The one question you must ask for exit strategy success
September 16, 2015
I have participated in many business conversations about exit strategies and worked very hard to help people who had a lot on the line to navigate this complex matter. Don’t get the wrong idea. I’m not an expert and we’re not talking Donald Trump Wall Street deals here. Nonetheless, I’m offering just one of the many lessons I learned. Failure to apply it can be costly.
Point of clarification: An exit in business can occur in many ways, including the very same way you might evacuate a building because it’s on fire or retreat in war when ordered. There’s no time to ask questions. There’s no strategy. Just make it out alive. This article is about exit strategy, while time and opportunity exist.
The question came from a seasoned buyer, a “PEG” as they are sometimes called, a Private Equity Group. These are buyers who know numbers. They know their numbers and they know the numbers of the seller across the table (likely better than the seller knows his or her own numbers). They’re sophisticated investment managers. One reality of their business is sourcing and qualifying deals. This is where I heard the question.
The investor, we’ll call him Charlie, had been presented with an opportunity to purchase a successful business. We’ve already established that Charlie naturally likes “deal flow.” It was his first qualifying question: “Then what?”
Charlie wanted to know what the seller’s plans were if a deal were to be reached and the seller were to no longer own or work in the business. His unspoken objective was to find out how much thought the seller had put into the situation. With a large asset at stake, a serious party would have thought long and hard about all aspects of what he was doing before he ever walked into Charlie’s office. Any hesitation or lack of clarity on the part of the seller to answer this question would speak volumes.
The more I reflected on that experience, the more it became a critical part of my work. It is our nature to limit our thoughts about risks and rewards to our own situation and exclude everyone and everything else. Exit strategies are also forward thinking so the connotation is mostly positive, even sexy in a nerdy, business kind of way. We fail at times to consider much past the culminating event as we see it. Truth is, someone else’s plan is just starting at the point in which ours ends.
Sometimes, the fire alarm is ringing and everyone needs to get out. Sometimes, the roller coaster has come to a stop and it is someone else’s turn. Failure to consider “Then what?” exposes a nearsighted, short-term mindset. That’s like staying seated every time the roller coaster stops. At the very least, you risk negatively affecting others. Ultimately, the park is going to close and you will be stuck.
What are you planning? Actually ask yourself the question. Ask your team. “Then what?” Ask it again and again if necessary. Does it take you to a realistic and meaningful conclusion? Who else and what else should be considered? Have you thought about it? Would you pass Charlie’s test?
My own challenge comes as a part of the work our team plans and carries out to make an “impact that lasts” in the lives of remarkable people around the world who suffer through some of the most difficult living conditions on the planet. Our objective is to economically empower individuals, families and communities to address their own needs and challenges. This is the antithesis of handouts. In this, we face our own version of a successful or unsuccessful exit from a service role. We can generate ideas for investing in people who want to help themselves, but we too must answer “Then what?” If we can’t, we don’t just lose deals, we do harm to people already operating on razor thin margins.