When considering a successful exit from your business, it is important to develop an ‘exit mindset’, one that encompasses the past, present and future of your businesses’ potential. Unfortunately, the majority of owners are too busy running their business to allocate the necessary time to balance these different mindset ‘time zones’. And, they do not realize that their “time zone” mindset evolves and changes as their business develops. The result is usually a mindset that is improperly calibrated for a successful exit. This newsletter describes the various “time zone” mindsets that an owner experiences with the start up and growth of their businesses, while also offering a solution for developing an ‘exit mindset’.
New Business Owners are all Futurists
As a business owner, the allocation of your time has likely gone through transitions as the business progressed. In the beginning, the emphasis was focused on the future. Products, services and markets are developed. Plans are set to ensure that future benefits are realized. This is a time when the owner’s mindset is the most positive, full of hopes and dreams about the future. This mindset is accompanied by tremendous optimism, passion and creative thinking. There is very little thinking of the past—it just doesn’t exist at this stage of a business.
Past, Present, and Future – The Mindset of an owner during the growth phase
As the business grows a transition in mindset begins to take place. Though the owner is still focused on growth—the future—more time is now be spent on the present and past. Additional time will be allocated to the analysis of budgets and the reassessment of the previous year’s activities. Owners will find themselves dealing in the present tense with operational, employee and financing issues and in the past with prior performance issues. That said, business owners still continue to be engaged with the future, but to a lesser extent, so business development continues to occupy a portion of the owner’s mindset.
In this phase of the business cycle the owner’s mindset is fully engaged with all three time zones concurrently, past, present and future. However, the concept of exit planning will not occupy any of the time dedicated to thinking about the future. It’s not something, unfortunately, that most owners become occupied with until it becomes a ‘present’ tense reality. Note that an exit, as a ‘present’ tense reality, generally manifests itself in the form of an unsolicited purchase offer, pressure from a management team, a personal tragedy or an illness. A proper ‘exit mindset’ will allow you to be proactive with your exit instead of reactive. But let’s also look at the final stage of a business owner’s mindset – maturity.
The owner’s mindset in a mature business
As a business enters into the maturity phase of the business life cycle, there is a natural tendency for the owner to be more present and past tense oriented. The risk tolerance for expanding product lines, developing new markets and general business expansion—all future tense issues—start to decrease. The acceptance of limited growth and even status quo becomes more predominant. At business maturity, owners then tend to spend the majority of their time working ‘in the business’ rather than working ‘on the business’. At this stage, they simply lack the initiative to work on and think about the future.
This can be, perhaps, the most dangerous period for a business owner in the context of a successful exit plan. The business will have accumulated significant amount of wealth in equity and goodwill as products, services and the brand become established. However, the need for the business owner to allocate time to the ‘future’ has not diminished – in fact, one could easily argue that the ‘exit mindset’ is more critical than ever before because there is so much more at stake.
Exit Planning recalibrates the clock
Because owners lose the ability to develop an ‘exit mindset’ they lose out on knowing the optimal time and manner in which to exit. Actually, by the time most business owners begin to contemplate and plan for an exit, the business may have already been in significant decline, making the exit less beneficial to the owner. There is significant risk in not preparing in time.
Creating an exit plan with an ‘exit mindset’ essentially ‘recalibrates’ the clock of the business owner. It forces you to think about some crucial issues. Are you mentally ready to exit? What will you do after you have successfully exited your business? Are you too attached to the business to even contemplate an exit?
The discipline of developing an ‘exit mindset’ and writing a formal exit plan has the benefit of having the owner recognize the value of all that they have built into their enterprise of many years. The critical component of this mindset is the context in which you view your business and exit. Recognizing that the exit planning process is essentially a compendium of past, present and future time zone considerations wrapped in one, an owner is empowered to protect their illiquid business wealth with a well developed ‘exit mindset’.
Copyright Business Exit Timing LLC and Pinnacle Equity Solutions © 2012