If entrepreneurs fail to plan an exit, do they plan to fail?
5 min read
12 March 2014
When I started working full time in my business Cause4, I had just two motivations – to be able to work on interesting projects and to get experience of running a small business. Four years on, we’re lucky to have grown well, but i’m suddenly being asked not only about our investment plans, butt whether we are considering an exit strategy.
Those questions feel rather odd to a founder that simply wanted to try out a few ideas – and whilst investment is a consideration, any sort of exit, be it in ten years or 20, hasn’t yet crossed our minds. But it’s an interesting question, and it’s led me to wonder whether most entrepreneurs really do consciously plan their exit at an early stage.
A recent Securian Financial Group study suggests that 60 per cent of small business owners planning to exit in ten years are not developing an exit strategy. Perhaps not surprisingly, 30 per cent are more focused on growing their business and another 30 per cent believe that they are indispensible to the business – so it seems that planning an end game is not part of day-to-day decision-making.
I recently met an incredible retail entrepreneur who is about to sell her globally-renowned company. Maybe it was modesty, but the story she told of her success had a note to it of her own disbelief. She says that she has no idea how she got from A to B.
She’s definitely not alone. Many successful entrepreneurs that I meet attribute their story to luck and instinct, as much as to planning and strategy. For them, it feels like growth emerges by chance or at least organically, and when you’re so focused on the day-to-day needs of the business, long-term planning can feel quite a way down the priority list.
So, can you plan an exit at the start? I’m not sure… I worked in an agency environment for a while, in a successful company that was created by its founders with the main ambition being to sell. But surely if selling is the principal driver then it’s impossible to develop an authentic set of long-term values? I think that staff, customers and investors sense this – they’re not stupid after all, and because it’s impossible to be loyal to a company without a future that its own leaders truly believe in, it undermines long-term value.
On the other hand, I realise that fast growth in itself is a sort of exit. If an enterprise doubles in size, merges, or pursues an acquisition it will have to take on a culture and style of working that is anyway moving from one phase to the next. The danger is that, if the founder doesn’t define an end or signal a change or ambition for the next level, the business could alter in a way that feels alien to his or her own values and motivation. Indeed, many fast-growing businesses can definitely seem to gain a momentum of their own.
I think that it’s probably at the ‘proof of concept’ or ‘proof of business model’ stage that entrepreneurs start to look to exit – and I don’t mean necessarily to sell, but to exit from one stage to the next. It’s at this stage that a founder needs to understand where best to focus and where to let go and bring in the skills needed for growth and sustainability.
Having talked to a number of entrepreneurs about exit, the main theme that comes across is that as a company gets bigger it moves out of the territory of ‘lifestyle’ organisation and into the more difficult terrain where the needs of the business might be very different from the needs of its founder. For those that have been able to maintain their original vision and values through growth, they cite that determining the expected outcomes before defining the strategy was essential, because undoubtedly having the end in mind gave them as founders the best level of flexibility.
So it seems that a lack of an end game isn’t necessarily going to lead to entrepreneurial failure, but without an exit strategy, a founder might not only fail to fully realise his or her assets, but may also end up running a company that seems to have moved very far from its original concept…and for the successful entrepreneur that seems a shame.
Written by Michelle Wright, founder of Cause4.