Key Question: How do I formulate an exit strategy?
The Online Workshop - Case Studies
If you are struggling with yourself, that is a good thing. Everybody does. You did in the very beginning; why should it be any different! now?!? Here are eight case studies to consider:
1. Give it away. Ebby Halliday had given 49% of her business to her key employees when we taped this episode of the show. Since that time she has given the remainder of the business to her favorite charities throughout Texas.
2. Sell to Someone Close to You. Sometimes somebody in the family, often an employee, Jim Schell talks about selling the company you nurtured into existence.
3. Sell to someone like you. Peter Schenck placed an ad in the Wall Street Journal and sold his business much like you would sell a premier piece of real estate.
4. Sell to the highest bidder: Robert Orenstein wanted to do something different. His financials looked good so he decided to sell. It took three years because he was looking for the highest bidder, a publicly-traded company looking to grow through acquisition. He had an M&A specialist helping him.
5. Sell to your employees through an ESOP: One of the world's experts on employee-stock ownership programs sells the concept. It is very compelling.
6. Sell as a Direct Public Offering:
Go to Money to review more key questions
1. Understanding Oneself - the Basics. Who are you today? How do you want to define yourself for tomorrow?
2. Understanding One's History - the Past. Can you become an adviser, mentor, board member of several businesses to help guide the next generation along the paths?
3. Understanding One's Values - the Present. Remember those early questions, "How do you spend your time each day?" How about public service? How about helping your favorite charities? How about doing a documentary about your business?
4. Understanding direction - the Future. What are you dreaming about these days? Are you seeing the future more clearly? Can you write it down? Perhaps you can create a blog on the company's web site. Perhaps you can work on that most speculative dream that you haven't had the time to do.
Some say, "Good-bye, small business. I'm going to become a big business now." Others say, "I'm just getting a little liquid so I can do a few of the other things I've been dreaming about doing."
There are many exit strategies.
In one episode we looked at the eight possible ways to exit. In every instance, people said things like, "I'll never retire; that's boring; that's death." Most are looking – "I want to do a new business venture." Even Hattie and Bruce (the producers of this television show) have an exit strategy and they share it as part of this exercise.
Some of us go onto the next step by growing larger than a small business (over 500 employees). Some exit just to be able to start over again (but this time they've got some money to do it)! Some sell and join the management team of medium (500 to 5000 employees) or large business (over 5000 employees). Others have gone on to public service in the nonprofit or government sector. And, most have become a mentor to the next generation.
A few do all of the above!
If you have done any part of the above, you've graduated. So, whatever you do, and wherever you go, remember your roots. Remember your spirit. Remember your compassion and mission. Remember you were part of one of the greatest, most important groups on earth -- the small business community!
1. The Basics: Business Model and Life Model
Maximize your business valuation.
You are coming full circle but you are up much higher on the mountain. You will continue to ask yourself basic questions about who you are and what you want to do and what you can do that continues to give meaning to your life. Every answer contributes to your exit strategy. Those answers will also inform your new "personal business model." At the same time, you'll keep watch over the fundamentals of your business, the product line and its evolution, its leveragability and extensibility.
You have been the "key" person and the transitions through this phase are key for harvesting, becoming liquid, and feeling empowered to do those things that you have always thought you should do but never had the time.
Exiting at the Top: This episode of the show is about exit strategies. We believe the last five examples return to the founder the most dollars for their sweat equity and the intangibles. The first three exit strategies are also just fine. It is all a very personal decision.
In the last three examples with the episode, each owner/founder created an equity structure so others could participate more readily in the ownership of the business. As the owner/founder becomes more liquid, ownership is passed to the next generation. Hard-earned dollars are taken out of the business without destroying the business.
* Bridgecreek: Frank Jao is now dedicating 50% of his time to work with people in his homelands. He has returned to China and Vietnam with the US Department of Commerce to help with a diversity of business development projects.
* TiresPlus: Tom Gegax sold his business and now spends time with Depak Chopra and his healing practices. He has written books and he is personally involved with several businesses, especially with the CEO/founder, as their coach.
* Ken Duncan puts his work and his life into perspective.
* Triplex Theatres:These two who tried to retire, play golf, and check their investments. They didn't sit still too long and started again.
2. Your community:
Maximize your business valuation among the people who know you.
This is your business. It has been your life's work; what would you do without it? What would you do with your unscheduled time?
Now when you look into the mirror, you can look back to thousands of steps, all part of building your legacy. So, within an ideal world, what is your unfinished business?
Case Studies for Unfinished Business:
* Consider the leadership story
* Consider the basic relations that help keep democracy and capital dynamic
* Consider joining the war on cyber-terrorism
* Consider your knowledge management
No one method is good for every business. There is no easy and right answer. We prioritized the models by the "dollars returned-to-the-founder."
Our first recommendation: Maximize your business valuation. Just think about it like you would any other business problem:
- Work on it over time. It is far better to do things intentionally than having to make quick decisions where you miss details (especially the value of your intangibles). So, do it over time.
- Minimize your costs of doing that valuation. Talk with your CPA about valuation of your intangibles and try to realistically push them into your assets column.
- Involve your key people. The formal ESOP program requires that everybody within the business be involved. There are many modified employee-stock programs that really begin using the structure of the DPO or a private equity placement.
3. Structuring your day:
At this stage in our life there is nothing more important for us to do than to prepare for the next generation to take over. Creating a smooth transition is not a trivial task. To study some of the case studies associated with each model, please go back to Step 7.
* Franchise. Several of the businesses that we have studied have grown very large through franchising.
* Direct public offering (DPO). Some owners have used private placements and/or the Small Corporate Offering Registration (SCOR) to grow larger than a "small business." These businesses did not do an IPO because they did not want to give up "so much equity for so little," and/or they wanted to maintain control for a little longer.
* Private Equity Market. There is an introduction to the basic concepts in the last section of the Exit/Equity episode of the show. , This is not venture or angel capital; these are private placements and somewhat akin to the offering memorandum, except within this structure there is a standardization for valuation and there is a secondary market so your investors can more readily get liquid.
* Employee-Stock Ownership Programs. Some of our small business owners took the final step -- became liquid -- by selling the business back to the employees.
* Mergers & Acquisitions (M&A). For most of the business owners we have studied, their last step was to be acquired. They sold their business. A few businesses have grown very large by acquiring others.
* IPO (Initial Public Offering.) Be very careful here. You're playing with the "big boys" and you will not be a small business for long or you will be out of business. Often IPOs kill the small business spirit; and this money usually will cost you the most to obtain, but you may also be able to obtain more here than from any of the other four options.
Direct Public Offering (DPO). You can raise money from a private placement with a limited number of qualified investors using an offering memorandum. Or, you can raise money from an unlimited number of unqualified, smaller investors using a Small Corporate Offering Registration.
Learn the difference between both documents, an offering memorandum and the SCOR document, and how to decide which one to use.
There is only one reason to go public: Raise Capital
First, we assume that you have a good track record and a good story. You should have at least one of these other components:
4. Projecting your new days.
Once you have defined and exit strategy, implement it.
We sincerely invite you to join us in a special way. As usual, you have many choices as to how you spend your time. But know that you are a valuable resource for this country, a mentor to small businesses, a senior adviser within your national trade association... you have earned your "wisdom wings."
You can volunteer. You are probably well-aware of the Service Corp of Retired Executives (SCORE). Though it is part of the Small Business Administration (SBA) and often the executives are from larger businesses, it is a good group. There are also independent groups like Jim Schell's OK Groups or Opportunity Knocks. The invaluable service to their communities cannot be exaggerated.
We also have a proposal for you. Having come up through all eight steps of the small business mind, we invite you to work with us specifically to implement a Small Business Index of Growing Businesses.
This index would be only for good businesses. They would be invited and qualified, and the index would be dynamically based on every closing -- day-end, week-end, month-end, quarterly and annual -- of key financial ratios of each business and this information would be available by industry type for the most dynamic economic research from a sector of the economy that is always under the radar. No particular business' financial data would ever be available for specific analysis.
It is a trust muscle that must be exercised.
Such an index -- let us dream of the possibilities -- if based on 40,000 of the best small businesses in the USA, would put these businesses in position to get the capital they need to grow.
Just in the USA the annual shortfall of dollars for small business owners who apply for SBA-guaranteed loans generally ranges between $50 billion and $70 billion dollars each year. That is just the people who apply. Add in the people who do not apply and the figure could be multiplied by some factor of ten.
A little common sense tells us that the global shortfall for good businesses is a factor in the hundreds.
A key goal of Small Business School is to change the dynamics then these facts.
If you would like more information about any topic in this section of the web site, please drop me a note, and I will try to respond as quickly as possible. Thanks.
- Bruce Camber, founder, Small Business School