National Post (National Edition)
It’s never too early to plan next step
DEFINING GOALS HELPS IN ESTABLISHING EXIT OPTIONS
What’s your exit strategy? It’s a question entrepreneurs get asked by investors, peers and friends as they grow their companies. For some, the goal may be an acquisition, for others an IPO, and for some it’s building a profitable, independent business they can run indefinitely. But regardless of what that exit strategy is, it’s important to have one, even in the earliest days of your business.
The need for an exit strategy was highlighted by investors and entrepreneurs at the recent Dell Women’s Entrepreneur Network Summit in Toronto, which brought together 200 female entrepreneurs, investors and media from around the world. Many of the attendees have successfully exited businesses, and the common thread among their stories was that founders need to start thinking about exits early.
One entrepreneur who started planning early is Mandi Gunsberger, an Australian entrepreneur who founded parenting media company Babyology. Gunsberger launched the company as a parenting blog from her kitchen table in 2006, and built it to over one million monthly unique visitors per month before selling it to children’s radio station Kinderling Kids Radio in August 2017.
In her case, a few years prior to the sale, Gunsberger started planning for an exit. She started by making a list of potential acquirers and starting to form relationships with them, so when the time came to go to market they were already familiar to her.
She advises other entrepreneurs to make a similar list of potential acquirers, and to build relationships early so you understand what they’re looking for in an acquisition, and what matters to them.
Next, she focused on the team. She knew she didn’t want to stay on after a sale, which meant putting key executive hires into place so a potential acquirer didn’t see her as integral to the sale of the business.
She hired a general manager and director of sales, and since she had a number of freelance content creators, she also ensured she owned their content and IP, something a potential acquirer would need if they were to buy her content library.
“I didn’t want any of the equity to be in me, I wanted it to be in the company,” Gunsbergersaid.
“I was really careful that it was never about me.”
Gunsberger had also met an adviser years prior, whom she engaged to help her with the sale of the business, and she advises any entrepreneur navigating this process to find an adviser or broker they can trust through the process.
In her case, her adviser had built and sold businesses in the media industry, so he understood her industry and them& a environment.
Together they worked out the terms of what she was looking for — an up-front payment rather than an earnout, and no requirement for her to stay on post-acquisition—and put together an offering memorandum that highlighted the business opportunity to potential acquirers.
“Don’t go it alone. An adviser keeps both sides calm and happy,” Gunsberger said, adding that advisers can ensure your goals are met, whether that’s trying to get the best price, or ensuring you get the post-sale lifestyle youwant.
In the end, Gunsberger received seven offers from Australian media companies,and selected the one that best matched her criteria. Because she had planned in advance, the transition was seamless, and she’s now figuring out what to do next.
Marla Schwartz also echoed the importance of starting to plan an exit early. In 2004, she joined Benecaid, a company that offers benefits programs to SMBS, as president and CEO after being an early adviser and consultant since the company’s launch in 2000. She ran it like a public company from Day One, and worked with key team members to hire an independent board of directors, bring in outside investors, ensure the business was audited, and create a set of employee and workplace policies that were kept up to date.
There was never a plan to sell, but she created her criteria for an exit early on, so when she was approached by potential acquirers over the years, she could easily compare their offers to her list. Her list was simple: keep all staff members on board, since many of them had been with the company since the early days. the deal couldn’ t include an earn-out, and Schwartz wanted to exit the business after a sale.
Like Guns berger, Schwartz hired senior staff to ensure a smooth transition — in her case, a CEO who came in almost four years prior, hired his own team and evolved the culture to mirror his style. Essentially she made herself “needed but not necessary” to the daily operations and the culture, which made for a smooth exit.
Since she had a list of criteria for a sale, when the right buyer came along who matched all her requirementsit was easy to say yes, and in April 2018 Benecaid was acquired by April Group.
For entrepreneurs who are just starting out, or for those who are considering a sale down the line, the advice from DWEN entrepreneurs was consistent. It’s never too early to start planning and considering exit options.
First, define your goals or requirements around things like the valuation, the culture at the acquiring company, the type of sale, your earn-out period, and whether your team will be part of the sale. Next, you should know who your potential acquirers are, and start building relationships with them well before you make an ask. You should also engage lawyers early to ensure you have everything from IP to company structure set up the right way.
Another external resource to consider is an external adviser or broker — someone with expertise in your industry — to help navigate the process and get you the best possible deal. And finally, if you don’ t want to be apart of the acquisition after it happens, you need to make yourself needed but not necessary so they’ re buying your team and your company, not you.
While it may seem counterintuitive to start with the end in mind, starting early can ensure you save yourself headaches down the road.
(Disclosure: In the past my marketing agency Eighty-eight worked on a project with Benecaid, but it is not a current client.)
DON’T GO IT ALONE. AN ADVISER KEEPS BOTH SIDES CALM