How To Formulate A Founder Exit Strategy

At the end of the day, some entrepreneurs simple don’t want to bother thinking about this sort of stuff. After all, very few of us would like to...

The Internet loves to perpetuate the ongoing myth that the globe’s most successful startup founders are all scrappy college dropouts – but the truth is, most entrepreneurs aren’t ready to take the plunge until they’re in their forties.

According to 2015 research by The Kauffman Foundation, “younger entrepreneurs (ages twenty to thirty-four) have been on the decline, down from 34.3 percent of all new entrepreneurs in the 1997 Index to 24.7 percent in the 2015 Index.”

Moreover, “the aging of the U.S. population, combined with the increasing rate of new entrepreneurs among individuals aged fifty-five to sixty-four, have shifted this group from making up 14.8 percent of new entrepreneurs in the 1997 Index to 25.8 percent of all new entrepreneurs in the 2015 Index.”

 

Who Will Replace You?

Consequently, it’s fair to assume that age can be a huge business asset in terms of achieving real business growth.

 But with age comes a dynamic new challenge: How do you prepare a company for the inevitable departure of its founder? You.

“Do you know how you are going to exit your business? You may have a dream of going public, selling to the highest bidder, or retiring and handing over your business legacy to your family (SBA).”

Even the most passionate founders will eventually exit their businesses or develop a succession plan and pivot as they get older. This is why founders should develop a fool-proof exit strategy that can be fully integrated into their company’s future plans.

 

Photo: © Boggy, YFS Magazine
Photo: © Boggy, YFS Magazine

Fortunately, it’s not terribly difficult to formulate such a strategy.

To ensure you’re able to make a clean getaway without sacrificing the success of your venture, follow these simple steps:

 

1. Start planning now

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Quite a few startup founders will probably have an early retirement in mind whilst compiling their first business plan – but it’s typically more of an aspiration than a looming consideration.

Middle-aged founders, on the other hand, must formulate a relatively water-tight escape plan from the get-go. Your age will definitely be a factor when pitching VCs or angel investors; therefore, your exit strategy should be fully integrated and outlined within your business plan.

Above all else, decide what sort of post-retirement role you might have in the company’s future operations. For example, will you maintain a spot on the board of directors? Will you stay on as a consultant? These sort of roles will not only impact a company’s bottom line, but could drastically alter the overall transition process.

Investors will also want to know how your retirement may or may not impact where your company is based, what it’s called or its general business activities.

 By planning ahead and quelling these fears well in advance, company stakeholders will be able to better visualize their own long-term financial well-being. That inevitably hands your startup a major credibility boost.

 

2. Choose a successor.

Selecting an adequate successor can be extremely difficult. Business owners often try to tiptoe around this task in a bid to avoid inciting jealousy and creating a rift between employees. Yet against all odds, the best way to prevent hard feelings is to be clear and open with the entire company about who will be taking the reigns and why.

Be candid when evaluating potential successors. If you’re unable to come up with a list of candidates yourself, considering calling in additional founders or employees. Ask your team to brainstorm a list of characteristics they would like their next company leader to possess – which should provide you with an excellent benchmark with which to judge both internal and external candidates.

 

3. Provide intensive training.

Wherever possible, you should name and start grooming your successor well before your planned departure. That way, you’ll be able to school them in the finer points of every aspect within your business.

“In order to prepare potential leaders, the gap between what they are ready for now and what preparation they need to be ready for the job when it is available needs to be determined (SHRM.org).”

Analyze skills set, and try to spend the months (or years) preceding your exit working to hone any visible deficiencies. 

One of the easiest ways to broaden your successor’s knowledge base is to loan that person out to various company departments in order to provide them with “a day in the life” of each and every employee.

More important still, you’ve got to spend a healthy amount of time communicating with your senior team to immediately address any potential issues or personal grievances that may exist.

Feelings of jealousy or a lack of faith in a new company leader have the power to dismantle a successful small business within a matter of weeks. If you treasure the company you’ve worked to build – and would like to draw any sort of salary or dividends out of that company post-retirement – do your absolute best to mitigate all possible threats to success.

 

Onward and Upward

At the end of the day, some entrepreneurs simple don’t want to bother thinking about this sort of stuff. After all, very few of us would like to go into a new business venture visualizing our own imminent departure. But establishing an exit strategy is crucial for all entrepreneurs, especially middle-aged founders.

It will dictate what sort of funding your startup will be able to acquire, how employees work together and where your company will realistically end up in the long-term.

By planning ahead, selecting a successor early on and providing all team members with adequate training, you should be able to set your company up for long-term success – allowing you to kick back and relax while your income continues to skyrocket.

 

This article has been edited and condensed.

Rachel Craig is a content writer for Quality Formations, the UK’s top company formation agency. Rachel is one of the UK’s leading experts on private limited company formation, statutory compliance and corporate taxation. Connect with @Q_Formations on Twitter.

 

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