November 3rd, 2016 David Finkel (Taxloopholes.com Advisor)
Which of these three exit strategies is right for you and your company?
Tom had spent years working 80-hour weeks to grow his company. It started as an innocent hobby, just buying and selling used electronic parts online out of his house. He loved the challenge of finding a pallet of used parts at a price he knew he could turn a quick profit on.
Over time, Tom grew this “hobby” business to sales of $6 million per year.
This is the point that we first met Tom (his wife found us when she did a web search for “business coaching” and we popped up on the first page of google.)
One of the early coaching conversations we had was about what his “exit strategy” for the company was. Initially, Tom didn’t have one. It was a question he’d never asked himself.
What about you? What’s your desired exit strategy for your company?
This may or may not mean actually selling your business. In fact, many Level Three business owners choose to stay actively engaged.
What’s the critical distinction? Continued involvement is a personal choice, not a business requirement.
You get to make that decision and choose any of these three main exit strategies:
1. You can sell the business and move on to your next great adventure.
2. You can scale the business to the big time.
3. You can passively own the business, with a greatly diminished role for yourself in its daily operation.
Let’s go deeper into each of these three exit strategies so you get a sense of the end toward which you’re working.
Exit Strategy 1: Sell
Once you’ve built a thriving owner independent company, you’ve created a valuable asset with clear market value. Your first exit strategy is to harvest the equity you’ve built by selling the business.
Take the case of my friend and co-author of SCALE Jeff Hoffman.
After college, Jeff started his first software company, CTI, and grew it into a thriving innovator in the travel industry. He strategically positioned the company to be bought out by one of the industry’s major players, which is exactly what happened. American Express acquired CTI for more than $10 million.
Since that time, Jeff has gone on to build and later sell other successful companies, including his biggest success to date, cofounding a travel site you may have heard about—Priceline.com.
Exit Strategy 2: Scale
In the context of exiting, scaling means that you, the business owner, firmly decide to stay actively involved in the business and grow it magnitudes bigger. This is usually a commitment to stay in the business for another 5 years or longer while you put your growth plans into action.
It may seem strange to call scaling an exit strategy, but many entrepreneurs who’ve built a Level Three business don’t want to leave or sell it. Rather, they want to grow it to the next level.
This means you take a $15 million company and grow it to $150 million or $1.5 billion. This option gives you the greatest financial reward, but again, it also requires your continued commitment, often over five or 10 years or even longer.
For example, one of my clients Wayne, partnered with two other founders to build a nuclear medicine testing laboratory chain. Together, they have scaled their company to its current $200 million size. Wayne and his partners still work full-time in the business, driving its growth higher and higher. Building a billion-dollar business is well within their reach. It’s an active road for them to follow, and they are choosing the exit strategy of scaling with their eyes wide open.
Exit Strategy 3: Own Passively
Once you’ve grown your business to be owner-independent, you can transition to a more passive role—owning the company without running it day-to-day.
This is actually the exit strategy that Tom ultimately decided to take. It took him 6 years of focused work to grow his systems and develop him people. By that time he’d grown sales to over $20 million per year and he elevated his COO into the top spot, formally retiring from active participation in the company.
So what is your desired exit strategy? A key step in making it happen is to formally and intentionally set the goal.
To learn more about how you can build an owner-independent company so you can make a great exit like Tom, I encourage you to download a free copy of my newest book, Build a Business, Not a Job. Click here for full details and to get your complimentary copy.