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Why Planning an Exit Strategy Makes You a Great CEO

With CEO turnover at a record high, you might be forgiven for thinking any CEO planning an exit strategy has already thrown in the towel.

But here we explain why an exit strategy is good for you and your business.

Mantas Hesthaven

The asset

No matter how passionate you are about your business, at the end of the day, it is first and foremost an asset. Investors don’t invest financial resources and you don’t invest your time for nothing. You are trying to build something that eventually the market will determine as a ‘success’.

Surely, I should only start thinking about an exit strategy if things start to take a turn for the worse right? Wrong.

Actually, the best time to start thinking about an exit strategy is right now - and it’s not just about having a back-up plan. Proper planning will make sure you do it at the right time, in the right way, for the right price.

Ultimately, it will also inform how you run the company from day one i.e. do you want to build a business that’s ultimately acquired by another, or are you concerned with legacy and the continuation of the brand's essence?

What do we mean by exit strategy?

Fundamentally it’s about planning how to transition the ownership of your business to another business, to investors, or to another member of the owner's family.

Here’s a quick summary:

  1. Mergers & Acquisitions – For some, this is the goal from day one. It is about two companies leveraging off one another, to achieve greater efficiencies and market share.

  2. IPO – An Initial Public Offering (IPO) or stock market launch is typically underwritten by one or more investment banks. It’s not for the fainthearted but is a great way to raise capital from public investors, and underlines the perceived profitability of your business.

  3. Family Heirloom – Succession in family-owned businesses is often by birth right, rather than skills set so their can be a conflict between the CEO and owner's vision of how to run the business.

  4. Management Buyout – Essentially this is when managers acquire a large part or all of the company. While the management team can reap the rewards of ownership, the transition from employees to owners requires a significant shift in mindset.

  5. Liquidation – Winding up a business through bankruptcy or voluntary dissolution is clearly not number one on any CEOs bucket list. But with more than half of businesses failing within the first 5 years, it’s prudent to map out what this worse-case scenario might look like. Pretending the risks aren’t there is folly. Rather than trying to avoid failure, maybe we should be more concerned with how to fail.

  6. CEO Succession – This is one of the key roles of the Board of Directors, to ensure succession and survival of the business. Sometimes, it takes a great CEO to step back and leave the chair empty for someone else.

How do great CEOs approach an exit?

Great CEOs are cognisant of the following:

  • They start with an end - They know the end goal: grow, stabilise or sell, and the associated life span.

  • They have a strong management team - the execution of any exit plan requires a strong management team that buy-into and support the company's vision. If the skills of their current management bench meet their current and not future needs, then they start to put the feelers out externally.

  • They have a succession plan - they think strategically about their talent bench to make sure their top talent is in the right place, at the right time.

  • They mitigate risks - they put cost control measures in place, regardless of the economic climate, to reduce unnecessary expenses.

  • They think about the day after tomorrow - they think about what comes after. Not just for themselves, but also all those they leave behind. What does a potential buyer intend to do with their business?

So, having a well thought out exit plan helps the CEO get money out of the business, not just for themselves, but for everyone else - while at the same time guiding the vision of the company.

But for CEOs who are also founders, an exit can be easier said than done. As Marcia Kilgore, Founder of Beauty Pie, who sold a majority stake in Bliss to LVMH and Soap & Glory to Boots, explained:

"If you’re also a founder you have to be ready psychologically to move forward. So if your identity and your business are one and the same, get a therapist lined up to help with the ‘cleave’ because it can be a very hard task."

Which strategies have you implemented? What was the outcome? We’d love to hear from you.

Email us your thoughts.

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