5 Stages of Business Growth: 5th Stage: Sustainability to Exit Strategy: Maturity Stage
So you have made it, what to do next?
Making it to this stage, you have overcome a number of challenges and it is the theory that you are “sustainable”. Able to function without the need of worrying too much about how to pay the bills. Depending on your journey, this is over 5 years of being in business, it is not a stage which many will think about, but it does have impact on your business objective. If you have a serious investment, they may require to know about what your “Exit Strategy” is. It also provides answers for “What if” scenarios, yes what if we mess up?!
Remember one thing, you must do the stages right the first time, you can take short cuts the second time round. Being complacent could affect your future developments. Just like an athlete, you need to keep on top of your game, until you know when your body can’t take anymore. This is the stage that you need to consider, do you retire or do you have a few more years left in you!
EXPLORING NEW IDEAS - ARE YOU A SERIAL ENTREPRENEUR?:
So this is the exciting part. You have done the hard work and are in a position where things are running smoothly. New ventures are common amongst entrepreneurs, the second time is so much easier than the first. Now that you have learnt the hard way, what is next? This is all up to you.
This stage is more about thinking about the future, really in the future. Most of the biggest names in business have already thought about this stage and knew what they wanted to, you just have to look at Bill Gates to see his foundation was always going to happen.
Depending on which direction you take, you can exit from the business making world, you can just be an investor and use your new found skills to help others. How to exit all depends on you. Leave the door a little open for a return, keep some equity, stay on the board?
Social enterprise is now a large hot trending topic. How you plan to approach it depends on what avenue you take? Don’t just do what many do and target everything insight, pick a specialism, if you have been in Fashion Industry, stick with what you know, makes life a lot easier.
In many cases this is something that potential investors would require to know about when initially investing in, therefore this is both business plan stage, as well as final stage. We have placed it at this stage as it is at this stage that you need to act on it.
Depending on the type of person you are, you may want to ensure that when you do leave, that the people who made it possible and followed you on the journey are taken care of. This will need to be part of the negotiations process when merging/take over talks are happening.
If you startup is your dream, why would you want to think about an exit? It’s going to be so successful and so much fun that you don’t need to think about what comes after. Wrong. There are two very real and practical reasons why you need to plan an exit:
Outside investors want to collect their return. Remember that equity investments are not like loans with interest. The investor sees no return until he cashes out, or the company is sold. Even three years is a long time to wait for any pay check.
Entrepreneurs love the art of the start. Assuming your startup takes off, you will probably find that the fun is gone by the time you reach 50 employees, or a few million in revenue. The job changes from creating a “work of art” to operating a “cookie cutter.”
In three to five years, you will be anxious to start a new entity, with new ideas and spin offs that have built up in your mind, and certainty that you can avoid all those potholes you hit the first time around. If your startup was less than a success, you’ll definitely want to erase it from memory.
PLAN OF ACTION:
To some, an exit strategy sounds negative. Actually, the best reason for an exit strategy is to plan how to optimize a good situation, rather than get out of a bad one. This allows you to run your startup and focus efforts on things that make it more appealing and compelling to the short list of acquirers or buyers you target.
Merger & Acquisition (M&A). This normally means merging with a similar company, or being bought by a larger company. This is a win-win situation when bordering companies have complementary skills, and can save resources by combining. For bigger companies, it’s a more efficient and quicker way to grow their revenue than creating new products organically.
Initial Public Offering (IPO). This used to be the preferred mode, and the quick way to riches. But since the Internet bubble burst in the year 2000, the IPO rate has declined every year until 2010, and is now at about 15%. I don’t recommend this approach to startups these days. Shareholders are demanding, and liability concerns are high.
Sell to a friendly individual. This is not an M&A, since it is not combining two entities into one. Yet it’s a great way to “cash out” so you can pay investors, pay yourself, take some time off, and get ready to have some fun all over again. The ideal buyer is someone who has more skills and interest on the operational side of the business, and can scale it.
Make it your cash cow. If you are in a stable, secure marketplace, with a business that has a steady revenue stream, pay off investors, find someone you trust to run it for you, while you use the remaining cash to develop your next great idea. You retain ownership and enjoy the annuity. But cash cows seem to need constant feeding to stay healthy.
Liquidation and close. Even lifetime entrepreneurs can decide that enough is enough. One often-overlooked exit strategy is simply to shutdown, close the business doors, and liquidate. There may be a natural catastrophe, like 9/11, or the market you counted on could implode. Make rules up front so you don’t end up going down with the ship.
NEW PRODUCT/SERVICE DEVELOPMENT:
So you have now developed out of a SME and moved into an enterprise model. You have built on great success via your brand. Entering you competitors market is very much a natural progression for many. But you must remember, this is new territory and one which comes with its minefields.
Developing on products and services is normally within your business lifecycle. We are not going to be fortunate enough to have just one product/service that provides us success all the time. Product/service development doesn’t mean adding to your offerings, it means going into a different offering in your chosen sector/specialism. This is something that comes with a lot of challenges and is basically a new venture.
Ensuring that you repeat the stages for every new venture is crucial. This doesn’t mean go through the same pain and suffering, but making sure that you understand the key points, “never become complacent”. Now that you have a good understanding and appreciation of the processes, use it to your advantage. Know that your competitor has already got an advantage over you, how will you develop your plan of action now? Keeping it hush hush? What new thing will you be offering that will wow their existing customer base and make them want to choose you?
Remembering the case study we showed in stage 4 on Tesco’s venture to the US, you must follow some basic principles:
Step 1: Generating
Step 2: Screening The Idea
Step 3: Testing The Concept
Step 4: Business Analytics
Step 5: Beta / Marketability Tests
Step 6: Technicalities + Product Development
Step 7: Commercialize
Step 8: Post Launch Review and Perfect Pricing