Business Exit Strategy: Owners Neglect at Their Peril

InterimExecs founder Robert Jordan learned early the tremendous weight an entrepreneur must bear: “When you own the company, it’s nothing like being an employee,” he writes in exploring the sacred trust of ownership. “You might as well compare lifting up a hundred pound weight versus a feather.”

Jordan, who founded his first small business at age 26 and “hit every speed bump you could possibly think of, and then a couple more just for creativity points,” has learned a lot along the way. Among the most important lessons: while business exit planning is critical, it is usually neglected – at the owner’s and board’s peril.

Alejandro Cremades, author of Selling Your Startup: Crafting the Perfect Exit, Selling Your Business, and Everything Else Entrepreneurs Need to Know, agrees. He says that a company’s management team must add “crafting an exit strategy” to their business goals.

In this quick 10-minute overview, Jordan explores the business exit strategy choices:

Choosing the Right Exit Strategy

Common exit strategies include:

• Succession planning focused on handing the family business over to a family member
• Liquidation
• Management buyout
• Employee buyout
• Selling to a larger company or even a competitor
• An IPO, or initial public offering

Cremades, a long-time entrepreneur who has been featured on the Top 30 Under 30 lists of GQ Magazine, Entrepreneur Magazine, and Vanity Fair, has bought three companies and sold one over his career. 

He offers the following advice to business owners:

Your Best Exit Strategy is Part of the Overall Strategy

Due diligence, Identifying a potential buyer, and determining the value of your business are all important parts of selling your company. 

But the most important step should come even before you start your new business: Knowing which type of exit strategy you’ll employ. It should be a key part of the business plan. 

“Companies are not forever,” he says. “Every company is going to die eventually either by an acquisition, a bankruptcy or a merger.”

Plan the End First

Cremades founded Rock the Post in 2010 with the goal of helping entrepreneurs raise funds and gain exposure. Three years later, Cremades bought CoFoundersLab, an online and in-person network of more than 70,000 startup founders and 30,000 investors. The combined entity became Onevest. 

In 2016, Onevest bought its biggest competitor, FounderDating, increasing the number of registered entrepreneurs to more than 300,000. Two years later, he sold Onevest for millions. 

He used his experience to write his first book, The Art of Startup Fundraising. But, after doing four deals — three on the buy side and one on the sell side — he now says he should have written Selling Your Business first.

“This book is the end. And I think that with everything in life you need to start with the end and then reverse engineer the process to where you are today, and then take immediate steps in order to get to where you want to be,” he says.

Don’t Deal with Unsophisticated Investors

Often, in a do-or-die situation when cash flow has dried up, desperate business owners turn to their personal circle of friends and acquaintances for investment capital. 

And, while “you never leave cookies on the table,” if you have a choice, business owners should “always think about fundraising not as money, but as being able to surround themselves by the network that provides them with the skillsets and the resources that the company needs in order to get to the next financing cycle,” Cremades says.

“Ultimately, raising money is not about the money. It’s about being able to get whoever is giving you the money to open their networks to help get your company to the next level, whether that is by giving you access to distribution, giving you access to business development, the offshore partnerships, access to talent, access to subsequent rounds of financing, access to M&A,” he says.

You aren’t likely to get any of that from an unsophisticated investor.

Lack of Sophistication Now = Problems Later

Worse, you could end up with someone who will be problematic. 

“They’re going to be following up with you for nonsense. They’re going to be following up with you to check on their valuation. They’re going to be super unhelpful with providing you the resources that you need. They’re going to create drama and problems when the time comes to either get their signature for a subsequent round, or for a potential exit,” he says.  

For example, a business owner Cremades knows was selling a company with a business valuation that would give him a $100 million sale price. The deal was nearly scuttled by an investor who had put just $10,000 into the company.

“I always tell entrepreneurs that you need to look at this as a long-term play. The way you’re raising money today is going to impact the way that you can raise money tomorrow,” he says.

“Even if you are short on runway, getting more money from a unsophisticated player is going to be adding a Band-Aid to something that is going to require surgery down the line.”

Value the Failures Along the Way

As every truly successful person knows, failure is part of the process. 

“It’s all about swinging the bat enough times in order to just hit one,” Cremades says. “And you only need to be right once. That’s it.”

Never Give Up

A search for a new owner, a big payout and a smooth transition that makes all of the stakeholders happy is the Holy Grail of merger and acquisition deals. But it can feel like a long slog to reach that goal.

Cremades’ secret to success: He never gives up. 

“That’s the way that I always do everything in business and in life. If I believe in something and if I’m passionate about something, I will do whatever I can until I’m able to get it to that point that I envisioned. Even my wife, when I asked her out, told me no three times until she finally said yes.”

“They say, those that give up do so because they don’t know how close they are to their success.”