Making a Graceful, Smart Exit

Audio of a 12-minute talk on Making a Graceful, Smart Exit by John E. Anderson, February 18, 2014 at the Institute of Management Consultants - Oregon & SW Washington Chapter held at the Multnomah Athletic Club, Portland, Oregon. John is preparing to publish a book on the subject. Audio Link - WMA format file.

Making a Graceful, Smart Exit

A guide is needed for a business owner to prepare and execute a graceful transfer of his or her business.Smart Exit outlines a process that begins with increasing a venture’s value, then identifying a suitable successor and gradually stepping away, first operationally and then with the final transfer of your business.

The audience for this work is business owners age 50 and older who have operated a business for 10 or more years. However, these principles apply equally to a teenager envisioning an “app” that could revolutionize mobile use.

The organizations we create represent the intelligence of our brain. Intelligence is a collection of nested conditional statements such as “if a then b, when a is, if m then n, and b is, if r then s.”

I assert that if an entrepreneur approaches the venture as if it were a real estate investment, he will have an easier time building great value, then efficiently turning the business over to the next leader. A professional real estate investor buys a property after a careful appraisal. He or she has researched what it will cost to make improvements, possibly gain rental income than the mortgage and upkeep for a time, then sell for a final profit. The investor strives to have operational income and a final return on his investment of time, money and risk.

A venture capitalist operates in a similar fashion, infusing money and talent into a great business “idea” to build value, earn operational returns, and then sell for a final profit. If business owners do the same by identifying a theoretical date in the future by which they will systematize, they will first have operational profit, and then solid profit when the business is sold.

   

But how? A functional business with value is one which is systematized such that it operates with staff independent of the owner. First, you systematize the business so it’s profitable. Then develop staff talent in the system so they can operate it without you and still be profitable. Document the system and why it’s worth the value you assign to it. Identify a new leader who can become the owner. The new leader/owner candidate needs enough commitment and ability for you to mentor their success. They need to commit only enough money to prevent them from giving up while they struggle to learn and apply what you teach them. Design your business system such that the profit is adequate to pay the new leader a living wage while funding the purchase of your stock equity.

The book, Smart Exit, is an elaboration of “how.” Use it to create a story of how your venture meets the needs of customers delightfully and efficiently. Then identify your new leader and make your own smart exit.