An Exit Strategy Mindset – A Case Study On Choosing “Good” Vs “Bad” New Business Ventures

Willard Rich

Introduction

The crafting of an exit technique for a business and the harvesting thereof is the ultimate measure of good results for business owners. This process commences when entrepreneurs decide on new ventures (to develop or to start out from scratch). These decisions can either be good or undesirable as considerably as harvesting opportunity are anxious.

More than extra than a ten years Ventex Corporation suggested and assisted organizations with their exit approaches. This case examine highlights various “very good” vs. “poor” ventures in this regard that we consulted to. Contrasting firms are mentioned less than some of the critical elements of deciding upon the correct venture with an exit tactic mindset. These essential elements are:

  1. The window of option.
  2. Match of entrepreneurs’ profile with chance.
  3. The economics of the enterprise.
  4. Competitive edge attained.
  5. Harvesting dynamics.

The Window of Possibility

The timing of an exit system demands to be thoroughly planned. Preferably business people must embark on new ventures when a window of prospect begins to open up and harvest it when the window of opportunity is nonetheless broad open up. The IT business and certain the dot.com bubble that burst is well-recognised in this regard.

Two of our shoppers in the cellular business are exceptional contrasting examples of timing. Cellular Good embarked on a particular market spot in the pre-paid voucher marketplace just when the window of option started out to open up. The organization promptly grew into quite a drive and was bought inside 18 months for a price-to-earnings ratio of 12 dependent on its serial income and projected development.

Cellular Terrible embarked on the identical niche region, but only a although right after Mobile Superior was marketed. The company grew fairly quick, but when they want to harvest the window of chance was closing down rapidly. Last but not least they bought the enterprise for only the internet asset worth to a major participant (who mainly acquired the shopper record to whom they want to provide other products).

Match of Entrepreneurs’ Profile with Option

Business owners need to be certain not only that a true opportunity exists, but also that there is a fit involving their profile and the opportunity. They have to have to have the right frame of mind, skills and hazard profile to match the requirements of the prospects.

Two of our consumers in the services station industry (gas and food items courtroom) spotlight the simple fact that enthusiasm for an market and motivation to it are vital for the results of the business enterprise. Station Undesirable acquired a business enterprise in a residential area when the area was booming. The business owners did extremely well in the beginning, but quickly lost interest and turnover declined substantially. They last but not least bought the business following four several years to Station Superior for a little profit.

The business people in Station Very good had a genuine enthusiasm for the business and they place all their electricity into the small business. The business grew immensely and following 30 months they bought it for more than two times the purchase selling price.

The Economics of the Business

Seem economics are vital for any new venture. This contains elements this sort of as measurement, revenue margins, split-even details, capital needs and return on investment decision. Business owners need to have to cautiously analyze any new enterprise in this regard. If the economics are not seem the organization has a smaller possibility of surviving and even a lot less possibility of currently being harvested.

Two of our clientele embarked on ventures in identical industries (agro-associated), but with diverse market marketplaces. Agro Lousy started out a new undertaking in a crowded sector and could only accomplish an normal gross profit of 18%. Owing to the depth of competitiveness their price tag of carrying out company was pretty superior and they only obtained a net financial gain of 1.5%.Agro Great was proven in a significantly much less crowded marketplace. The enterprise did their business with no generating far too much waves. Their gross profit margins were close to 28% with a net margin that averaged out at 14%. This firm is now worth much more than 10 periods as a lot as Corporation Lousy (with very similar turnovers) and it is also less complicated to harvest.

Aggressive Edge Attained

Business people need to have to be certain that they can achieve a competitive edge in any new enterprise if they want to make funds and have an exit system in mind. This can for occasion be reached as a result of proprietary goods, know-how, economies of scale, interactions and devices.

Two of our purchasers in the IT sector introduced different offerings to their clientele. IT Good experienced specialised expertise on computer networks and sole distribution legal rights for specific solutions in the geographic area where they operated. They grew their earnings at 37% cumulative for every 12 months over the last seven several years and turned a major participant in the area and are presently in high demand by worldwide corporations.

IT Bad begun out the identical time, but besides for fantastic provider and the right to provide particular products (not solely) they had no competitive edge. They grew their earnings at a excellent 11% for every year cumulatively more than the very last seven yrs. Seven several years ago both equally organizations have been about the identical dimensions. The turnover of IT Excellent now is more than 4 situations that of IT Terrible and the price of the business is about 8 occasions that of IT Lousy.

Harvesting Dynamics

The integral dynamics of a enterprise and its marketplace must be audio for very good harvesting probable to exist. The tendencies in the business, the style of organization, the sustainability of the earnings and the cashflows are some of the aspects that require to be regarded by the business people.

Two of our shoppers in the teaching sector exhibit the importance of separating the entrepreneur from the business enterprise. Education Terrible is in business enterprise for 15 several years. They deliver custom-made coaching for multi-nationals. They are nicely-sought just after in this current market but they fundamentally get the job done from agreement to deal. The firm experimented with to promote shares and also attempted to deliver an fairness spouse in, but with no any achievements. The purpose for this is that the would-be investors experience that the company is to intently joined to the owners (getting older) and their knowledge.Training Fantastic is in enterprise for 12 several years. They also provide customized training, but in addition to it they have numerous effectively-packaged education courses that are presented under license by quite a few facilitators. This company has many outside shareholders that acquired into the organization. A key mentioned company not too long ago also bought a substantial equity stake in the corporation.

Summary

Several persons see entrepreneurs, that are thriving in harvesting their business, as blessed. While luck can engage in a smaller section in it, the major elements are the necessary means (e.g. funds and men and women), comprehensive planning, good execution and really hard operate.

To improve the chance of a productive exit tactic business people will need to examine and opt for a new undertaking with the utmost treatment.

Copyright© 2008 – Wim Venter

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