An exit strategy all starts with one idea. An excellent idea that you then share with someone. This someone says, “I think that can work.” And you’re off. You start making things happen. Your idea takes off after putting in a lot of work, and now you officially have a startup.
As is the case for most founders, their dream is to see the startup thrive and grow into a full-fledged business, so probably the last thing you’re thinking about is leaving your business.
An exit doesn’t necessarily mean that you’ll sell your company and be done with it.
An exit strategy outlines the path that you — or any investors involved — use to realize some (or all) the value of the startup you have grown.
This article shows how having an exit strategy can help your startup grow faster and what your options are.
What is an Exit Strategy?
An exit strategy is a process by which you outline the steps you’ll take to prepare your business for an acquisition by a third party. It is critical to plan the exit since you and your investors will typically realize the profit from their investment in your startup.
Here are three of the main reasons why you need an exit strategy.
1. It helps attract investors
Finding investors will be a crucial part of your growth strategy unless you are going the bootstrapping route. So making sure that your startup is attractive in their eyes needs to be one of your priorities.
It’s important to remember that an investor’s goal is to make a profit from their investments. And if you have a clear and realistic exit plan, your investors will know exactly when they may expect the return on their investment. This will give them a real-time frame and will let them better evaluate the risk of the venture.
2. You will focus on the value of your startup
Knowing how much your startup is worth gives you insight that you can use to plan your strategy. For example, you can emphasize finding the best talent in your segment, or you can build assets that will increase your company’s value. Whatever path you choose to follow, the most important element is being aware of the value you are creating.
3. It gives you clear goals
Growth can be achieved through several routes. Many startups have a problem: after they’ve reached an initial stage of development, they can lose focus.. This, in turn, means that they end up wasting time and missing out on opportunities.
If you have a clear exit strategy, this can help you align all your efforts so that you can focus on achieving the necessary conditions for you to start implementing your exit strategy.
Three Types of Exit Strategies
There are many options when it comes to exit strategies.
As stated earlier, not all of them require you to stop being involved in your startup. As a matter of fact, in some cases, founders are required to remain in the organization. So it’s crucial that you understand each of your options to have a better grasp of what they imply for you and your team.
Here are three exit strategies for you to consider.
1. Mergers and Acquisitions
This is what happens when you receive an offer from another business to buy your business. In other words, you are selling to the other party all of your assets. The buying business can do this because they want to expand geographically, eliminate competition, or because mergers are part of their growth strategy.
Whether you continue or not being part of the team is something that can be negotiated. As a matter of fact, most conditions can be arranged in this kind of deal, which means that you maintain a significant degree of control over the transaction.
Human resources is one of the most coveted resources for businesses today. In some industries, finding the right talent is the biggest bottleneck for growth—it is for this reason,acquihires have become such a popular option for startups.
An acquihire is when you are made an offer to buy your startup with the intention of absorbing your human resources. This is an excellentt option for founders since it means that your team members will be taken care of, and you get an exit.
3. Initial Public Offering (IPO)
Also known as going public, an IPO is one of the most profitable exits a company may have. It has a huge potential upside since you will now be offering shares of your company to the public. This is the strategy that made Facebook, Uber, and GM increase their value rapidly.
The downside to this strategy is that there are high regulatory costs, and there is always the possibility that the market does not react in a good way.
There are many ways to make an exit that makes it worth your time and effort to grow your startup. However, it is essential that at the core of them all is your financial health.
An exit won’t be an option ifyour startup doesn’t have solid bookkeeping and a sound money management strategy. If you are looking for a financial partner to help you define the best scenario to pursue an exit, click here to schedule a call with one of our startup experts.