It is oft said that entrepreneurs are defined by their exits. Whilst their product may have revolutionised a market or solved an age-old problem, its success is not set in stone until a big fat offer is put on the table. One can reasonably argue that an business owner who doesn’t have their exit in mind from the start doesn’t fit the definition of ‘entrepreneur’, at least in the minds of the majority. “The difference between an owner and an entrepreneur is a true entrepreneur is always on the lookout for the next opportunity,” says Jo Haigh, senior partner at corporate finance and business support company, fds. “Staying still is not an option.”
This suggests that an exit can only take one form: the acquisition. But this is far from the truth. After all, in the most literal sense, ‘exit’ implies the end of one person’s involvement, or dominant position, in an enterprise. But regardless of how one’s exit looks, failing to make any preparations for the big day is a dangerous game to play.
“An exit doesn’t have to be absolute; there are many kinds of exit including partial equity release, MBO or float,” adds Haigh. “But whatever you choose, you need options or, like a ship without a destination, you float around using fuel for the wrong purpose.”
The same is true of an entrepreneur who, whether through chance or choice, steps away from a business to which they are personally attached. “There are all sorts of things that can send you off course be it illness, change of fortunes or even an unexpected opportunity to do something else” Haigh continues. “None of this should change the fact that you need to focus on an end goal.”
It also goes without saying that someone who wishes to forgo a sale for the sake of keeping a business in the family must operate in a way that makes such a process as successful as possible. “Whilst this may be a very valid plan, the great entrepreneur needs to consider not only exactly what he is handing over, but to whom,” says Haigh. “This sort of exit needs years of planning and the really astute entrepreneur will ensure that the heir apparent has had plenty of experience outside the family business.”
Ultimately though, there is a reason that acquisitions tend to garner more attention than a retirement or liquidation. Selling a business for an astronomical sum serves as evidence that an entrepreneur has ‘made it’ in the eyes of both their peers and everyday members of the public. Moreover, it means the individual can enjoy a comfortable retirement and puts them in a position from which they can launch new projects – confident of making them a success – as well as attract the interest of fellow business tycoons, who may want to explore the possibility of a joint venture. Essentially, these types of exit are often the domain of the serial entrepreneur.
How, then, can an entrepreneur ensure that when it comes to the crunch, they go away feeling that their efforts have been sufficiently rewarded? A decent first step appears to be removing any emotional attachment to the business and focusing firmly on the end game. “My background before was property and, in property, it is very unemotional,” says Phil Cooper, an experienced digital entrepreneur and founder/CEO of collaborative accommodation platform Kippsy. “With a business, you do get emotionally involved, so it is very difficult to actually look at exit. But I think it is important to say ‘I am building a business here – who is going to buy it?’”
All things considered, moulding an attractive business proposition won’t happen overnight. As innovative as the product or service may be, there are other components of an enterprise that give it value and will go some way to maximising the eventual sale price. Haigh stresses that the human element is of upmost importance in this regard. “By and large people make or break a business. Without the people there is often little to sell,” she says. “A good product, market position, investment in R&D and strong cash generation all help but this is rarely, if ever, sustainable in the longer term without a team behind it.”
Being sensible with money from the outset is also a useful strategy. “It is a good idea to always think about whether the decision you are making today will add value when you come to sell, or reduce the value,” says Mark Mills, serial entrepreneur and founder of entrepreneur network Activate. “If you are signing a silly agreement with someone that is probably not going to work, is it going to help the business or is it going to hinder you when it comes to selling it?”
Mills can speak from considerable experience here having sold five businesses of his own, including ATM installation firm Card Point, which was valued at £170m in 2006, seven years after he founded it. He adds that getting a firm plan of action written down can pay significant dividends. “If you work on the basis of turning an idea into a plan, and do it in a granular fashion, then what happens is the future becomes quite predictable,” he explains. “So from the perspective of exiting, you can say ‘if I do turn this idea into a plan, and it is granular, I can see it will make £1m per year by year five – and these businesses typically sell for seven times their annual profit – so I know in year six I can sell this business for £7m.’”
The idea of all of this – in a sense – is to remove some of the stress of the exit process itself. In an ideal world, a high price should be more or less guaranteed if you have built your business sensibly and professionally.
But it isn’t all that easy. It wouldn’t be an exit without at least some negotiation. Suffice to say, tackling this alone can throw up numerous problems, even for the more astute of entrepreneurs. “One of the biggest challenges from the exit process – particularly if you are doing it on your own – is that it is very difficult, in fact nearly impossible, to both run your business and sell it at the same time,” says Mills. “Selling a business takes up lots of time and invariably the business itself can suffer. And if the business suffers, what happens in the process is your price tends to start to nibble down because the buyer says ‘it is not quite as good as I thought’.”
Therefore, whilst the entrepreneur will want to have the final say, leaving the nitty-gritty to experienced deal-brokers is a very wise approach indeed. “People who own the business should really be about presenting in its best light rather than arguing over the price,” Mills continues. “It’s a bit like when you sell your house. You don’t actually stand with the buyer with them saying ‘I’ll give you £400,000’ and you saying ‘make it £420,000 and we’ll do a deal’. You do it through an estate agent because you don’t want to be as personal about that deal.”
Obviously, building your business to a point where it is attracting buyers is an achievement in itself. But all the sweat and tears can go to waste if the exit process isn’t handled efficiently. Cooper has already been at the centre of the two lucrative exits, but still maintains he could have got more from them. Specifically, he warns of the dangers of an earnout, where part of the purchase price is paid upon the achievement of specific financial goals within a given period after the deal is finalised. “I am not the only one who has had bad experiences in selling businesses in the sense of not realising the full intended sale price,” he comments. “You must remember that when you sell a business, you need to be happy with what you get in your hands and consider any earnout to be a bonus, because if you expect the earnout to be the substance, you could get disappointed.”
However, this has certainly not deterred Cooper as his latest venture Kippsy is already getting serious traction in a high-growth market. And he has some words of encouragement for fellow entrepreneurs keen to secure that first sale. “It can be difficult sometimes to see yourself getting through that process but you do. A good, clean business that can be scaled will sell at a decent price.” 
