Begin with the end in mind.
—Stephen Covey, best-selling author, The Seven Habits of Highly Effective People.
When I shut down my college magazine (my third business), it had lasted six good years. During its run, the magazine was declared one of the top independent college magazines in the country. The last issue was published in 2008 just a few months before the beginning of the Great Recession, which also took down several other publications, big and small. At that point, advertising sales for the publishing industry came to a screeching halt, a harbinger of things to come. If I knew what I know now, I would have sold my magazine in 2007 after its record year of revenues in 2006. As they say, hindsight is 20/20.
I didn’t sell the magazine because I made the mistake of believing that I would always be interested in keeping the business. I also assumed that I would want to be in the print publishing business forever. I was wrong. Around the same time that the market tanked, I was ready to get rid of the business, and I didn’t enjoy print publishing nearly as much as when I started. As a result of the confluence of the recession and my eagerness to get out of the business, my magazine just died. I made no real attempts to sell it or even give it away. Even if I had made a legitimate effort to sell it, the market conditions would have made it next to impossible to pull it off. Sadly, all was lost.
Having learned the hard way, I now start a business with an exit in mind. Unfortunately, few young entrepreneurs take the same approach. In fact, a recent survey conducted by PricewaterhouseCoopers found that only 54 percent of business owners within five years of retirement had an exit strategy. For businesses with revenues under $10 million, only 30 percent had an exit strategy.
Considering these alarming statistics, you probably have not considered an exit strategy for your business. In other words, you could end up like me, having to watch your business die at some point without getting the value out of it. Or you could sell your business for less than its true value. Both situations can be avoided if you plan ahead.
The biggest benefit to planning your exit from the very beginning is that it helps you to make good decisions for your business. For example, had I planned an exit, I would have been looking for opportune times to sell my magazine. I would have realized, after reaching record profits in 2006 and after the tremendous growth in popularity of digital devices and digital advertising, that it was the perfect time to cash out. Of course, there is no guarantee that I would have avoided the Great Recession, but at least I would have given myself a chance to pursue great opportunities.
As one of my favorite entrepreneurs, Earvin “Magic” Johnson, said, “If you fail to plan your exit strategy, you can pretty much plan on failing.” Johnson knows what he is talking about, as he has sold many businesses and continues to build his business empire. In 2010 Johnson sold his 4.5 percent equity stake in the Los Angeles Lakers, making a huge profit. He knew it was time to move on to bigger things, like purchasing the Los Angeles Dodgers recently for $2 billion.
Magic Johnson is one example of several elite entrepreneurs who seem to have impeccable timing and good fortune, but when you look closer, you find the secret to their success: an exit strategy planned from day one. Despite how awkward or how uncomfortable it may be, plan an exit strategy when you start your business. Smart entrepreneurs not only focus on creating their business but also plan how to get out of it the best way possible.