012: Determining Your Exit Strategy

In this episode, we talk about developing an exit strategy for your business and why it is important.

Our lead-off quotes:

The end of a matter is better than its beginning, and patience is better than pride. - Ecclesiastes 7:8 (NIV)

I make known the end from the beginning, from ancient times, what is still to come. I say, 'My purpose will stand, and I will do all that I please. - Isaiah 46:10 (NIV)

Exit Strategies to consider:

1.    Lifestyle Company - where there is no planned exit strategy
2.    Planned Liquidation
3.    Mergers and Acquisitions
4.    Initial Public Offering (IPO)
5.    Sale to a Friendly Buyer

TRANSCRIPTION

Hello and welcome to the IS MY BRAND PROTECTED? podcast. I am Aurelia Mitchell Durant your host for today and this episode we will talk about developing an exit strategy for your business and why it is important. Today's lead off quotes are from the New International Version of the Bible. Ecclesiastes 7 verse 8 the end of a matter is better than it's beginning and patience is better than pride. Also from Isaiah 46 Verse 10 I make known the end from the beginning from ancient times. What is still to come. I say My purpose will stand and I will do all that I please. Having the end in mind allows you to adequately plan for the future. This holds true in life and in business. From a legal vantage point knowing where you want to end up is important in planning your formation and brand protection strategies. We will discuss forms of business incarnation in the future but I will add here that it is best to know your exit strategy before you decide whether an LLC or other form of business is adequate. Entrepreneurs thrive on the adrenalin associated with starting a new business but planning can help you to stay on course when the excitement has waned. When the glitter is gone decisions are cumulative. Now there is an approach called Building a lifestyle company where the end goal is that there is no end goal.

You essentially use all the business revenue with no thought to the performance of the company. This is the Live for today model. Don't worry about the future. Here survival and not monetization is the goal. There are a multitude of downsides to this approach such as the need for a long-term planning for your future because you do have to still consider your future even if you live for today and tax implications. Planned liquidation is another option. This is where your plan is to close up shop and sell the assets. This is a viable option but your intellectual property may be caught up in the assets. The downside here is that you will only realize the market value of the assets if you have shareholders they may be less than pleased. Another option is mergers and or acquisitions. This is a popular option with tech sector entrepreneurs. This is where they build a product or service with the goal in mind to be bought by a larger company are the plan is to merge with a bigger company to create an even bigger company. This requires you to build your company so that it is attractive to larger companies or to a company seeking a merger in terms of valuation you are seeking an arrangement where the acquirer or the merger partner values your company beyond its market value which requires some real strategy.

Sounds good right. Who wouldn't want their company we acquired for more than the market value. But it's not that simple. Mergers and acquisitions are met with company culture clashes and they can be a bit messy. Another option is the initial public offering or IPO IPO used to be the preferred exit strategy. But the IPO rate has been declining for years. Additionally, there are regulatory hurdles like the brain's Oxley and underwriting challenges that may be too extreme for startup stock values are likely to increase but it may not be that easy to do that if you have outside investors. There also may be additional fees here the LLC form a business probably won't work and you'll probably have to reorganize before the IPO. Another option is to sell to a friendly buyer. Here you would not have the same need for due diligence as a friendly buyer might be a family member or a close friend. The downside is managing the expectations of the buyer who you have a prior relationship with. You wouldn't want a bad business deal to make things tight on Thanksgiving. Our mess up a good friendship. The takeaway is that proper business planning would go a long way in all stages of your business adventure from the start middle and end the end. Take some time to get clear on where you would like to end up. From.

This discussion reminds me of the moonshot methodology. Are you familiar with that? That is where Google's co-founder Larry Page talked about a methodology that a use for Goog