I was reading an article this morning about the "Rule of Thumb" to have your exit planned on the day you start your business. This might surprise you that I would be reading about the exact work that we do for our clients, but I'm sure that it probably does not.
When I left college I only knew my future as far as my next job and I certainly did not image I would be starting a couple of companies years down the road. A couple of my advisors told me when I left college to make sure that my job fit my personality which was another "Rule of Thumb". I remember thinking to myself, "yeah that's nice but I have to make money" and I could only think as far as getting that first big paycheck. It was only twelve years later that I could get the fog out of my head from chasing a paycheck and realize that the "Rule of Thumb of job personality" was correct.
And although I agree with the exit planned in the beginning theory it is not always what faces us first in founding a company. Most startups have very limited cash and often are started because the owner is just looking for a way to generate some income to live on. I've had owners of a company tell me that they would never have started the company except they were forced to figure out something after the recent layoffs at work. Some mentioned they just couldn't take it from their boss anymore.
Don't misunderstand me, because I'm not indicating this is the best method to start a company. Rather that sometimes with little cash and very little time to generate income to pay the bills most startup owners would be hard pressed to spend the time thinking about their exit. Many companies are just asking the question "Will I have the option for an exit?”
Rule of Thumbs are often very helpful to keep in mind but not always practical to implement early and often can only be understood fully after we've messed up. Hindsight allows the brain to make that "aha moment" that recognizes the "Rule of Thumb". But if you want to avoid the self-discovery mistakes and avoid driving with a rear view mirror then I would suggest you find a mentor or advisor who has made lots of mistakes and/or seen many more. It is only by listening to these advisors that you possibly can avoid some of the same mistakes.
I personally have several mentors that have steered me around very difficult potholes and yet I still find myself sometimes driving forwards by looking in the rear view mirror. Mentors and advisors cannot always prevent us from driving with the rear view mirror but they can be a passenger who says "Hey!!! Stop it!!"
To be continued....
If you are reading this and have a successful and profitable company I probably do not have reiterate what you have experienced or the many articles and research that describe how hard it is to get to this point in your life.
But what I do have to reiterate is how you got to this point. Like many of us who started a company at some point in the past we had a blurry vision of what could be a possible successful company. Now you may have drawn out a precise picture of the business, such as the picture above, calculating each angle and dimension with a lot of research or you may have just spent hours envisioning the picture in your mind late at night.
Possible next, you scrounged for every dime possible and used the money to buy your first equipment or to lease that first office. Or maybe you were lucky and inherited enough money to fund the first step. Whichever it was, you probably were nervous, anxious and excited all at the same time.
Nobody told you to risk your financial savings, possible bankruptcy embarrassment and putting up with all individuals telling you would never make it. And if you were married that your spouse might ask you multiple times a week “Can you tell me why again?”
Do you remember how agonizing it was to get that first client or customer and how that only continued? But somehow in spite of recessions, angry clients (because your new employee turned out to be a flop), or the laws changing, you found a way to hang on and survive. Or maybe it was that first time you were notified of an audit by the friendly IRS that shot panic through your mind and then remembering someone in the past saying you should buy a false tooth with cyanide to avoid torture. But it turned out that you did mostly right and only had to make some changes and pay up the differences. Of course you quickly fired your accountant and eventually found one that had more talent.
Then came along your first management employee, oh man, did you screw that up royally. Who would have thought that guy, with such a great Harvard like resume, could piss off so many clients that fast. And only after he was fired and gone did you discover that you had three vendors you were paying each month, but for some reason no one can track them down now.
Or how about that time your partner got his first divorce? Thank God you happen to run into that lawyer a few years previous and he straitened up your documents. Because, had you not done that work you’d be staring at the butt ugliest prima donna business partner ever. So you missed that train wreck, but you certainly felt the passing concussion of wind and noise sweeping past your head. But hey, your partner now has that new special someone coming around a lot and you’re way more prepared this time, right?
Your business is now finished, beautiful and you’ve been driving it for years now. Now all of your kids are out of the house, some are in college and one has even tied the knot. You might even be a grandparent in the coming year. “How did I get here so fast?” you’re asking yourself. At the same time you are constantly having business meetings and occasionally travel for a client meeting or conference. Still you are looking to grow the company further with possible acquisitions looming on the horizon.
Following on the heels of those acquisitions you finally have a management team you can trust that allow you to travel the world with your wife for a month at a time. You built that vehicle in the plans and upgraded it into something very different from your first dream. Such as the vehicles below. However there is not much left to do but constantly tweak this and that. Life is still challenging but one day you start to realize that you and your company are not the same entity.
At first this is a confusing thought, “How is this company not me?” “Without me there would be no company?” But just like your car takes you everywhere and cannot go anywhere without your instructions you realize it’s time to find another funner (yes I said funner) vehicle and adventure. But first you must lay your hands on the time tested vehicle and thank God that it allowed you to fund your family’s adventures, kids college education, freedom to make your own way, built you stronger & smarter and has now allowed you the opportunity to use the value you’ve built to fund the next vehicle and adventures. It is then and only then that you realize there is a life beyond your company. What will be your next vehicle and adventure?
Sometimes just listing out the statistics of an issue or issues helps put a difficult decision into better perspective. Owners often do not understand that they can have a profitable business without the structure that buyers often require. And if you do not have what buyers want then you do not have a business to sell.
Exit planning is the process to determine if your business has the right structure. If it is determined there are flaws in the structure exit planning identifies how to change the structure to make it more salable. The goal is to make it look like what buyers want to see and increase the probabilities of closing the transaction (see below stats for why this is important).
Approximately 76% of owners plan to transition over the next 10 years (representing approx. 4.5 million businesses)
49% have no transition plan
More than 70% of businesses that are put on the market do not sell
In fact, according to a recent survey by Citizens Commercial Bank of more than 450 middle market business owners and decision makers, supplemented by a series of in-depth interviews, “nearly 70 percent of business owners say their expected retirement date will significantly impact when they decide to sell their company.”
71% of small and mid-sized enterprise owners plan to exit their businesses within the next ten years, strongly highlighting the growing importance of enhancing business value. However, the challenge is that few organizations genuinely understand what actions they must take to achieve this goal...."– Deloitte & Touche –
Over 70% of 12,000,000 Baby Boomers' businesses are likely to change hands over the next 5-12 years
With Millennials (currently ages 16-34) being the next big working population the gap in experience presents a difficulty in transition from Baby Boomers to Millennials.
Call John Hamel at 720-519-6073 if you would like to discuss this blog.
Selling a business to a third-party without any emotional attachments to clients, community or employees would make it easier and faster to sell, but who builds a successful business like that?
I find that when many business owners first start their business they imagine selling their business someday for a substantial dollar figure. But many years later after they have gone through many painstaking hardships and relied on relationships with employees, partners, clients and the community that have made it possible to survive it produces emotional attachments that also hold a value.
Now as you face exiting your business do you now disregard all of those emotional attachments for just a dollar figure regardless of the impact to the longevity of the business, employees and the community? Or do you spend the necessary time planning to support what you've built, sustain your legacy, and still enjoy a comfortable retirement?
Only you, the business owner, can really answer that question for yourself. I find many business owners struggle quite a bit with the emotional attachments surrounding their exit from the business. But you know that eventually it must be answered in one of two different ways.
The first way is to not plan and let your own mortality determine the results. Often this leads to complete destruction of company value, disruption to employees lifestyles, a negative economic impact to the community and destruction to the lifestyle your family has become accustomed to live.
The second way is to choose to plan ahead by putting things into place that will control the direction of your company into a legacy you will be proud about. You will also feel good knowing that you've secured the emotional attachments you've created with your employees, clients and community.
Do you want to leave your company on a path for success by planning ahead or do you hope for the best and let chance circumstances determine it for you? The choice is always yours.
If you are struggling with how to go about developing a plan or looking for more insight, please contact us at email@example.com. We are always ready to answer or research any questions you might have.
If you are one of the lucky 24 percent of startups to survive you are faced with the task of continuing your success till the day you exit. But now that your business has been a success the energy required to think about or learn an exit strategy may be a large part of ignoring the subject through procrastination. And like many owners before you, thinking about exiting the business comes with a series of tough questions such as, "Where, when, why and how do I leave what I've created." Answering these questions may make you feel very uncomfortable, because the questions may bring to the surface thoughts of your mortality or you partner(s) mortality. And frankly I do not find that anybody really wants to focus on that for very long time. Or it maybe that you're still having the time of your life running your company and the thought of quitting is just unthinkable. .
Last March, here in Colorado, I went skiing with a friend of mine at Copper Mountain. Mind you, I'm an average skier and very aware of this fact. My friend is a much better skier. Since it had been sometime since I had last skied we started on the greens (for those of you who do not ski, greens are the easy slopes) and quickly progressed to the blues (medium skill slopes). At first I felt a little uncomfortable but knew this would pass with more practice and it sort of did. Toward the end of the day I was coming to the realization that I was not in the shape I should be to continue, but I felt I still had enough for a couple more runs. It was during this next run that I soon realized that I could no longer take the falls as gracefully as I had done when I was in my 20's or 30's.
Seeing my friend waiting for me on the slop I went to stop and my tired arms let my pole plant in front of my skies creating a perfect pendulum for my upper body weight to slam into the ground and break four ribs. Then I learned the following lessons. First, being shuttled down the mountain by the ski patrol meant feeling every bump like knifes being thrust into my chest and wishing to God that runs were shorter. Second, that spending the next two and a half weeks sleeping upright in bed meant thanking God for two hours of sleep a night. Thirdly, inconveniencing my wife and kids with lack of mobility and every groan possible was extremely humbling. Fourthly, learning that sneezing with broken ribs means that you experience the feeling of your whole body exploding and then knowing when I was about to sneeze what was to follow.
Even though I thought I was being cautious with my skiing, something still happened that cost me quite a bit of discomfort immediately and for months after. It's how we deal with those uncomfortable thoughts while answering tough questions that may give us either a good result (tough because often we don't always see what could have happened) or a negative result (from where we clearly see a better result that could have happened).
Whatever the reason is, not answering the questions and/or writing them down often is a missed opportunity to further shape how your life will play out or, in the case of the unthinkable, the ability provide more certainty for those you care about.
Hopefully the future of this blog will not only provide you with helpful guidance but also with tough questions that stimulate you past the discomfort and allow you to provide your own answers and an exit strategy.
John Hamel is the Managing Member of Austec Business Transitions, LLC. helping businesses optimize value relative to exiting their company.