Why are you here? Really … why? What are you doing every day? What’s it all for?
Ok, this isn’t some existential discussion. It’s really important that you know why you work. I’m not talking about your company’s purpose here, though that’s very important too. I’m talking about your purpose. Why do you work? What are you working toward?
I’ve found that there are three things that motivate business owners (once they are beyond the stage of wondering where their next meal is coming from). They are generally trying to do one of the following:
- Sell and score.
- Build a monument.
- Sell when they are personally ready.
Sell and score.
The most common motivation I hear is wanting to build a successful enterprise and then sell the business for millions of dollars. These stories happen all the time and building your wealth is a worthy goal. The challenge for most business owners comes when the offer is really on the table. They aren’t sure. There are some conflicting emotions.
You see, to maximize your payout you need to be ready to sell when the market is most ready to buy. That might not be when you are ready; it might require you to stay around longer than you wanted. To maximize the value, you are at the mercy of the market (though there are some things you can do to influence that…).
Build a monument.
Also, when you sell to the highest bidder, it’s likely that the acquirer isn’t going to keep the name, or most of the staff. Everything the owner built isn’t going to survive. And in the face of this, many owners realize that money isn’t really why they were building their business. Money’s nice, but there is value to building a lasting culture, and making an impact on the community that they don’t want to trade for money. This is the “building a monument” goal — creating something that lasts, that your kids can inherit or that your management team can continue on.
The more you value the monument, the less viable the cash exit is. You start to look into ESOP sales, or management buy-outs. Sure the money is less, but it’s worth it to keep the place intact.
Sell when they are personally ready.
Finally, there are owners who want to pick a day that they can walk just away. Some want to retire early and get on to other priorities, like kids, grandkids, travel, etc. while others never want to retire and want to work as long as possible. But the market is fickle and may not value your business highly on the day or year you are ready to sell. Or, your management team may not be willing to wait, or they may be ready too soon.
Depending on which of these three things you value — maximizing your exit value, creating a lasting legacy or selling when you are personally ready — you need to build your business differently.
- If you’re looking to maximize the exit value, your business is always for sale. You need to spend some time every week building a list of potential buyers (competitors, collaborators, big companies, customers, private equity and other financial buyers) and building relationships with them. You need to be selling your company to them (subtly) long before you want them to buy it. You want to be known by as many potential buyers as you can so that when they start thinking about who to buy, you are on the tip of their tongue.
- If you are looking to build a lasting institution, one that will survive for several generations, you will spend your time differently. To build a lasting institution, you need a strong management team full of leaders who can step into your shoes. You need to develop that team so that they don’t just take orders and follow you, but so that they can think for themselves. They need to have not just your confidence, but the confidence of the whole team, and the customers, suppliers and bankers.
- If you seek a particular lifestyle, a limited level of involvement or retirement, you will have a different plan. Here you want to be really clear about your plan with your team. If you are looking to retire early, you will need to be selling long before you are looking to quit — much like the owner maximizing value. If you are looking to stay on for a long time, you need to find a continual stream of young, up-and-comers to train and build your management team with. Knowing that they will likely move on when it’s clear that you aren’t! This issue is even more important if there are multiple owners. If you have a partner, you need to talk about these issues frequently (people might shift positions as their life circumstances change).
There will be a day when you are no longer the owner of your business.
Whether you walk out or are carried out, someday it’s going to end. Your exit will be much more pleasant for everyone if you think and plan ahead. Give Anchor Advisors a call to schedule a discussion about this.
Photo credit: Hkuchera