There comes a time when an owner should get out. Sometimes this is the result of a strategic plan; other times it’s due to limitations of the business model. Such an exit often comes in the form of selling the business, transferring ownership, or, in less fortunate cases, dissolving the business entirely. As an executive, owner, or principal, it can be difficult to determine the precise right time to hit the road. In this piece, I hope to illuminate some of the indications that it’s time to look into an exit strategy, whether that means selling or transferring the reigns to someone else.
1. You’re on 4 or 5 different medications. One for anxiety, one for depression, another for focus…. I’m being humorous here, but the point is serious. Many entrepreneurs get to the point where they simply don’t enjoy running their businesses any longer. In my experience working with business owners, this lack of enjoyment often results from dealing with personnel issues: HR, hiring, firing, discipline, etc. As your company grows, the startup problems (like financing and making payroll) begin to fade. These problems may seem large, but they are more fun for most entrepreneurs. They are replaced by smaller problems that are much less fun and challenging–things like dealing with personnel and administration. For many entrepreneurs, this requires a serious attitude and disposition adjustment. If these newer problems are taking too much of a toll on you personally, it may be an indication that you need to look into planning an exit strategy–if not for the business entirely then for you personally. Your therapist (or pharmacologist) will notice the difference immediately.
2. The company has outgrown your skill set. This point is closely related to the first. Often times, as a founder or principal, you’ll find that as your business begins to grow, you become less of an asset to the company. This is a very hard truth to accept, but the best entrepreneurs are able to be honest with themselves about it. For example, many great entrepreneurs are fantastic salespeople. Once a company gets above $5 million or $10 million in annual revenue (depending on the business model), the company begins to require leadership in different areas. Hopefully you’ll have the field vision to recognize this point in the company’s lifecycle, and the humility to do something about it. (It should be noted, however, that some entrepreneurs are able to learn and grow with their companies.)
3. The market might be moving against you. If you recognize that there’s a megatrend on the horizon that threatens to make your business irrelevant or marginal, it’s time to think about an exit plan. This may seem obvious but, like recognizing that your company has outgrown your skill set, it can be a bitter pill to swallow. Looking at the current technological trajectory that our society is moving along, no business is safe. If I’m running an in-person speed-dating service, I’m pretty worried about Tinder. If I’m a boutique hotel, Airbnb makes my ears perk up. Uber’s keeping me up at night if I’m a taxi company in a major city. Retail/B2C sectors may be experiencing this to the greatest degree at this point, but it’s already happening in B2B markets as well. You’ve got to keep your eyes peeled for these trends. Even if you’re lucky enough to recognize the tidal wave coming, you may have a very short window for action.
4. A lucrative opportunity presents itself. Exit plans can, of course, be borne out of positive causes, not just depressing ones. Sometimes you plan an exit strategy because a lucrative offer presents itself. In some ways, this is the flipside to point No. 3. If the market is frothy and the hype surrounding your industry creates a lucrative opportunity, you may choose to sell. For example, if you’re a young, innovative social-media website that’s struggling to turn a profit and Facebook starts knocking at your door, I’d recommend you seriously consider the offer. Like the rest of these points, a strong dose of realism and humility is needed here. Your company might not be a billion-dollar business. A multi-million dollar offer can often be worth considering, particularly in a seller’s market.