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It’s no surprise that business owners are continuously looking for ways to achieve their aspirations by setting key goals they want to accomplish over the next five, to 10 years and beyond. And for some entrepreneurs, their goal is not just to grow and scale to six or seven figures but to ultimately prepare their company for an exit. But there are many things that need to be in place for exit-readiness, and some entrepreneurs are unsure where to start.
Of course, one of the first critical steps toward exiting is building a scalable business model that is sustainable over the long haul. But, some early-stage founders may underestimate the challenges of growing and scaling a business, and they need to be prepared to avoid some of the most common pitfalls, such as:
- Premature scaling: It’s easy to try scaling up too soon. But if you scale up too aggressively, it can be disastrous by killing your cash flow. An achievable growth plan will keep your organization healthy and strong at any growth stage.
- Resistance to change: Staying in business long enough to achieve an exit is a challenge, but if you are able to pivot quickly and add on innovations that keep your company relevant you may last.
- Securing capital: When scaling, you need to build awareness, acquire market share and establish a foothold (or dominance) in your industry. And it often can’t be done without infusions of cash and giving up some equity along the way.
- Failing to account for the customer experience: When operating a startup, it’s so tempting to focus heavily on the production side. But not considering how you deliver the product or service to the customer is a grave mistake.
Of course, these challenges can seem quite formidable for even some seasoned business owners, but they are not insurmountable. In fact, there are a number of entrepreneurs who have successfully achieved exiting status, and have done so multiple times.
One example is John Vitti, a serial entrepreneur who has successfully launched and sold three companies within the consumer space. He is now the CEO of VersusGame, which has grown significantly since launching in 2019 and has distributed more than $17 million in cash prizes to more than 9.5 million players. He advises startups that the exiting process isn’t easy.
“Building a company from the ground up is not an easy challenge to take on. I had the opportunity to build three successful businesses, so I’m no stranger to the hard work it takes. However, in spite of the grueling grit, there’s a sweet victory felt once success is reached. One piece of advice I’d like to give before you make the decision to exit is to make sure you are exiting for the right reasons and make sure your team is on board.”
Vitti goes on to say, “It’s very important to have a reason ‘why’ once you start a business, and the same holds true when you exit. Regardless of how grand things are going, when you know it’s time, that won’t matter. I exited my companies when they were doing well, and it was the best decision. My team was on board, which also added to the deciding factor. Having your team’s support is a must!”
Furthermore, Alexa D’Agostino, the CEO of Thynk Consulting, has built more than 12 companies, with five exits – the largest for $124 million. She shared, “As a successful entrepreneur, I realized early on that with the start also comes the strong possibility of an exit. Knowing this, it was important that I developed exit strategies before leaving was ever a thought. Preparation is important, and it has helped me tremendously along the way.”
She offers the following tips to any company planning for an exit:
- Grow your database before you exit.
- Establish long-term contracts with your clients.
- Keep your books clean, so that buyers can look back at years of transactions.
Additionally, Steve Mandell, an entertainment attorney who has been associated with major high-profile brands had some legal advice to share about exiting. As an attorney, he advises business owners to carefully review contracts before signing them and to do the following things to prepare for an exit:
- Get a valuation from two reputable sources. Knowing what your business is worth puts you in a position to negotiate.
- Consider the structure of the sale. There are tax implications for different structures.
- If you plan on staying in business, avoid overly restrictive noncompetition agreements.
Every business owner or startup founder dreams that their company will become a unicorn, but this is a rarity. Even a less-profitable exit requires diligence, patience and effort.
Moreover, it requires a strong understanding of the common pitfalls for startups while scaling and growing and a solid plan that prepares the company for an exit. Taking the advice of these successful business owners is one way to ensure that both you and your company will be ready when exiting time comes.