But We Just Got Here! Developing an Exit Strategy

Welcome to our class on “How to Start a Business”, our first topic is on “Exit Strategies”! This opening never fails to get a class full of raised eyebrows, but I’m convinced that considering your exit strategy is an exercise every small business should start with and periodically review.

Starting with your company name…

…most of your decisions will be affected by your exit strategy.  Let’s say you want to build your plumbing business over a few years and then sell.  Using your name as the brand will detract value for a new owner with a different name.  The legal entity; C-corp, S-corp or LLC, that you choose is another big decision made early in the start-up process that can be dependent on your exit strategy.  Hiring employees, the value model, buy or lease decisions – your exit strategy may effect all these decisions, which is why I encourage every small and medium business to have one.

Controlled Dissolution

In a controlled dissolution exit strategy the business stays in operation as long as the owner is working.  When the owner decides to stop working the business is done.  This exit strategy is typical of many professionals who are the primary revenue generator for the company – a consultant who bills all the hours or a plumber who does all the labor.  There is no passive revenue and the value of the business is basically zero without the owner’s daily involvement.

There is nothing wrong with this exit strategy, as long as it is a conscious decision and the owner plans the rest of the business around it.  For instance, the value model is that you pull out as much cash as possible and invest in outside resources, which means the marketing strategy should maximize profitability and cash flow.

Ownership Transfers

An ownership transfer exit strategy is one in which the owner plans to sell his ownership to another party in whole or in part.  The most common transaction for smaller businesses is a complete sale to another person or another company.  For a few entrepreneurs with the right business concept, “going public” is a valid strategy where the “sale” of the company is to many outside investors on a public stock exchange.

In an ownership transfer exit strategy the value model is about building “transferrable” value.  This is the kind of value that can be realized even in the absence of the owner.  With this exit strategy the sky is the limit for your return on investment.  The value of the company can be a passive revenue stream, typical of insurance agencies, or the potential for growth from a new technology, a high value customer mix or demand for a specific product or process that you own.  In general owners with this exit strategy should always be looking for ways to make the business less dependent on them through solid processes and a strong work force.  That will make the business much more valuable to any potential outside buyers.

Transition to Passive Investment

This exit strategy is used very often in family businesses.  As the kids are able (and willing) to take over the business, ownership is sold or gifted to them over time.  The owner either sells them the business and finances it over a number of years, or maintains a diminishing ownership stake as they buy ownership through the transition process.  The passive income for the owner is in the form of principle and interest payments on a long term loan, additional sale of their ownership and distributions from the profit of the company over time.

This is a solid strategy when done correctly.  First of all, it is imperative that the owner ensures the transition of operations is to someone competent, because if the business fails, the passive income source is done.  Also, if you are dependent on distributions or dividends as an income source, make sure the new ownership is planning to make those.  If they decide to put everything back in the company, your income source could dry up quickly.

Pick One and Decide Accordingly

Picking an exit strategy is not about predicting the future and yours will probably even change over time.  The important thing is to have one in mind so that when you make daily decisions they are based on a long term vision, not just a gut feel for what’s easiest at the time.

Of course there are many variations and nuances to exit strategies and I’d love to hear about your experiences or struggles in deciding on and implementing an exit strategy.  If you need help in this area give Sigma College of Small Business a call and we can help.

Toeing the Line: Professionalism and Social Media

“How Social Media Can Affect Your Professionalism” was the topic of the day at Monday’s Network@Noon at the Prince William Chamber Western Office.  Promoting business in social media, while protecting your personal privacy and maintaining your professionalism is one of the biggest concerns for small business owners.

The Big Decision – Are my customers my friends

One of the first questions to ask yourself as you move forward with your social media plan is “Are my customers my friends?”  Answering this question will allow you to set up some “rules” for who you will connect with on the different social media channels.  For example, my general rule for a LinkedIn connection is that the person must know enough about me to make a recommendation.  LinkedIn is designed to set up professional connections so that your network can recommend you to their network – that’s tough to do if they don’t know me.

This becomes even more important in Facebook.  Facebook “friends” are people who have given me permission to see their personal posts and I’ve given them permission to see my personal posts.  So if crazy cousin Eddy posts something on my wall about an embarrassing childhood experience or picture, all my friends can see it.  Fans are people who choose to follow the posts I make on my business fan page.  “Liking” a fan page is a one-way interaction and these “fans” or “people who like” cannot see any information on my personal profile, and I can’t see their personal profile.

For many larger businesses, where the owner isn’t personally linked to the business, this isn’t a difficult decision.  However, many smaller businesses and sales people depend heavily on referrals from friends and building personal relationships to make the sale.

If you decide to pull customers into the more personal social media areas like your Facebook personal profile, make sure to adjust your posts to position yourself a personable, yet professional.  For example, you may not share that funny picture of your nephew’s potty training progress, but the tasteful pictures of your daughter’s field trip may be fine.  If you enjoy being fully transparent on Facebook, it might be better to keep your customers on the Fan Page.

Building Your Professionalism

Here are three ways that people are getting the best results in building their professionalism using social media.

Posts should add value and show your expertise…Make sure your content mix is more than 50% original thoughts.  It’s great to re-tweet and share the links of others, but to differentiate yourself and show your expertise it is important to post original stuff.  Even when you share a blog post, add a comment that explains why it is great content for your audience.
Blogging really establishes expertise…To really show off your expertise and credibility online, nothing beats a consistent blog.  Because blogs are typically longer than the standard social media post, it allows you to deliver real value and complete thoughts to your target audience.
Use social media to leverage your network, not replace it…All the old rules for face-to-face networking still apply and social media is not an excuse to stop attending those networking events.  Social media merely gives you a tool to take those relationships to a higher level faster.

Some General Posting Guidelines

Don’t post anything you don’t want on the front page…Including, but not limited to, complaining about customers, sharing trade secrets or talking about extremely personal family situations.  Before you “share”, think through your professional audience and make sure they won’t be offended and think less of your judgment and professionalism.
Do you want customers to know you are at their competitors??? If you have a key restaurant client, do you really want them to see you “check-in” at their competitors across the street?  It may not matter if you are good about equaling out the love.
Posts can reflect your work schedule, political positions, financial situation, etc…Launching into a bashing of a political candidate or religious group may seem harmless enough, but would you do that in a meeting with customers who may hold opposing views?  How about reflecting on your day off golfing to a customer who is still waiting for their overdue web site?

In Summary

While considering how social media fits into your marketing mix, make sure that you segment the audience and adjust your content to ensure professionalism, trust and credibility.