The Importance of a Business Plan and an Exit Strategy

Founding a startup is a hard decision and a huge undertaking! Do you have what it takes to make this type of commitment? Have you researched what it takes to be an entrepreneur?  Nick Taranto in a Huffington blog likens founding a startup to taking the red pill:

In The Matrix, Morpheus offers Neo a red pill and a blue pill. “You take the blue pill — the story ends, you wake up in your bed and believe whatever you want to believe. You take the red pill — you stay in Wonderland, and I show you how deep the rabbit hole goes.” When you decide to take the plunge of founding your own start-up, whether you like it or not, you’ve already taken the red pill. There is no going back to the contrived reality of suits, face time, and death by PowerPoint. The rabbit hole is deep. Giving up is not an option. The only way through is deeper.

Most Startups take the “Just Do It” mentality and dive into the business world with high expectations and bodacious dreams; yet many fail to prepare a strategic plan to ensure their journey is a success. What is even more striking is the not the fact that most hungry entrepreneurs enter the business world without a business plan, but even more enter without an exit strategy. Founding a startup is an incredibly rewarding journey and several unknown factors can present themselves overnight, requiring the business owner to begin to review their exit options. Those who plan accordingly are not alarmed. Unfortunately, most business owners do not know where to turn to, or how to approach their business journey decent.

Proven studies have shown that writing a business plan helps business owners improve their product and service, communicate more effectively with their target audience, generate greater sales, and survive over a longer period of time. The business plan sets the businesses goals and objectives and they need to be monitored, evaluated, and updated on a quarterly and/or annual basis. Further, the exit strategy is an integral part of the business plan and needs to be reviewed each time the business plan is updated.Understanding the position the business is currently in and adjusting the qualitative components of the business operations can really leverage the business’s overall value.

“Many entrepreneurs and business investors are very interested in the historic financial performance of a business,” says Joe Braier, a Mergers & Acquisitions Advisor of VR Lakes Business Group in Waukesha, WI. “However, that is just their initial review. Individuals looking to execute business acquisitions are looking for strategic opportunities that include favorable “Business Value Drivers”. These are the components that set apart one opportunity from another and determines its overall worth.”

By consistently evaluating the exit strategy, the founders can work towards positioning the business accordingly. “One example of a business value driver is the owner’s duties and responsibilities,” Says Braier. “Many buyers do not want to buy a business where the business owner is doing everything. The ability to delegate is key.

The most successful exit strategies are the ones that are planned in advanced; however, those startup owners who surround themselves with experts in the field to package their business appropriately end up leveraging the overall value of the business. With the proper planning and appropriate strategy, founders can maximize their value and turn their business into a retirement golden egg when the time is right to exit the business journey.

Mashable list these exit strategies do’s and don’ts:

Exit Strategy Do’s –

  • Broad presence: 
  • A committed team: 
  • Market need: 

Exit Strategy Don’ts –

  • Uncertainty about your business model or ultimate goal
  • Going niche: 
  • Misusing the freemium model
For an alternative viewpoint read Wired’s Startups shouldn’t be thinking about their exit strategy at the outset.

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