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.
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.
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.
If you missed this year’s MAPS Meet the Media Event – “You Met the Media, Now What?”, here is a little taste of the great information and people that passed you by:
The Keynote Address
Matt Brock, Public Relations for Washington Center Hospital
Matt brought a ton of public relations experience to the table as the Keynote Speaker. Sharing over 15 years of experience as a reporter for WJLA-TV Channel 7 and NewsChannel 8, including local coverage of the 9/11 attack on the Pentagon and the Washington Metro Sniper Attacks. Now Matt is using his expertise from a different perspective in his new position with Washington Center Hospital.
Relationships – a critical link to knowing what is newsworthy and addressing your audience is to build relationships with your press contacts and be able to respond to their needs as a media professional. Matt related a great story about how he used our own PR professional Asha Brouta and one of her clients in a story topic that he thought was especially newsworthy for his audience. Another benefit of building those relationships is that it will help you be in the right place at the right time. And if you don’t have the relationships, this event was a great place to start building them or to find someone who already has them!
What is Newsworthy: Who Cares and What is Your Audience?
Asha Bruot, ASHA Public Relations
A local public relations professional and recently featured on the cover of Piedmont Business Journal as one of “20 Women to Watch” in the Piedmont region, Asha shared a wealth of experience in public relations for local businesses. One key point was that public relations is not advertising. Making this realization will help set the strategy and direction for your activities with the press. With advertising you can pay to say what you want, but in PR you must position your story in a positive way within the context of what your media contacts are writing about. Facing this reality is a big first step to developing the right story and writing a press release that they care about for their audience.
How to Write a Press Release
Sherri Arnaiz, MDA Technologies Group and Barbara Reese, BR Associates
Keep the News Up Top – Hank Silverberg of WTOP Radio receives press releases by email and on his Blackberry, so the subject line is VERY important: Don’t bury the lead! Keep the “news” up top. Chanda Washington, Community Editor of Prince William Local Living in the Washington Post is also focused on getting to the “news” in a story, so write accordingly.
Pictures Sell, Especially for Newspapers – Bill Walsh, Editor of the Fauquier Times Democrat recommended including a relevant professional photograph with your press release. An official portrait of the CEO, some shots of your facility, or a picture of the event with the names of those in the picture are a welcome addition to any press release.
Local Papers Love Local News – Randi Reid, Publisher of the Observer Newspapers, stressed the importance of local press releases to her local paper. Although larger media may not use them as much anymore, local papers are hungry for your stories to keep the community informed.
Be Available – Make sure the contact information provided is current and that the number is normally “manned” with someone who is knowledgeable and an authorized spokesperson.
Know Your Audience and Build Relationships – Our Media VIPs all agreed that you should be familiar with the stories a media source uses before sending the release. Sending a national story to a news source focused on local news can reduce your credibility with that source. Building a good relationship with a reporter starts with some research into what they like to write about!
What Does a PR Plan Look Like
Me, Jamie Gorman, Sigma College of Small Business
A good public relations plan, like other good marketing plans starts with the basics of identifying the audience, objectives and message. I have been doing a lot of social media plans and really wanted to make the point that regardless of the media being used, having a good foundation will help answer a lot of questions. After that we discussed the importance of developing a public relations calendar that schedules the activities necessary for success with public relations. And sometimes it takes some creative partnerships to build a story. An example we used was a partnership between your business and a non-profit that supports a common industry, cause or audience. Having your business name mentioned as a sponsor for one of our great local non-profits can go a long way in building local credibility.
This event is one of those “must attend” events of the year. Along with all the great information and networking, attendees received a local media guide with key press contacts for the local media. Look for it again next year and thanks to the Prince William Chamber of Commerce and the MAPS Committee for pulling it all together.
Recently, I had the opportunity to present a Career Building event at Strayer University in Manassas, VA. My friend Amelia Stansell, a VP with BB&T, joined me in presenting a topic on professional networking and using social media to leverage your network. My next few posts will work through that presentation, highlighting Amelia’s principles for networking and then relating those principles to techniques for social media marketing.
The Enigma We Call “Networking”
Amelia begins her presentation by defining the enigma we call networking as “person to person relationship marketing. She emphasizes that it is taking the time with each individual to know them as a person and build a relationship. It’s these relationships that can help lead to either closing a sale with that person or getting a referral from them.
Social Media is a new technology that leverages proven networking techniques. The resulting value is that you can grow and manage a much larger network. Use tools like Facebook and LinkedIn to follow the lives and careers of your network, interact with them through posts and comments, and refer them through sharing and recommendations. These methods make it easier to interact with each person in your network between the meetings and phone calls. Try it and notice how your face-to-face conversations change from “how have you been” to “did your son get off to college ok?”. It’s a much deeper start to what will be a more productive conversation.
It’s About Getting More Referrals
Professional networkers will tell you that it’s all about the referral because it is more likely that you will get new business from a referral by your network than directly with someone in your network. Therefore, it’s important that your network trusts you, sees you as an expert and understands your business enough to recognize situations where they can make the referral. In traditional networking the process begins with the “elevator pitch” and initial meeting, then continues with follow-up meetings, networking groups, phone calls and promotional materials.
Social Media leverages these techniques by enabling you to post your basic information in online “profiles” and “info” pages. These provide the base background information about you and your business. Build trust and credibility online is a continual process of listening to your network by reading their posts, interacting with comments and questions, and consistently posting valuable and informative content for your audience.
Relationship Selling, Not Broadcast Advertising
Many business people approach their social media marketing as a broadcast advertising channel, a free way to reach more people with their message. For some businesses that have a huge fan base, it can certainly be used in that way. However, for most of us who count on sales through personal relationships and word-of-mouth, the approach needs to mirror solid networking techniques more than basic advertising principles.
Sigma College of Small Business Social Media Services help customers use Facebook, LinkedIn, Twitter and Blogging to promote their business and themselves.
What are some tips and recommendations that you have for how to leverage social media to build your professional network?