Setting Your Business Up for an Exit from the Beginning
When starting a business, most entrepreneurs are focused on building a successful venture and achieving long-term sustainability. However, one aspect that is often overlooked is planning for an eventual exit strategy. Whether you plan to sell your business, merge with another company, or even take it public, setting yourself up for an exit from the beginning can maximise your options and potential returns. In this article, we will explore key considerations and steps to help you set your business up for a successful exit.
1 Define Your Long-Term Vision
From the outset, it's essential to have a clear vision for your business's future. Ask yourself what you ultimately hope to achieve with your venture. Do you envision building a business to sell it for a profit? Or perhaps you aim to take it public and become a market leader? Defining your long-term vision will guide your decision-making process and help shape your exit strategy.
2 Build a Strong Foundation
Before you can plan for an exit, it's crucial to establish a solid foundation for your business. This includes developing a robust business model, creating value for your customers, and building a strong brand. Investors and potential buyers are attracted to businesses with stable revenue streams, loyal customers, and a solid market position. By focusing on these fundamental aspects, you increase the chances of a successful exit.
3 Document Your Processes and Intellectual Property
A well-documented business is more attractive to potential buyers. Documenting your processes, systems, and intellectual property not only improves efficiency and scalability but also enhances the value of your business. This includes outlining operational procedures, product development processes, proprietary technology, trademarks, patents, and copyrights. Such documentation showcases your business's unique assets and helps prospective buyers understand the value they would acquire by acquiring your company.
4 Build a Strong Management Team
An experienced and capable management team is a vital component of a successful exit strategy. Surround yourself with talented individuals who can drive the business forward, even in your absence. Potential buyers or investors will be more confident in acquiring or investing in a company that has a competent team capable of continuing its growth trajectory. Additionally, having a strong management team allows you to focus on strategic decisions related to the exit process.
5 Maintain Accurate Financial Records
Maintaining accurate and up-to-date financial records is essential for any business, especially when preparing for an exit. Clean and transparent financial statements provide potential buyers with confidence in your company's financial health and potential for growth. Ensure your financial records are accurate, audited if possible, and compliant with accounting standards. This level of professionalism instills trust and can significantly impact the valuation of your business during the exit process.
6 Diversify Your Customer Base
Overreliance on a single customer or a few major clients can be a significant risk when it comes to exiting your business. To make your company more appealing to potential buyers, aim to diversify your customer base. This minimizes the risk associated with customer concentration and demonstrates that your business has a broad market appeal and sustainability beyond a few key accounts.
7 Seek Professional Advice
Planning for an exit from the beginning can be a complex process. Engaging professionals such as lawyers, accountants, and business advisors with experience in mergers, acquisitions, or initial public offerings (IPOs) can provide invaluable guidance. These experts can help you navigate the legal, financial, and strategic aspects of preparing for an exit, ensuring you are well-prepared and maximizing your chances of success.
While starting a business may seem like an indefinite commitment, planning for an eventual exit from the beginning is a smart move. By setting your business up for an exit early on, you increase your options and potential returns when the time comes to transition out. From defining your long-term vision to building a strong foundation, documenting your processes, and seeking professional advice, each step contributes to your business's attractiveness to potential buyers or investors. By incorporating these strategies into your business plan, you position yourself for a successful exit and a rewarding outcome for all your hard work.
Be inspired by these incredible women in business who have had successful exits through IPOs, strategic partnerships, and acquisitions, highlighting their entrepreneurial prowess and the value they created with their ventures.
Sara Blakely - Spanx: Sara Blakely is the founder of Spanx, a company specializing in shapewear and intimate apparel. She built the business from scratch and achieved tremendous success. In 2012, Blakely became the world's youngest self-made female billionaire at the age of 41. While she has not exited the company entirely, she did sell a 16% stake to private equity firm Blackstone in 2018, valuing the company at $1.2 billion.
Whitney Wolfe Herd - Bumble: Whitney Wolfe Herd co-founded the dating app Tinder and later launched Bumble, a popular dating app where women make the first move. Bumble's unique approach quickly gained traction, and in 2021, the company went public through an initial public offering (IPO). With the IPO, Wolfe Herd became the world's youngest self-made female billionaire.
Lynda Weinman - lynda.com: Lynda Weinman co-founded lynda.com, an online learning platform offering video courses on various subjects. The platform gained widespread popularity and was eventually acquired by LinkedIn in 2015 for $1.5 billion. Weinman's entrepreneurial journey and successful exit highlighted the value of e-learning and the potential for online education.
Katia Beauchamp - Birchbox: Katia Beauchamp co-founded Birchbox, a subscription-based service that delivers personalized beauty samples to its customers. The company disrupted the beauty industry and gained a loyal customer base. In 2018, Birchbox raised additional funding and completed a partial sale to Viking Global Investors, valuing the company at around $500 million.
Melanie Perkins - Canva: Melanie Perkins is the co-founder and CEO of Canva, a graphic design platform that allows users to create professional designs with ease. Canva quickly gained popularity and became a widely used design tool. In 2021, Canva reached a valuation of $40 billion after raising funds from various investors. Although Perkins has not exited the company, the remarkable growth and valuation reflect her success as a female entrepreneur. And raising capital requires many of these same foundational priorities as planning for an exit.
Diane Greene - VMware: Diane Greene co-founded VMware, a software company specializing in virtualization and cloud computing. Under her leadership, the company experienced significant growth and success. In 2004, VMware went public and had a successful initial public offering. Later, in 2015, the company was acquired by Dell Technologies for approximately $67 billion.
Julie Wainwright - The RealReal: Julie Wainwright founded The RealReal, an online luxury consignment store. The platform gained popularity by providing a marketplace for authenticated luxury goods. In 2019, The RealReal went public through an IPO, raising over $300 million. Wainwright's successful exit with the IPO showcased the value of the luxury resale market.
Jessica Herrin - Stella & Dot: Jessica Herrin founded Stella & Dot, a direct sales company specializing in jewelry and accessories. Through its innovative business model, Stella & Dot empowered women to become independent stylists and entrepreneurs. In 2020, the company announced a strategic partnership and minority investment from private equity firm Carlyle Group, facilitating an exit opportunity for Herrin and the company's stakeholders.
Hou Yifan - Didi Chuxing: Hou Yifan, also known as Jean Liu, served as the President of Didi Chuxing, a Chinese ride-hailing giant. Under her leadership, Didi Chuxing became one of the world's largest ride-hailing companies, expanding its services beyond China. In 2021, Didi Chuxing went public in the United States, raising over $4 billion and achieving a market capitalization of over $60 billion.
Emily Weiss - Glossier: Emily Weiss founded Glossier, a beauty and skincare brand known for its minimalist and millennial-friendly products. Glossier gained a dedicated following and disrupted the traditional beauty industry. In 2019, the company raised $100 million in a funding round, valuing the company at $1.2 billion. While Weiss has not exited the company, the significant funding round demonstrates the company's growth and potential for a future exit.
