The top five causes of startup exit strategy failure
24th June 2018
I’m not the biggest fan of mazes.
Hampton Court was my nemesis – I’d find myself at yet another dead end with the realisation that although I knew there must be a way out there was no guarantee I’d find it.
Which is pretty much how most of us approach our businesses. Speak to any business guru about the essential considerations for a startup, and an exit strategy will be high on the list – yet it will be far from the minds of the majority of people setting up a new business.
Which is a shame, because it is often only when the time comes to sell the business that the lack of an exit strategy hits home. The Government estimates that around 100,000 otherwise viable businesses close each year simply because no-one wants to take them on. With the average age of small business owners steadily increasing succession failure is a growing issue.
Here are five of the top causes of startup exit strategy failure:
1. Unclear business objectives
If the owner is more concerned with their lifestyle outside of the business, the likelihood is the goals and direction of the business may have been put on the back burner. Businesses with clearly formed objectives and evidence of working towards them are more attractive. This level of business focus also points towards the business having some form of succession plan in place.
2. Poor business performance
For most, poor performing businesses are not attractive ventures. Looking to exit when your business isn’t doing well doesn’t give the best impression to a possible successor, especially if there’s no clear pre-existing exit plan.
3. Business reliant on specialised knowledge
The more reliant your business is on you, the less stable the business is as a whole. If you can distance yourself from the core of the business’ processes, the better it will look to a potential successor. A successful and efficient business is far more attractive than one heavily reliant on a celebrated owner. Once that owner has transferred, what is there to say business will still thrive? Well established systems and processes can easily fall apart once you remove the vital operational know-how.
4. Lack of transfer planning
There needs to be time for this knowhow to be passed on and retained in the business, so start early! Transfer plans are generally considered too late, or only when the survival of the business is relying on it. The longer the handover period the better, as it leaves a bigger window of opportunity for the specialised knowledge of the outgoing owner to be transferred.
5. No suitable or willing succession candidate
Sometimes the most adept candidate for succession is a third party, but there may be reservations in transferring your business over to someone you might not know so well. For this reason, family and internal transfers and are historically very common. Whilst you might trust a family member or current employee more than an external candidate, just because they are closer to you it doesn’t mean they will have the necessary skills… or even the want to do it. Recalling the issue about the lack of transfer planning, a longer transfer period provides the opportunity to build a rapport with the third party or develop the employee’s/relative’s skills, resulting in the perfect succession candidate.
In short, when considering startup exit strategy, the earlier you start planning for exit the better. It’s inevitable, so do not put it off until it’s too late to plan adequately. An early, well formulated and ongoing development plan coupled with clear business objectives can be the key to ensuring the best possible outcome from a business transfer.