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.

Would the REAL Time for Social Media Please Stand Up?

I attended a great seminar Wednesday presented by Gina Watkins of Constant Contact and hosted by the Greater Warrenton Chamber. (Sigma College co-sponsored with CC) The topic was social media and Gina mentioned that a business owner could be effective at social media spending about 15 minutes a day! There are a lot of us spending more time than that, so I thought I would walk through where the time goes when you make social a part of your marketing mix.

Social Media Calendar

Start Here!

The first slide of my social media classes is this picture of a calendar as a way of telling my students that, although social media is cash cheap, it can be time expensive.  One of the first decisions in determining the role social media plays in your marketing plan is how much time should be spent building your network.

Pure Posting

Once you are all set up with your accounts and have a goal of 5 or 10 posts per week on a couple of social media sites, then 15 minutes a day is likely enough time.  But don’t get your expectations up!  You will likely get fans and followers from your current network, but it will be slow going building that network over months.  Mixing in some time to monitor and comment on some blogs, share some posts with your network and start some discussions will be time well spent.

Set-up and Design

Setting up and designing social media pages can seem like an unending task.  Every time I turn around there is a new tool, or a new app that I just have to try.  And even though they are all “one-click” installation, they typically take me a bit more time.  Most of the sample sites we see have had some work done.  An extra tab here, a customized page there – it all adds up to extra time or paying someone.  Make sure you schedule some time to keep up with the latest apps and keep your sites up to date.  It’s part of being relevant and it will take a couple hours a month.

Blogging

I recommend to most of my students and clients to do some blogging.  It’s a great way to show your expertise in the industry and adds great content.  When you decide that blogging is a part of your social media mix, make sure you plan the required time.  Depending on how often, your writing skills, the amount of research required and the pictures and links you add, you may need to schedule a couple hours per post as you get started and 30 minutes to an hour if you really get efficient.  But the payoff, if you are good, is that you are putting up good content that will draw readers that will subscribe, share, etc… and build a better network, quicker.

Interacting

I have yet to read a book, article or blog on social media that didn’t stress how critical it is that to be successful in social media you need to read and comment on other people’s posts.  In fact, here’s one from Techipedia | Tamar Weinberg that I read yesterday.  It’s part of establishing your online presence and building credibility – really it’s being part of the community, part of the network.  Plan to spend at least an hour a week just interacting with the online community.  Read, comment and share the content of others.

Planning

Now, to be more efficient and add the most value with the time you have will require a plan.  I give my students and clients a media calendar to pre-plan their posts.  We work through a plan for their posts over the next month or so, determine the topics they should post on and even write out the posts ahead of time if possible.  Spending a couple hours planning every month will make you more efficient and improve the quality of your posts.

In Summary

So the answer to the question of how much time do I need for social media is a pretty wide range.  Someone who uses social media for a high percentage of their marketing mix may spend a couple hours a day, whereas, a beginner may only spend about 15 minutes a day.  The important thing is that you pull out that calendar and schedule the time it will take to meet your social marketing objectives so you aren’t suprised.