Build your Company with the Exit in Mind
by
Barry Glauberman
Glauberman & Associates LLC
The successful entrepreneur is driven to increase company value and to maximize shareholder return. In doing so, the entrepreneur traditionally focuses on such value enhancing efforts as product and service development, market analysis, appropriate business planning, management team excellence, competitive advantage, barriers to entry, scalability, branding, and execution. Equally important, but often overlooked in the drive to maximize value, is careful attention to exiting from the investment.
Investment in most start-ups is generally illiquid and, as a result, returns may only be realized upon exit. A successful exit is best achieved by building an appropriate foundation early, and by remaining attentive to the exit implications of business decisions throughout.
Based on our experience in developing and executing successful exit strategies, the following are important considerations:
Use metrics to track success. Study your company’s industry-sector and closely aligned sectors to see what drives the highest valuation. Is it EBITDA? Revenue? Net/Gross Margin? Contracts? Intellectual property? Determine whether you can increase your company’s value by pursuing different customers, changing your pricing structure, or even switching industries. Track revenue and profit by service or product line. Increase or introduce more profitable lines, while phasing out the least profitable. Set milestones. Use metrics to measure your company’s success and to drive employee performance.
Aspire for the home run, but singles and doubles win games too. To quote a well-known manager, “you don’t win a World Series with one swing; you have to make every at-bat count, everyday.” By doing the right things on a daily basis, you can build your company with the exit in mind. For example, the entrepreneur must ensure that the company takes on only high quality and trustworthy (i.e. paying) customers and strategic partners. Establish payment terms with both customers and suppliers in a way that maximizes cash flow without upsetting overall relationships with important business partners. Provide managers in charge of business units the opportunity to “take ownership” of their results, and then give them the tools they need to succeed.
Expand the revenue base. Go after prime contracts in addition to subcontracts. Convert option years early. Use direct sales as well as indirect sales and alliances. Diversify your revenue base. Focus on retaining good customers and cross-selling complementary products and services. Acquire a company that has complementary products, services, intellectual property, and/or customers.
Build a strong finance and accounting function. Implement industry standard, quality finance and accounting systems. Clean up the balance sheet. Pay for annual outside audits by a CPA firm with relevant industry expertise and a good reputation. Simplify and clearly present fully diluted capitalization structure. Maintain detailed budget planning and ongoing tracking. Implement Sarbanes-Oxley compliance measures. Do advanced tax planning. Address any customer and supplier issues early.
Maintain an Esprit de Corps. Continuously track employee morale and turnover. Focus on retaining good loyal employees and building a culture of commitment and trust. This culture will spillover to customers. Make sure employees are protected and have appropriate incentives to ensure their commitment to the company. Keep the organization structure simple. Build the company brand internally and externally.
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Obviously, beyond the above, there are many other potentially applicable guidelines. The important take-away is that at any given point, the successful entrepreneur should know, with some precision, how he or she is enhancing the value of the business in anticipation of the eventual exit.
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Glauberman & Associates LLC advises companies, venture capital/private equity funds, and other investors, with particular emphasis on building financial and strategic plans and models, executing mergers & acquisitions, developing and implementing turnaround & restructuring plans and exit strategies, raising capital, and serving as interim management. Managing Director Barry Glauberman has over 20 years of experience in management consulting and industry. Barry has served as an investor, portfolio manager, and adviser for a $150 million corporate venture fund. He has significant experience in both the technology and telecommunications industries. Barry began his career as a management consultant with A.T. Kearney Inc. and Arthur D. Little Inc. serving Fortune 500 clients in a variety of industries. He earned an MBA in finance and marketing from the University of Chicago Booth School of Business, and a BS in industrial engineering and a BA in economics from Rutgers University.
For more information please contact us:
703-264-9093 (office)
703-966-3911 (mobile)
barry@glaubermanllc.com (email)