The goal of many startup entrepreneurs is to eventually exit their company at a point where they can secure a great payout from themselves and investors. Sounds harsh and calculated, doesn’t it? Well, it is a business, so get used to it.
Setting up and expanding your business can be a real struggle. Ultimately there will come a time when you want a business to end and you have to make important decisions regarding that. That’s where the market exit strategy comes in.
Read how to get your startup acquired
What is an exit strategy?
Everything in businesses has a life-cycle; they have a starting point, growth stage, maturation point and ultimately an end. The exit strategy is an important part of the business plan to find out where you as an entrepreneur should leave the company if that’s your goal. To avoid costly mistakes and limited options in the future, many entrepreneurs often plan towards the exit strategy from the beginning.
It is actually quite a naive expectation to start a business thinking you’ll never leave. Not everyone is Bill Gates or someone like that. there are many reasons, which include:
- Market volatility or uncertainty
- Decreasing profit
- More competition
- A change in your personal goals
- Investor or customer issues
Ultimately you can leave for any reason, but it is almost inevitable.
By exiting intelligently, you can maximize the return for shareholders and investors and hopefully also leave your business in the hands of people whom you trust.
Where did Uber go and what does this mean for Southeast Asia?
How to exit your business?
An entrepreneur should start planning their exit strategy way in advance to ensure a successful transition for all parties. This often revolves around the valuation of the business. This is why most founders plan their exit strategy in your initial business plan.
Here are few common ways to exit your business.
Sell it outright
Selling your business is often the easiest and most convenient way to exit your business. However, this doesn’t mean it is easy, especially since this involves brokers, lawyers and a lot of paperwork. Often, it is best to sell when the going is good because this shows consumer demand and potential in your business. However, as you have to expand, it causes new issues and introduces new risk.
In fact, your current employees or management team might be interested in buying you out and this can be a great way to transition out of your business.
Mergers and Acquisition
This refers to merging with a similar company or being acquired by a former competitor in order to consolidate your team, technology or customers under a single brand. This is how a lot of startups work and similar to how Grab acquired Uber’s Southeast Asia business.
This is a long drawn out process most of the time but often much larger business acquire their competition in order to eliminate potential threats down the line. That’s often the goal for a lot of startups who enter specific industries, they look at getting acquired by bigger companies.
Initial Public Offering (IPO)
This exit strategy might not be suitable for small businesses but it is a great way to exit at the highest valuation. This essentially is putting up your business for sale to the public through the stock exchange.
Out of all options, this one requires the most amount of effort, time, money and having a business at the best conditions. Often IPOs fail due to poor planning and business growth prior to the offering.
Whichever exit strategy you choose, you need to have a strong plan in place from the beginning. Put aside emotion and look at things rationally so you can maximise your returns for yourself, team and investors.