Jim Hendrickson has successfully started 4 companies and he has bought and sold 7 more, consistently building them to the double digits in sales and returns. He sat down with us last week during a Clarity Live session and gave us his best advice on why it is important to build an exit strategy. Below are some of his tips on the art of successful exits:
Exit strategies improve the odds of success for a business. Whether it be liquidation, selling the business, an acquisition, or an IPO, it is important to think about your exit ahead of time, and doing so will lead to improvements in many other areas of your company.
Exit strategies can help conquer and shine a light on bad management situations. Understanding how you want to exit can help you understand the level and depth of the management team you need in order to meet your goals. When someone buys a company, the first thing they look at is the management team. If they aren’t good, the valuation can be cut in half or the company as a whole can be completely overlooked.
If you start to look for funding you will find that the first thing you’re asked is to see your business plan. But angels really what to know when and how they will get their money back. Having a well put-together exit strategy shows maturity and completeness of thought, and will make you much more likely to receive funding.
It is very tempting to chase every piece of revenue you find. Once you start to get past the growth curve and become aware of all of the opportunities in front of you, it is easy to get spread too thin. Having a strategy in mind makes it is easier to go down the path that will make you most desirable to a potential buyer.
An end goal in mind will also help you in determining how you must differentiate yourself in order to create the most value. 80% of the value comes from 20% of what you do—that 20% being your market differentiator. An end goal helps you to clarify just how deep and wide you need to go for a successful exit.
The key to this all is that an exit strategy helps you focus in on what you need to be doing now to be a successful company later. Recognize where you are in the market, where you are as a company, and where you are in the growth cycle for the sector that you are in, and then optimize the value that can be created. Understanding how valuable you are in the market and who sees you as valuable is essential to the success of your company.
Hopefully these tips will help you to plan your next exit strategy, and if they do, let us know @startupsco!