Exit Plans: What’s Next?
Do you have a vision for the end? Have you considered the best way and time for your journey within your company to come to a close? Many business owners neglect thinking about an exit plan until they are either exhausted or desperate for an escape. Traci and Rob discuss why planning ahead can help you end on a positive note and build an irresistible company to be desired by all.
Transcript
Traci:
“As a general rule, it is better to sell the business while the owner is 100% committed and things are moving full steam ahead. If the owner waits to sell until they're tired or bored, at which point the business has most likely lost its momentum. Buyers aren't stupid—they can sense when an owner is disinterested. I say it over and over: sell your business before you have to.” And that's a quote out of Home Run, A Pro's Guide To Selling Your Business by Jim Cumbee.
And it made me think of a question for you, Rob. What does the end of Sparkbox look like?
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Rob:
Ooh, that is a good question. And that's one that it's fun sometimes to think about or play with those ideas. And I don't know exactly what it looks like, but it seems like what you're getting at is exit plans and what that looks like.
And I have a fundamental belief that I'm not planning and not counting on a big exit at the end. I pretty much believe that my job is, you know, running and designing the business of Sparkbox is to design a business that generates wealth for the owners while it's being run. That's the way to be successful at a service-type business. And if there happens to be some event at the end—whenever that happens to be, we're not quite there yet— great. That sounds like gravy. But I think that the act of designing any really profitable business that can sustain itself comfortably will help make that eventual exit even more probable.
Traci:
Yeah. And I think what is important to point out, and one of the reasons why I wanted to read that quote is, is sometimes I feel like owners think about an exit plan just because they're tired, they're exhausted, the business has gotten too hard, or—as we were just talking about earlier before we started recording—entrepreneurship is really fun until it's not. And when it becomes hard, sometimes we just want to go back to bed and we wish somebody else would take over.
But that's not to say we shouldn't think about exit plans. We should think about our future. We should have a vision for our future. And I think what you're saying is, your vision for your future is to take Sparkbox the long haul. To take it as far as you possibly can, because you enjoy it, and you've found your sweet spot, and right now it's bringing you joy. That doesn't mean it's not hard work, but I think it's important for owners to stop and think before they get tired or before they come to a point where it's just so hard to think about long term, what do you want out of your business?
Rob:
Yeah. And I think that, I always think about this particular thing as quicksand. I think that it's really easy, while running your business, to get stuck in that quicksand moment, where it becomes a grind and the juice isn't worth the squeeze, and there is no returns. There is no reason to keep doing it. And if you stay there for too long, I think that a lot of owners can convince themselves that that is what it's like to own a business and never move from surviving to thriving. And that is, you have to make that leap into thriving because that's the sustainable place. And not that there's not world events or things that'll happen that'll send you back to the surviving mindset. But if you never get there, so many owners that I meet are like, “Man, this is a drag. I can't do this. This is hurting.” And it's like, “Well, have you figured out and designed it in such a way that it is sustainable? Can you be sustainable and sleep at night while doing this?”
Traci:
Right. And I think it's important for owners, when they get to those crossroads, or even when they're, maybe they're in a good space now, and they're trying to figure out what the future holds, is to think about all the potential outcomes, right?
So if you are at heart an entrepreneur, like you are a visionary, you are a person who loves to come up with the next idea, you might be that conceiver that is a serial entrepreneur. And if that's true of you, and you know that of yourself, then yeah, maybe eventually, once you've built your company to a certain point, it is going to become a drag. You are going to be just aching to bust out and start the new idea. And so if you know that about yourself, then you need to set your business up for that.
That might be bringing in another partner who can eventually take it to the long run, and then you go off and start another business. It may be having a COO who is the person who runs the day to day, but you go off and do other things. That could be one avenue, but if you're a person like you, that likes running a business, that can pivot from phase to phase, you can take a company from being small to running a larger company, then you might want to say, "Well, my future is building this as long as I possibly can, until I groom up my successor and I retire." Right?
And for some owners, it's, "I really did start this business because I eventually want to sell it." And if that's the case, you are building your company to a point where it's sellable and that's a whole other route.
So I think this exercise of sitting down and actually asking yourself, what is it that I want out of my business? What is my exit plan? Whether that's going to be an exit plan a month from now, five years from now, 20 years from now, it's important to ask yourself this question. What's my exit plan?
Rob:
I think it is. I think it's interesting, like I go back to a quote from Blair Enns when he talks about the win without pitching. And one of his cornerstones there is this idea that when you're doing the work, you need to pretend like you're never going to sell your business. That needs to be your mindset. And I think it's really important to have that vision, that idea of where things are going, because if we don't start with the end in mind, you can't back up and plot the path to get there.
But you can't live in a fantasy, because hope is not a business plan. And you can't live in the future of this unknown thing. I'm going to depend on it happening so that I have a secure—I mean, let's just call it what it is—end of life, retirement, whatever that thing is. Like you have to do the work necessary to build something sustainable, so that it's worth something for somebody else to invest in. Because I think you and I both met so many different owners and entrepreneurs who get to this place where they're just exhausted, and all they can talk about is exit when they're exhausted.
And a lot of times, I feel like what I hear is, "I'm not in it anymore. I can't do this anymore. I need an easy exit." And they are not in a position to get any value because the value of their business has been hurt by that fact. That's usually a lagging indicator, right? They're feeling like that is because they're exhausted, they're in that quicksand, they can't escape from it. And the place to sell—and I think this in a quote—is when you don’t have to, when you don’t need to.
Traci:
Right. Exactly.
Rob:
And I go back to a couple of stories from friends, and I've got a really close friend who has been really successful, built his business three, four times what Sparkbox is and had an amazing offer. And we had a phone call and he was like, "I got this amazing offer." He's like, "Everybody's telling me, I'd be crazy if I didn't take it." And I just said, over to the phone to him that like, "Well, you've earned the right to do whatever you want. You don't have to sell it." He's like, "Yeah." I'm like, "So do what makes you feel good. This isn't a business decision. You've earned the right to do whatever you want here."
And on the other side, I've got a friend who got into a rough situation financially and wanted to help his people out and sold his business and took a deal that didn't ultimately leave him with enough, and he's got regrets.
And I think that the answer for all of this exit planning has to be to put yourself in the best possible position to get the best possible deal and to not need one. The best way to get a great deal is not to need it.
Traci:
Right. And I think the best stories we have or we can refer to where we've seen that happen are the owners who just built a great business, and then somebody showed up and was like, "Hey, maybe we should merge, or maybe I should buy you out. Or maybe you what you have to offer would be a good addition to my company." And then you hear the stories and then something great comes out of that.
And I think the key to it is when you said exit plan is the word plan. And I'm a big fan of planning. That's what we do. And we always say vision or strategy without execution is just basically a pipe dream. You're just basically dreaming, but you can make it a reality, right? When you actually put a strategic plan together, and then you execute upon it.
And I think exit plans should be very similar to that. You should have a longterm vision, a longterm target for your business and for yourself personally. If you're a business owner, this should fit fully into what you want out of your life. If you love working and you love leading and you love what you are doing, and that brings you great joy, then that should be part of the plan for the business. If you're a serial entrepreneur and you want to start three more companies before you get to 70 years old, that should be in the plan for your business, and you need to be setting it up for that.
But to your point earlier, the worst thing you can do, and this typically happens when you don't have a plan. If you don't have a plan, you haven't thought this through you, haven't taken a breath to get out of the weeds and work on your business and think about that longterm goal, you do wake up exhausted and you don't know what just happened. And in that, what I like to call you get in this lottery ticket mindset. Like if only I could just win the lottery, if only somebody would just buy my company, if only we could just create that software that we could sell, if only I could be like him, who did that, then I'll be set free. And that's a really hard place to be mentally. And once you get there, it's a hard place to get out of. And so, yeah, it can be detrimental to your business.
Rob:
It can be. And I think that that's one of the warning signs, is like when we start making decisions from a bad mental place, bad decisions get made. And as a buddy of mine likes to say over and over again, “Hope is not a business plan.”
Traci:
Right.
Rob:
It is not a business plan. It is not something you can depend on. And I love the lottery analogy, because I think that's what it really is, is you're hoping for somebody who doesn't value their money shows up and buys something and pays more than its probably worth.
And that's a really hard thing to swallow because at least for the people that I know is, is there's a ton of owner's net worth wrapped up in their business. And it's just as important to have a plan to get it as an exit is having a plan to be able to draw on that net worth while it's operating.
And it's one of those weird things where whenever people ask what are the two biggest risks to Sparkbox, my answer always is it's my business partner, Ben and I's interest. That's the biggest risk. And our interest could waver for two reasons, right? One is, it becomes really hard and we're no longer successful and the juice isn't worth the squeeze anymore. I think that's where I see a lot of owners who are obsessed with exit plans live. And the second is, is we've been so successful that we don't need to do this anymore. We have other interests.
But either way, like we're not in it and we're not committed anymore in both of those cases. And I think having a business partner who can help keep each other accountable to maintaining that place, like I've said for years, my hope for the end is that Ben and I will get done at roughly the same time. We'll be ready to exit at roughly the same time because the amount of stress I've seen it cause when one partner is ready to go and the other is not, for whatever reason—it could be financial, it could be personal, it could be family, it could be whatever—that's a lot of stress.
Traci:
It is. And I've seen that happen. I've seen every scenario, because we've worked with so many different agencies and studios. And my biggest piece of advice,—because I've seen different scenarios like this—is build your business to be successful. Period. Have a plan, have a target, have goals, have strategic initiatives to make your business profitable and successful, to really identify and define what success looks like for you. That's one aspect of it. And then the second aspect is to have this vision, this exit plan that you know ultimately what you want to get out of the business. And I love that in your mind, because you guys are, you do have strategic initiatives, you do have a plan. You do often take time out to work on the business, not just in the business. And Sparkbox is very successful because of that.
But I also like that you also have this vision of you and Ben hopefully ending at the same time, you know what it's going to feel like and why you would get to that ending, and so that helps you make decisions, and that helps you guys to talk openly with each other. Like how can we make that happen together? And to be transparent in those conversations.
So again, it's this intentionality about how you want to run your business and ultimately what you want out of your business that will keep you from waking up in this sort of dire, "We have to get out of this situation, or I'm exhausted," because you start to make decisions that help you with that exit plan.
So if you're a sole owner, so you don't have a business partner, one of the things you should be doing regardless is raising up leaders. You should be coaching. You should be developing. You should have an integrator-type or a COO-type that's working with you hand in hand. A leadership team is always great, and we've talked about that before, that you are sharing ownership with, at least from a philosophical standpoint, if not financial. So you have people that are in this with you, so if you do want to exit later, and that is your plan, you have somebody who maybe could buy you out, you have somebody who could maybe rise up and serve as the CEO, and maybe you're a silent partner.
You want to make sure you're always looking at different scenarios and different possible eventualities and planning for those, raising people up, having networking conversations with other studios or agencies like you that you might be able to merge with, or somebody who's a little bit bigger that you've noticed is buying other design shops or dev shops. So you want to be planning for any eventuality so that you have options at the height of your success. So again, this is just, again, planning, intentionality, thinking outside the box, really being strategic and doing that as part of the way you run your business as a CEO and as an owner.
Rob:
Yeah. And that's that whole idea of, for me, is making it not dependent on any one person, including me or my business partner. That's what sustainable businesses are to me. We talk about this all the time, that we want to build a business that can outlast both of us, either of us, or all of us. And if it does that, then we have all the options in the world.
And I think that when we talk exit plans and the end eventuality, it's so easy to get focused on one possible conclusion rather than building things that are sustainable so that when the time comes, you have the most options available. That's what success is, is having lots of options instead of start being pigeonholed and looking for the only option left that can save you.
Traci:
Yes. Exactly. You're exactly right. Build your business to be successful, and build it for multiple options. That's key.
Rob:
Yeah. And you know, I've been in so many of these exit plan conversations, and I realized that I've had friends that have made exits and they've done well, and I've had friends that have struggled and all of that stuff. There's not a one size fits all. And there's some very human elements, but I think that knowing where we're at and how we feel about things and where our own mental state is can help us be intentional about knowing and making those good business decisions.
Traci:
Yeah. And I think the quote that I read at the beginning from the book Home Runs, A Pro's Guide To Selling Your Business, the subtitle is Principles To Make Your Company Irresistible. And I love that idea of make your company irresistible even to you, so that it's going to be hard for you to let go. It's going to be hard for you to sell it, or hard for you to hand the keys over to the heir apparent. Make it irresistible. Build a company that you love. And I think when you have that mentality, and you go into work every day with that mentality, then like you said, you're going to have a lot of options. So, you know, to me, that's the key to the exit plan.
Rob:
Yeah. Lots of options. And when I hear irresistible, I can't help but think of the word valuable.
Traci:
Yeah.
Rob:
It has to be valuable. And it has to be valuable if there's going to be any kind of exit or any kind of takeover, it has to be valuable for somebody else to do something with.
Traci:
Yes. I mean, nobody's going to pay for something that's not valuable. So if you haven't built a valuable, irresistible business, man, it's going to be hard to sell it. It's going to be hard to hand it over to somebody else. It's going to be hard to merge with somebody. It's just going to be hard.
Rob:
And it's honestly going to be hard to watch it go away if that's your only other option.
Traci:
Yeah, which is really hard to see people go through that.
Rob:
It is. And one of the things that I think is really interesting is people who start to feel trapped.
Traci:
Yeah.
Rob:
And that's what we're, because that's the last option. And nobody wants to end up there.
Traci:
But it happens, and you have to learn how to get through that too. And to not let that destroy you financially, not let that destroy you mentally. So, these things happen. And one of the reasons we're having this conversation today is to hopefully remind business owners to wake up and remember to plan for this, to think about this, to vision cast for it, to strategize for it, so that you don't have to go through that hard experience of closing down a business. It's such a difficult thing. So it's a worthy conversation to have. I'm glad we had it.
Rob:
Yeah. Well, thanks Traci. Appreciate it.
Traci:
Thank you.
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