Why you should plan for exit
How to void creating a venture with no enduring value
by Elena Bondareva
We have been fielding a lot of exit questions lately. Having helped many ventures exit and many more to plan for it, I invite you to think about exit now, regardless of your venture’s stage.
As always for me, this applies to all ventures: commercial, non-profit, and government.
What is exit?
Exit refers to getting out of your venture. The most common exits are sale (incl. buy-out by business partner(s) as well as mergers and acquisitions), Initial Public Offering (IPO), staff buy-out (ESOP), and dissolution. In future articles, I will explore what these mean for impact-focused ventures.
Why plan for exit?
Starting with the end in mind is accepted good practice. Therefore, it would be wise to run your venture considering how you want that experience to end.
While there will always be life-long and even intergenerational businesses – the backbone of our society – these are rare exceptions. If you are reading this, you are probably more adventurous than that.
Even if you can’t imagine doing anything else, consider the longevity of your other “loves” in life. Are you still with your first love? Still living in the first place you chose eating the same thing for breakfast?
If not, that’s alright. Accept that you may change your mind.
Even if you don’t, your venture will most likely change. I have yet to meet a successful entrepreneur who feels the same about running their venture as they did about getting it off the ground. Many dislike, some even resent much of what their role has become. Success – with its growing payroll, supply chains, staff churn, asset and licenses maintenance – is often to blame. It tends to push the entrepreneur deeper into operations and further away from what ignited their passion in the first place.
You may also know – or discover – that you, like me, prefer starting new things more than running them long-term.
Also, if you take investor money (incl. impact investments), you may not have a choice but to exit.
All these paths lead us to this: an exit strategy is important. Even if it feels like cheating and even if you don’t think you will ever use it.
What happens if you don’t plan for exit?
Naiveté is never a good business strategy. With exit, however, denial of the most likely scenario – that you will want out of this venture at some point - can turn out to be both costly and heartbreaking.
If you don’t know where you are going, you are unlikely to get there.
If you take investor money, pressure can turn into anger if investors consider anything you did, or failed to do, has compromised their chances for a timely exit.
What most people miss is that without an exit strategy, all the investment of time, money, and goodwill may not be an investment at all.
Exit planning forces the question, how valuable is my venture to anyone other than me? In other words, exit planning is a vital lens for creating objective worth that can be liquidated. Without it, you may be building a worthless asset. I am using “worthless” in its literal economic meaning here, but it is a hard thing to accept the possibility that your sweat, blood, and tears may have left you with two bad choices: to be trapped in a venture nobody else wants or to walk away empty-handed.
Let me be clear: your level of wealth may remove this concern altogether. Alternatively, you may be content getting nothing back as long as you enjoy it while it lasts; like a hobby. However, most entrepreneurs do expect to build wealth. Furthermore, the ability of impact ventures to endure beyond their founders tends to determine their ultimate impact. Exceptions aside, let’s return to why exit planning helps create venture value.
Our ventures grow around the idiosyncrasies of both the people and the circumstances that shape them. Considering this, think of yours as a home you are building while also occupying.
You may forgo the kitchen for a four-car garage. You may build your home around an elaborate two-story birdcage. Or your layout may be utterly determined by the practicality of construction, not by ultimate usability. The only thing that matters is whether it all works for you. Until you try to sell your home, of course.
Ever wonder why suburban architecture is so boring? It is not because those 3-bed-2.5-bath off-white layouts truly reflect the desires of so many owners; it is because such a house is more likely to sell quickly, and with a return.
You can extend the analogy further. Most people do not want to change their home in a way that drops its market value. In fact, they will often update kitchens and bathrooms and even stage their homes to help potential buyers imagine themselves being happy there.
I wish more people thought about the exit value of their ventures the way they do about real estate. I’ll keep working on it!
Let me know if you enjoyed this, share with other change-makers, and stay tuned for:
· Why must non-profits plan for exit?
· Exit options for impact ventures
· What is in an exit strategy – and why it feels so personal
· Your venture is your “baby”; how do you prepare to leave it?
In the meantime, consider this:
· Can any number of “buyers” imagine themselves happy in your venture?
· Are your planned modifications likely to increase or decrease that number? To increase or decrease the “price” it can command?
· Who would you like to own your venture after you?
· What would they find valuable?