As a new SMB owner, the way you will ultimately surrender your company is probably the last thing on your mind. Instead, your frontal lobe focuses on securing funding, setting up space and systems, perhaps ordering inventory, and certainly building relationships.
Founding and operating an SMB can be like a chess game. The market will present challenges. It’s the CEO’s job to anticipate them and stay active on the board.
Not every SMB will take the same path. But founders who identify their reasons for starting a business can plan their exits better.
Are you an SMB owner, an entrepreneur, or a passionate person in the middle? How do you define the philosophy behind your business decisions?
Many SMB owners want work-life balance. They want control over how many hours and when they work so they also have time for personal pursuits.
Entrepreneurs, on the other hand, will give their last brain cells and every waking hour to their businesses. They also may plan an end game—acquisition by an established mega-brand or IPO—more readily than other SMB founders.
The passionate people in the middle waffle with opportunities to grow and expand. They may seek the potential that entrepreneurs chase, but fear sustaining a new business location, an additional product or service, or a larger workforce.
Once you define yourself, make your identity clear to your partners, investors, and employees. That matters. After all, an SMB owner’s “expense” is often an entrepreneur’s “investment.” The entrepreneur may be looking toward a big payoff, but those who go into small business for work-life balance or who resist growth need to get their money out of the business, too.
Stay private. Most SMB owners will choose this route. It provides the greatest autonomy and flexibility. Often, the founders of private companies elect to stay private because they don’t want to lose control of their business nor answer to anyone else.
However, remaining private can limit liquidity for investors. It also can hinder the career paths of talented employees; there’s no place for them to grow. And privately held businesses need to be adept at bootstrapping. The alternatives are seeking outside help or folding.
Go public. Entrepreneurs especially may seek IPOs. Famously, the founder of Friendster turned down a $30 million acquisition offer from Google in 2003 because he was hoping to build the next billion-dollar company himself.
Some entrepreneurial startups have truly unique value propositions and are well-positioned with business strategy (though not always financial and accounting rigor) for an IPO. Few other SMBs go public. In fact, in the universe of millions of U.S. companies, only about 7,000 are public.
The decision to go public becomes, for most, a branding event that delivers instant legitimacy to their business model. The cash influx fuels growth, stock can be used as currency to make acquisitions, and a public company receives better financing options than a private one of any size.
However, public companies are subject to regulations. Leadership immediately has increased accountability and must face scrutiny from industry regulators, shareholders, analysts, the press, and the public at large.
Opening a company to numerous shareholders drives growth, but comes at a cost. The business owner’s focus falls away from the movement of the company toward its functional goals. It falls instead on the financial goals. As the executive of a public company, the entrepreneur must have a well-defined business model, because going public is a big distraction.
Sell. Selling the business is an option for both privately held and public companies. For a private company, it’s the first time the business has a real value (other than that tied up in inventory) because it has real liquidity. Private companies, unlike public companies, can negotiate on price in an acquisition. For public companies, the market sets the value of the business relative to others in the industry.
Whether public or private, your business’s financials should be in order, with documents dating back to the company’s founding. You’ll need pro forma statements at both summary and detailed levels as well as support for assets and liabilities, revenues, and expenses. In addition, company processes should be clear and repeatable, showing buyers you are committed to a smooth and effective transition. Clean client lists and proven processes also boost the value of your business.
The reasons to sell number almost as many as the companies that go this route. However, be careful what you communicate to interested buyers. Don’t complain that you’re tired and just want to get out. Don’t confess that you have no successor or that your health is poor. You want to sell because another company has made you a great offer, not because you have no other choice.
The sooner you know your end game, the sooner you can position your SMB, your brand, your processes, and yourself to create the enterprise you desire. Then, be on the lookout for pivot points.
You may revise your exit strategy; family members or a group of employees may ask to succeed you in leadership. A competitor or diminishing marketplace opportunity may force an early exit. Another business may recognize that the capabilities you’ve built fit its strategy; acquiring you will save it time developing something similar.
Making early plans about the late stages of your leadership supports your success and flexibility.