Dr. Earl R. Smith II

Dr. Earl R. Smith II
DrSmith@Dr-Smith.com
www.Dr-Smith.com

In the first three articles in this series, I wrote about the challenges of attempting an exit under current conditions through acquisition or merger. The combination of buyer power and uncertainty in the financing markets makes those options very dicey for sellers. In part four and this article I focus on what I see as the most viable exit strategy – a deferred exit.

In part 4, I described some of the ‘basics’ of building a business – creating and banking value that may be realized during an exit when conditions are much more favorable. The first ‘basic’ was the motivation that drives the entrepreneurs to start the business in the first place.

The second ‘basic’ related to the background and experience of the entrepreneur and senior team.

The third ‘basic’ focused on the commitment of the entrepreneur.

In this article, I would like to focus on six more ‘basics’ that come into play when an entrepreneur and team set about building a business that they plan to be involved in for the foreseeable future.

• Team Building: You take a different approach to assembling a team when you have a long view of your involvement in a business. A tendency to bring in ‘stars’ who may be looking for a short-term effort, quick return is going to produce a team which may not be up to the process of creating corporate value through sustained efforts. Instant gratification types need to be avoided. It is important that each member of the team understand the long-term vision and make commitment necessary to make a go of it. The culture within the team needs to be one of building rather then exploiting.
• Forward Investing: Exit strategies that focus on being acquired often seek to drive up margins at the expense of forward investing. The idea is to improve the income statement in an effort to make the company seem more attractive as a target. When you are building a business, margins are less important than sustainability. Companies that are in it for the long haul need to forward-invest in technologies, people, strategic partnership formation and business development.
• Customers Not Markets: An old friend is fond of saying that “amateurs have markets – professionals have customers”. When you are building long-term corporate value, customers matter even more. The team needs to find ways to convert potential customers into actual ones and then keep them happy and coming back for more. A sustainable business model is one that maintains and expands the customer base. It focuses on long-term customer satisfaction and draws information and insight from the customer base that helps to guide the evolution of the company’s value proposition.
• Strategic Planning: Exit strategies that are short-term focused tend to also focus tactically. When you are building long-term corporate value, strategic planning becomes much more important. It is not just that strategic planning needs to be pursued – the team needs to contain members who excel at the process. A good strategic plan is a road map from the present to a long way into the future. I often refer to these unique individuals as ‘visionaries of the farther future’.
• Building Value that is Sustainable: Short-term exit strategies often pursue models and value propositions that have a limited long-term viability. When you are building a business for the long haul, these tendencies can cause real problems. The CEO and team needs to push their minds into the future and envision then build the kind of business which will thrive through the changes and challenges that are certainly going to come.
• Strategic Partners: Developing a strategic partner network is an alternative to being acquired. The nature and effectiveness of those relationships can go a long way to establishing and expanding corporate value. In addition to being an asset of considerable value during a future exit, strategic partnerships can enhance the abilities of the team to establish a sustainable upward trend.

So, what kind of exit strategy is this – building a company to keep? Nothing lasts forever and no set of conditions remains dominate. Change is the one assured component in business. Those who can wait for better conditions will, in the end, do better and realize higher returns on their efforts. Those who cannot will sell into a hard market that will severely discount the value of their company.

Chief’s first rule for exit strategies: If the time is not right, build corporate value and wait; when the time becomes right, sell and reap the benefits of patience and persistence.

© Dr. Earl R. Smith II

Related Articles:

• Exit Strategies Under Current Conditions
• Exit Strategies Under Current Conditions – Part 2
• Exit Strategies Under Current Conditions – Part 3
• Exit Strategies Under Current Conditions – Part 4
• Four Steps to Effective Delegating
• Four Mistakes Entrepreneurs Make When Buying a Business

Dr. Smith is a proven senior executive, successful entrepreneur, published author and public speaker. He serves on boards of directors and advisory boards or as a strategic adviser to CEOs. Dr. Smith specializes in turnaround management, strategic planning, leadership development and executive coaching. He also works as an executive and/or life coach in the areas of personal growth and spirituality. He is the author of Amazing Pace: Turbo-charged Business Development – a book that shows how Advisory Boards can dramatically increase revenue. Dr. Smith is also the author of Dream Walk: Parables for the Living – a book of Raven Tales and exploration.

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