Every entrepreneur will recognize a time when the moment is ripe to exit the business. Maybe, it has grown beyond your control, maybe you are raking in the money and it is time to make a killing or maybe you are done with the passion and want to work on a new venture.
Of course, even thinking of an exit plan might be difficult. "This is the hardest part for most entrepreneurs; letting go of the business that they have founded, nurtured and grown over the years since they did not start with an exit plan in mind. The business is a passion, a lifestyle choice - not purely a commercial venture. The emotional attachment is often very high and it is a very hard choice," said Binod Shankar, managing director at Genesis Institute, a financial training company that specializes in corporate training. "On the other hand, many entrepreneurs are dynamic individuals who thrive on challenge and variety. To them, it makes sense to sell the business and/or give up control to a buyer who can take the company to the next level. This will free the former to invest into a new and interesting venture. Such entrepreneurs end up becoming angel investors as well."
Exit plans could comprise mergers and acquisitions (the business will merge with or be acquired by another company in the same sector or region or elsewhere) or a trade sale (sell to a related business), said Suresh Kumar, veteran banker and chairman, Values Group, which offers strategic advisory services, private capital and investment management. "The third exit plan can be via the stock markets but that could greatly depend on how the markets are performing and whether the company meets the criteria to raise public equity and list," he said.
There is a fourth option. "Remain in the company. But step aside as CEO in favor of an experienced outsider, especially, if the growth prospects are huge or you are a first generation entrepreneur and running and growing the business is not your cup of tea," noted Shankar citing the Google example. Zawya asked the experts on the top four exit points:
Before and after revenue generation: There are a number of exit points for an entrepreneur. "But it is not necessary that he or she takes an exit point," said Ihsan Jawad, founder of Zawya.com and co-founder of Honey Bee Tech Ventures, an investment company, focused on the consumer internet space. "The first exits will open up in different spaces. For instance, say the owner of Instagram and Youtube sold the companies before revenue generation. The viable product did not make a single dime but the product was very popular among the users. Or when you start to make revenue."
Making profit: The next exit point is when you start making a profit. Many entrepreneurs will take that exit since they have proved the viability of the venture, said Jawad. "When you have a viable product, it is cost-effective and you are able to make a profit is exactly the point at which many parties are prepared to buy since it is now a standalone business. The entrepreneur should actually contemplate exiting at that point," said Jawad.
Larger business: If you chose not to use the above two exit points, the next one is far away, warned Jawad. "The next challenge is to grow the business and to grow the reserves into a much larger proposition. But not all entrepreneurs are positioned for that challenge since growing the business is a different proposition to starting one," he said.
Before you peak: Sell just before you hit your peak, advised Edward Roderick, co-chairman and managing partner at Envestors MENA, a UK-based business angel network with its regional headquarter in Dubai. "That is the point at which people recognize your maximum value. If you start to flatline, then the multiple on earnings will decline. Hence, the ideal time to sell is when you have reached a good period of growth and you have left a period of two or three years of good growth for the company before you hit the peak. If you are going for refinancing via a venture capital firm, ensure that you have enough growth strategies to give them a good return for at least three to five years and give them future exit options. If an IPO is the way forward, then have a believable strategy for shareholders and investors that will give them growth for the foreseeable future."
Good strategy: The exit points are pointless if you do not have a good strategy to attract buyers in the first place. "Know your potential acquirers and define a strategy to impress and attract them," said Roderick. "If it is a trade buyer already operating in your space, make yourself a threat to them or at least, be an irritation so that they want to take you out of the business. Position yourself in a sector or geography that they cannot service or the unique ability to impinge on the performance of who they regard as their primary competitor." Surefire methods... © Zawya BusinessPulse 2013
Of course, even thinking of an exit plan might be difficult. "This is the hardest part for most entrepreneurs; letting go of the business that they have founded, nurtured and grown over the years since they did not start with an exit plan in mind. The business is a passion, a lifestyle choice - not purely a commercial venture. The emotional attachment is often very high and it is a very hard choice," said Binod Shankar, managing director at Genesis Institute, a financial training company that specializes in corporate training. "On the other hand, many entrepreneurs are dynamic individuals who thrive on challenge and variety. To them, it makes sense to sell the business and/or give up control to a buyer who can take the company to the next level. This will free the former to invest into a new and interesting venture. Such entrepreneurs end up becoming angel investors as well."
Exit plans could comprise mergers and acquisitions (the business will merge with or be acquired by another company in the same sector or region or elsewhere) or a trade sale (sell to a related business), said Suresh Kumar, veteran banker and chairman, Values Group, which offers strategic advisory services, private capital and investment management. "The third exit plan can be via the stock markets but that could greatly depend on how the markets are performing and whether the company meets the criteria to raise public equity and list," he said.
There is a fourth option. "Remain in the company. But step aside as CEO in favor of an experienced outsider, especially, if the growth prospects are huge or you are a first generation entrepreneur and running and growing the business is not your cup of tea," noted Shankar citing the Google example. Zawya asked the experts on the top four exit points:
