in advance, you can watch for the timing and opportunities that are most advantageous to you.
Regardless of the exit strategy you choose, the message is to choose it yourself and not let it be imposed upon you unsuspectingly.
