The truth about exits

Selling your business is an exciting prospect, but all exits are not created equal.

It’s not uncommon to see headlines that tout acquisitions as an exciting end to an exciting journey, but how many of these represent the best possible outcome for the founder of the business?

The reasons people sell vary considerably, and the trick is making sure you sell for the right reasons. The most important thing to remember if you’re thinking of selling your business is to make sure you’re 100 percent ready to move on.

EXIT, STAGE RIGHT!

Leaving a job can be stressful at the best of times, and when you add letting go of a business to the mix, things can get very overwhelming very quickly.

So why do people sell their businesses?

There are many reasons people choose to move on, but the most common reasons, according to Fair Market Valuations and Gaebler.com, may surprise you.

Both sources say the main reason people sell their businesses is because of personal exhaustion. Owners become fatigued or burnt out running themselves ragged when businesses are highly dependent on them, or conversely become bored when the monotony of the “daily grind” sinks in.

Business struggles, increasing competition and medical or family problems also rate highly on both lists.

These days mergers, buyouts and acquisitions are part and parcel of the business world, and the draw to take up an offer can be too tempting to pass by.

Not a week goes by that we don’t read about some hot tech startup being acquired by some equally hot tech giant for squillions of dollars, but even in the world of hot tech startups and billion dollar acquisitions, the Signal vs. Noise blog “Exit Interview” series shows us that all that glitters is definitely not gold.

SHOULD YOU ALWAYS ANSWER WHEN OPPORTUNITY KNOCKS?

Selling your business can take a heavy emotional toll, as entrepreneur George Jacobs found out back in 1998.[2] Despite Carey International paying him $20 million for his company American Limousine, Jacobs says he felt “miserable” – and continued to do so for many years.

Such a reaction is not uncommon. According to Judith Glaser, an executive coach and communications specialist, many business owners go into a “deep depression” after selling. And this reaction is often exasperated when founders stay on after acquisitions.

New owners mean new changes, new directions and new ways of doing things. Seeing your vision, your “baby” being poked and prodded – or possibly even being destroyed entirely – is something many struggle to cope with. This was the case with Jacobs, who stayed on as a “buffer” between new management and his staff:

“It’s miserable when you’re your own boss, and all of a sudden you’re working for someone else. You’re hurt. Your company is your child.”

SOLD OFF FOR SCRAP

The truth about most business exits is that they represent what could only be called being “sold off for scrap”. These include things like:

  • Acquisition of talent (or “acqui-hire”)
  • Acquisition of intellectual property or technology
  • Acquisition of “goodwill”
  • Acquisition of a user base or client list

What these mean is that the business was not really succeeding on its own, but that there was another business that was better able to monetise some of the assets owned by that business.

So whilst these exit events certainly represent an outcome that is better than simply closing up a business in complete obscurity, I feel as though they are celebrated disproportionately to the outcomes they achieve for the business owner.

HOW TO PROTECT YOURSELF FROM A LOW QUALITY EXIT

The antithesis of these “low quality exits” is selling your business for a return that adequately compensates you for the risks and investment (time and/or money) involved in getting it up to that point, and being able to “walk away” from the business without hanging around to be emotionally tormented by the inevitable changes that will arise when new management takes over.

All of the above scenarios have something in common: they represent an asymmetry in a business; the presence of one skill or asset in the absence of another skill or asset required to take advantage of it:

  • Highly talented individuals working on a failing product
  • Excellent innovation or invention without product/market fit and/or the inability to sell
  • Good sales and marketing without the ability to deliver on the promises being made during the sales process
  • Good technical delivery without the ability to structure a profitable product offering

If you’re already in a position where you have to sell and your business is stuck in one of the above scenarios, there’s a chance that it’s too late to change.

One of the biggest lessons that John Warrillow talks about in his book Built to Sell is that, if you only start to think about maximising business value when it’s time to sell, you may find it impossible to get the exit you’re looking for.

However, if you’re not ready to sell quite yet, and if you still have a bit of breathing room, there may still be time to turn things around and get your business into better shape.

The factors that will prevent you from having to sell in one of the undesirable ways listed above is to have a business that is systemised, has a clearly defined product, that runs independently of you and which consistently generates recurring revenue.

Then again, if you manage to create that kind of business, you may find that you don’t want to sell it after all …

REFERENCES

1. The Emotional Toll of Selling Your Company by Ilan Michari

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