Imagine this scenario as a company founder, you find the perfect person to sell your business to someday. The buyer pays in cash in one big juicy check, meaning nothing stands between you and endless cocktails on the beach.
Only this rarely happens. Why? Because lots of founders let ego or lack of planning get in the way of their successful exit from the business. The good news is that you can take steps today to help you better prepare for the big day.
Build A Succession Plan
One of the biggest traps founders fall into when they sell their business is that they have failed to develop a leadership team capable of following in their footsteps. That’s not something you can do overnight. It’s a plan you need to start taking action several years before by ideally identifying at least three people with high potential and gradually giving them more responsibility inside the company. And you don’t have to hand over control of everything. Often, the founder remains CEO but promotes their top candidate to the president role, where they are groomed to take over the big job eventually.
Take A Step Back
I can’t tell you how often I have watched a management meeting during due diligence for a sale where the CEO can’t help themselves from being the center of attention. As the buyers watch, the CEO shows off everything they know about the business and its operations. They dominate the entire conversation. It’s their baby, after all. But what happens is that the buyers quickly become convinced that this person is far too valuable to walk away from the considerable investment they are about to make. In other words, the CEO’s ego just bought them a new job.
Watch Out For Earnouts
Another trap that founders fall into when trying to exit their business is that they agree to take an earnout from the buyer. An earnout bridges the gap between the enterprise’s market value today and the sellers’ projections. If the business does better in the future, the seller gets paid a sweetener. But what happens all too often is that the buyers doubt whether the company can fulfill the lofty growth expectations behind the earnout without the founder’s help. The founder might even be cynical enough to think the sellers might purposely tank performance so they don’t have to pay the earnout! Whatever the reasoning, the result is the same: the founder remains in the business. That’s why, when negotiating the deal, it often makes sense for a founder to ask to minimize the earnout percentage to help ensure it doesn’t become an anchor tying you to the company into the future.
Embrace Accelerated Obsolescence
If you are forced to stick around the business due to an earnout or other reason, you need to take active steps to wait for it – stop doing work. I know, I know: entrepreneurs are hardwired to get stuff done and make things happen. But if you genuinely want to find your way to the beach, you need to take active steps to delegate any authority or functional role someone tries to impose on you before the sale. Step out of the limelight and let your team shine for you. Stopping working and creating can be extremely difficult for founders to embrace, but it’s essential to your successful exit.
Face Facts: Entrepreneurs Don’t Last In Big Companies
The ugly truth is that entrepreneurs and big companies don’t mix. Over my 17-year career coaching CEOs, the longest stint I have seen a founder last inside the company that bought their business was 12 months. Why? Because entrepreneurs are used to moving fast and making decisions on the fly. That’s not how big companies operate. Everything is slow-paced, deliberate, collaborative, and suffocating for entrepreneurs. I’ve even had entrepreneurs confess something like: “I can’t believe they make money given how slow they are.” That’s why, no matter what, you’re likely to leave the business regardless. So why not take steps to go on your terms?
A Successful Exit
Leaving your company–the thing you spent so much blood, sweat, and energy to build up–is never easy. But if you have a dream of retiring, then it’s time to start putting a plan in place to leave the business before you even consider selling it. Maybe even years before. That way, you have a better shot at controlling the outcomes and ensuring your baby is in good hands after you retire to the beach or to that next start-up.