Exit Strategy Entrepreneurship Is a Risky Business Essay
- Length: 5 pages
- Sources: 4
- Subject: Business
- Type: Essay
- Paper: #65722925
Excerpt from Essay :
Entrepreneurship is a risky business and requires a certain type of personality to really succeed at this lifestyle. Every and any business or idea will certainly end when the time is right and it is important for those wishing to exploit profits when to get out of the business. The purpose of this essay is to explore the options that entrepreneurs and investors have to recoup their investments and continue on to the next stage in life. This essay will explore exit strategy options and the considerations that must be taken into account before performing these actions. Ultimately this essay will describe how exiting a business venture is just as important as any other component of the process.
Why Get Out?
There are many reasons why anyone would want to change something up in their lives, but when it comes to venture capitalism it is important to understand all the implications that accompany such a move. There are many conflicting and interesting reasons why someone would begin retreating away from a business investment. It requires a sense of profit, timing and the ability to take advantage of the current circumstances.
With entrepreneurial businesses, it is vital to plan for the future, growing the value and attractiveness of the business by implementing a clear development strategy from the beginning, including putting in place a strong management team to lead the business following the eventual departure of the entrepreneur. Taking an exit is not something which can happen easily overnight and time spent planning for the inevitable and structuring the business correctly should be approached with care.
Many times it is difficult for investors to leave their projects. Emotional attachment is very dangerous in the business world and it is important to keep profit margins and victory in mind when deciding to stay or go. Bloomberg (2006) suggested that "Small-business owners and entrepreneurs are involved and invested and personally identified with their businesses in ways that employees in large companies just aren't. When should they start thinking about retirement? It's hard to say when, because they don't feel the same pressure as an employee to retire by a certain age. They make the rules, and they don't have to retire if they don't want to. It's rare for a person to walk away from the business unless they want a child to take over."
It appears that there are basically only two reasons to employ an exit strategy as an entrepreneur. The first is that outside investors want to collect their return. Equity investments are not like loans with interest. The investor sees no return until he cashes out, or the company is sold. Even three years is a long time to wait for any pay check. The next is that Entrepreneurs love the art of the start up and running a business. It is in their blood and engrained in their mind to do this type of work. Assuming a startup takes off, it will probably find that the fun is gone by the time you reach 50 employees, or a few million in revenue. The job changes from creating a "work of art" to operating a "cookie cutter."
For some investors, an exit strategy sounds negative. Actually, the best reason for an exit strategy is to plan how to optimize a good situation, rather than get out of a bad one. This allows leaders to run important startup and focus efforts on things that make it more appealing and compelling to the short list of acquirers or buyers to target (Bernard 2013).
Strategy 1: Take the Money and Run
One very simple and transparent way to exit a venture capital business is to simply pay yourself out as much as possible before just simply leaving. Bleeding a company dry, may seem like a destructive method, but holds great advantage to the entrepreneur responsible for the start up. Through this type of exit strategy, entrepreneurs usually make the smallest amount because they are selling their business assets and that too at a price buyers are willing to pay. This is called a lifestyle business and investors should realize if their business falls into this category. Robbins (ND) agreed with this idea. He wrote " rather than reinvesting money in growing your business, in lifestyle companies, you keep things small, take out a…