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EXIT STRATEGY
Though any reason for selling a company can be termed an "exit strategy," some make for more graceful exits than others. It's a better feeling to sell your company from a position of strength than weakness. An example of strength would be when you see that your market is getting its turn to skyrocket, and you decide to strike when the iron is hot. In a situation like that, you're likely to make a killing; the only question is whether you could have done even better by keeping the company. An example of weakness would be if your company's stock is falling fast, your technology is outmoded, and the big consolidator in your industry offers to buy you out for a reasonable sum. This was the situation independent video stores were in when the majority of them opted to sell to Blockbuster.
Sometimes, this crucial decision can be a toss-up. Take Yahoo. Early on in the company's existence, founders Jerry Yang and David Filo got a $5 million buyout offer. In interviews, they've said that at the time they would've sold for $7 million. The rest is history.
What it comes down to is many owners end up selling because it's so hard to go it alone. With the failure rate for small businesses so very high, founders must think deep and hard about their exit strategies. The cycle in many industries is similar: soaring growth, followed by a brutal shakeout when a dominant player wields its lower cost structure to drive out the independents. If your company comes to face that rough choice -- sell or die -- it's best to negotiate while you can. After all, the big players generally prefer to buy you out because it's usually cheaper to buy a company than to chase it down to the bitter end.
Your own situation might have little in common with the scenarios I just described. There are a lot of other reasons to sell, and it's worth looking at a full range. Here are some of the most common motivations for selling:
Retirement. Enough already! You want to kick back and work on your golf game or go hiking in the Amazon (the jungle, not the Web site). It's been a great ride, but there's more to life than working until you keel over.
No choice, no control. If you do not have majority control, your shareholders may force you to sell the company.
Need the money. Sometimes company founders will live extravagant lifestyles, taking on quite a bit of debt. When income begins to fall, a founder may consider selling the company in order to avoid going bust.
Estate bill. Another common predicament is when the founder dies and the heirs are hit with a huge estate bill.
Boredom. It was fun to build the company, but now you're itching to take on a new challenge -- perhaps to start another business in an unrelated industry. An excellent example is Ely Callaway, who first became a textile mogul, sold that off, and proceeded to launch his world-class business, Callaway Golf Co.
Failure. You gave it your best shot, but the business has not taken wing. This really smudges the line between exit strategy and survival.
Industry consolidation or hot market. Your industry is starting to coalesce, and you recognize an excellent opportunity to fetch a high price, whereas if you wait, you're likely to lose your shot.
Loggerheads. Management difficulties are forcing you to sell. These can take many forms: family flare-ups, dissent among the owners, or investor pressure. Shareholders might insist you actively solicit or accept any buyout offers, especially if you hold only a minority stake.
Capital Squeeze. You don't have the money to grow your company to the next level, and you're already extended with too much debt to get loans.
