The Ambitious entrepreneur
One of the current hot topics of debate amongst business commentators is, “should the first time entrepreneur start a new business venture with the exit in mind?” In truth, the answer very much depends on the type of business being set up of course, and why it’s being set up, but in my opinion for the ambitious entrepreneur the answer is an unequivocal “YES”!
In recent months I have led on the completion of two transactions with entrepreneurs who have successfully sold for the second time. It is no coincidence that in both cases the founders grew larger businesses second time around in about half the time.
There is much we can learn from the path already blazed by the successful entrepreneur:
First-time entrepreneurs often start with only a vague idea of a good business concept. They enter the maze of developing a business without a map. Some get lucky, stumbling along the right path by chance, but some take a wrong turn, retrace steps and some end back at the beginning. The successful entrepreneur, on the other hand, has been through a successful exit and is acutely aware of the need to plot their entire journey from start to finish. They know that the foundations put in place from inception are pivotal to a successful exit – and getting their money out!
Make business administration an early priority
They understand that the painful, and what seems pointless, areas of business administration are in fact early priorities:
- Structuring the shareholding to incentivise and attract the right staff
- The 3-year plan, forecasts and budgets are habitual and mandatory and more than simply nice to have
- Controls over costs and recruitment are established early
- Management accounting processes are put in place from the outset
- Supplier and customer contracts are standardised
- Consistent employment contracts which conform to current legislation are adopted
- Proper CRM and lead tracking processes are established
- Company filings are completed and kept up to date
Successful entrepreneurs know that loose ends will unravel at the most inconvenient and unexpected moment – normally during due diligence, presenting the buyer with an opportunity, on a plate, to renegotiate in their favour.
They create their own luck but do this by taking calculated risks. They consistently cap the downside and know when to stop investing. They are not simply blind, compulsive gamblers.
Focus on value
They identify and concentrate a disproportionate amount of resource on value-enhancing activities. First timers tend to martial resources to douse fires and service those who should loudest.
Successful entrepreneurs are:
- Realistic in setting themselves a timescale to exit
- Pragmatic about what can be achieved in this time
- Sensible about what value they can expect for their business in this time
- Honest about what their key strengths and key weaknesses really are
They move quickly to recruit excellent people. They are less governed by budget and more concerned about quality. They understand that the real cost is the pace of execution.
Network, network, network
Successful entrepreneurs will spend more time outside the office developing a wider network, talking to customers, partners, intermediaries, competitors, industry experts – since it is from this group that an acquirer will emerge.
They spend less time trying to prove a point and don’t get bogged down in points of principle. They are pragmatic and crystal clear about what is non-negotiable in the way they run their business.
By beginning with the end in mind, the second time entrepreneur is less likely to be distracted and is ruthlessly focussed on the plan and what they need to achieve.
Not all second-time entrepreneurs are successful. The key differentiator between the successful and the unsuccessful is the understanding that luck is an important factor. The successful second-time entrepreneurs are open to luck and embrace it. They know how to exploit this luck and still deliver the business plan. The unsuccessful tend to believe that their success was all through self-determination and therefore because they were successful the first time they must be successful the second time. All they need to do is keep spending money and time and they must surely be successful again.
My advice to any first-time entrepreneur would be to really consider what a successful exit would look like and to incorporate this into their business planning from the outset.
Every year as part of budget process imagine if you wanted to sell this business in 12 months’ time what would it look like, where would the value be, and who would I need to talk to?