What’s Your Exit Strategy?
If you’re a startup founder, your business is your baby. You spend years investing in it, nurturing it, carefully selecting its caretakers, and working endlessly to make sure it thrives. But, at some point it grows up and needs independence in order to get to the next level. Of course, the relationship with your venture never ends entirely –It simply changes due to the startup’s natural maturation process. As entrepreneurs, we crave the excitement of starting new businesses, coming up with ideas, and solving much of the early stage conundrums. Therefore, as your business matures, it’s often best for both parties if you make an exit as it allows for the startup to grow while giving you the opportunity to get started on your next big endeavor.
Despite the many benefits of selling, knowing the right time and the right approach for your exit is not always clear. So plan accordingly by considering the following tips to help you move toward your next big adventure:
Timing is everything
Generally, the beginning stages of a startup can be unpredictable, but exciting. This is the moment in which you make important decisions for the company’s direction, allocate funding, and launch innovative campaigns. As you continue to grow and become stable, the fast-paced progress of your startup begins to come to a plateau. At the same time however, your investors expect further expansion as well as return on their investment.
When it becomes obvious that you lack the resources to take the next steps, exiting can be a great way to come up with capital and resources to take your business to the next level. While it may have been rewarding to be on top, when you can’t envision further growth in the company without using up your current resources, it may be time to consider alternatives.
The benefits of making an exit include greater resources, significant income, and often a better name for your business. For this reason, if you see that you are coming to the inevitable plateau, it may be time to move on, and let your venture mature independently.
The Right Way to Exit
Just as your startup has its own unique personality, there is also no one-size fits all strategy for making an exit. Therefore, when planning your exit strategy, you have to take into consideration your industry, the specific conditions relevant to your business, and analyze your reasons for exiting to see which approach best suits you.
The main exit strategies are as follows:
IPO (Initial Public Offering)
IPO’s are the traditional exit method of choice for many startups. This particular strategy involves selling shares of your company to the general public. one enticing benefit of going public is the substantial cash you can make as well as the publicity that comes as a result. In addition, because you can generate more stock options as a publicly traded company, you can give your staff the opportunity to own shares, resulting in attracting more qualified, established employees.
While your investors may be all for IPO’s due to the fact that they will easily make back their investment, unless you have someone on board with experience making money from going public, you risk losing much of the ownership of your company. So proceed with caution in order to get ideal results.
Merger and Acquisition
Mergers and acquisitions are a great exit option as they allow you to join forces with similar companies while increasing revenue and resources. In addition as a result of merging, you often acquire employees with various new skills which can help provide new features and make your product even better. All of these new assets have the potential to increase your popularity and profits.
Acquisitions are an extremely popular exit strategy due to the fact that they give you a lot of control over the sale as well as the freedom to set your price high–often even higher than you’re worth. With acquisitions you set your own sales strategy under your own conditions. But beware: If you and the other participating organization are a poor fit, it can cause a war over assets and vision. So make sure you both have a similar concept in mind before going this route.
Cash Cow
If your business is extremely stable, making it your cash cow might be your most ideal option. You keep the business open, while employing a qualified new CEO to run the business for you. This way, you don’t have to burden yourself with the everyday worries of running the startup, and you have someone new to put their own fresh ideas into your business.
Best of all, you can easily pay your investors, collect a generous income, and move on to create a new venture.
Sell to someone you trust
When you are passionate about your business, there’s a good chance someone else is as well. If you’re looking to go the selling route, think of individuals with great business sense that bring something new to the table such as new skills, greater resources, or a better understanding of a relevant industry. The individual can be an employee, friend, or even an acquaintance–the most important thing is not who they are, but what they can do. By selling them the business, they may be able to bring it to a level that you never could have on your own.
Another great option is to keep it in the family, giving it to your children to run. However, in order for that strategy to be successful, make sure your children are able to compromise, and share fairly. After all your hard work, its not worth it to see your business end in a family feud. In addition, make sure you’re buttoned up in terms of taxes, legal liabilities, and finances.Don’t ruin a relationship with your friend or family by selling them a burden.
As you grow more and more attached to your startup, making an exit can be a difficult decision to make. However, just as sending your child to college gave them tremendous wisdom and skills, so too can making an exit help your business succeed in ways you never thought possible. Follow your instincts, use your keen business sense, and develop a practical exit strategy that will give you all the financial benefits without the burden while allowing your venture to achieve new heights.
