“Make sure you have a way to get the money back out of your business.” 

Common Exit Scenarios

These are the most common exit scenarios:

• 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 percent. I don’t recommend this approach to startups these days. Shareholders are demanding, and liability concerns are high.

• Sell to a Friendly. 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.

• Hand The Reins and Keep Collecting. 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. 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.

Those of you who like to plan ahead and for those of you who don’t but should, take the necessary time today to consider the real and practical reasons why you should plan an exit for your company’s future. These monumental decisions shouldn’t take place quickly.