When you’re working on a project, it is sometimes easy to get emotionally attached. From time to time, that means that decisions are taken differently during than they would have been before the start of the project.
Usually when I ask people about their exit strategy, they think I mean how they will sell their company and retire. Not at all: I am talking about how to know when to abandon the plan.
Let me give you an example.
Marianne had been working with her Dance school for years, and she had made it a second home for her three girls who had spent pretty much every day after school in the studio. As a leak in the building made her financial situation strained, the smart move would have been to cut it lose, and to relocate to a different venue.
But, because her day to day business and personal life was entangled with emotional ties, she endured 5 really difficult years in the same location, before she finally gave up, having lost most her savings. Had she been making the same decision if this was identified as a risk and had a mitigation plan before she started? Probably not.
An exit strategy should contain the following considerations (…as a start. There will be more that are specific to your business):
Ask yourself this:
- TIME: How long am I willing to go before I say this isn’t working? 1 year? 3 years?
- MONEY: What is the maximum financial figure I can commit to putting into the business, and when do I cut my losses?
- OWNERSHIP: What are the areas of the business that I would be willing to give up to take in financial support (if any) if I needed to? What’s the maximum shares I am willing to sell?
- ILLNESS: What do I do if I or someone who depends on me get really ill? What is my contingency plan?
- RISKS: What are the top 10 risks in my company and current set up, and how do I mitigate that?
- TRADE OFFS: At what point do I decide the risks are not worth the (potential) rewards?
- COMMITMENTS: Are there commitments that I am not prepared to sign? Long term contracts, legal obligations, other?
The above is tremendously useful things to consider and have a plan for. Discuss them with your business partner if you have one – more often than not we have very different views on things like this, and it is good to be VERY specific. And make a plan for what happens if you disagree. Write it down. It may all change, but at least you have a starting point when things get rocky.
Also discuss this with your family. Your partner may not have the same expectations as you, and after all, he or she is one of your most important stakeholders as you embark on a new venture.
Good luck. You have taken a whole list of unknowns and turned them into something tangible. Of course there can be surprises you haven’t planned for, but you have narrowed that down tremendously.
And hopefully you will never have to use any of this!
