Think About Your Exit at the Start
The one trait that separates most entrepreneurs from others is the same one that eventually separates them from their business.
I’m not a Startup person, but I’ve worked with people who are. If you Google “traits of successful entrepreneurs,” you wouldn’t be surprised by the results: passionate, confident, driven, creative, fast learner, adaptable…I have a fair number of those, and perhaps you do too. However, if there’s one trait of the successful entrepreneur that separates them from most of us, it’s risk tolerance. If you would rank risk-tolerance on a scale of 1 to 10, I’m a 6, and most entrepreneurs are an 11.
I’ve always wanted to start a business and believe I have the drive, creativity, and confidence for it. I’ve thought long about how to cultivate that risk-tolerance. But it doesn’t work like that. There’s nothing measured or cultivated about it. I can’t say what it is for certain. It’s something in the DNA — a need for adventure, freedom, fame, or adrenaline that becomes an obsession driving them off the scale. They dismiss the possible loss or simply have nothing to lose. It swamps out any natural sense of fear or gives them the courage to overcome it. Bankers don’t want to get too close to it.
I’ve gotten to know myself over time. I’m the right person to follow an entrepreneur. I’ve acquired businesses they started. I’ve restructured them, grown them, even turned them around, and sold them. But I’ve never started one. My risk-taking is measured. The Startup person is great at the start, OK in the middle, and certainly doesn’t want to be around at the end. When the adventure, fame, adrenaline, or freedom is gone, then often, so are their passion and drive.
Interestingly, I didn’t see self-awareness in that Googled list. If you’ve created a Startup, it may seem crazy to plan for your exit at the start. Practice some self-awareness and realize upfront that there could be a getting-off point for you. You’re planning for your success, so why not think about your exit.
Continuity and Monetizing
Giving some thought to your exit will inform aspects of your business from the start because there are two particular things you’ll want to address at your departure: continuity of your business and monetizing the value you created.
A concern for continuity at your exit is easy to understand. If your business is established, then you may not only have employees that are dependent on the business, but customers and other businesses that are partnered with you can be dependent as well.
Recognize that although they may be currently dependent on your business, they aren’t in any way dependent on you. Yes, you’re concerned for their welfare, but they can take care of themselves. Your focus is on doing as much as you can to minimize disruption to the business in the event of your departure. That approach to your separation is best for everyone, including you and your business reputation.
Monetizing the value you created may be confusing, seem like wishful thinking, or even disingenuous. People often start businesses out of their passion, and later it may seem like a betrail of themselves or their employees to be thinking about cashing out. It’s not. It’s difficult to start a business and even more difficult to create one with marketable value. You’ve earned that reward if you decide to take it.
Things to Think About
So with continuity and monetization as our focus, here are some things to think about in the event of your exit:
- Hire Your Woz. Mike Wozniak may not have been the perfect complement to Steve Jobs. But the Woz was the brains to Jobs' creative brawn. Hire someone who’s your complement. With their lower risk-taking nature, they won’t be ready to leave when you are and will provide invaluable stability during your transition. In fact, finding someone with your complementary traits lets them serve as a sounding board and be the light in your blind spots.
- Don’t Treat Your Competition as the Enemy. Wanting to outdo your competition is great motivation for you and your team. But don’t make it personal. Respectfully reach out to your competition, find ways to partner on a joint opportunity, and work together to enhance your industry. Competitors are some of the most likely buyers for your business.
- Articulate Your Strategy. Most Startups are surprised to learn just how little agreement there can be within their staff about the strategy. Whether you articulate your strategy through a “purpose statement” or a 1-page business plan, a communicated strategy aligns your staff, and in a sales process, it also educates your buyers.
- Anticipate Your Organizational Structure. Most Startups believe they are too small to bother with an org chart and view it as big company bureaucracy. Everyone knows everyone else and what they do, and things get done. Besides your departure disrupting that inherent teamwork, the lack of a formal organizational structure limits growth. An org chart allows you to define the right roles, attract and retain the right talent, and impart your knowledge into the organization through the processes embodied by that structure. Your strategy is ultimately enabled within your organizational structure.
- De-risk the Business. The people who would buy your business are like me — their risk tolerance is lower. Reviewing a business’ risks plays a large part in any buyer's due diligence. As you grow, work to de-risk your business by performing your own SWOT analysis and address the weaknesses and threats.
- Reevaluate Your Legal Structure. It’s easy to have your business's value adversely affected or complicated at its sale by an improper legal structure. As your business grows, get legal and tax advice about its structure and whether it’s time to incorporate. You can get free guidance at small business organizations such as Score.
Ultimately, I don’t know enough about your business to know all the ways it may be affected by your exit. But my main point is this. Thinking about your exit now will provide continuity and ways to monetize its value at your departure. Because the chances that you will stay through all the maturity stages of your business are about the same as the chances of me changing my risk tolerance.