Exit Strategies for Entrepreneurs: When—and How—To Harvest the Rewards Entrepreneurship Exit Strategies for Entrepreneurs: When—and How—To Harvest the Rewards Ch. 14

“All things change…There is nothing in the whole world which is permanent. Everything flows onward…the ages themselves glide by in constant movement.” --Ovid, 10 B.C.

Exit Strategies Sell or transfer ownership to insiders Sell or transfer ownership to outsiders Take the company public through an IPO

Sale or Transfer to Insiders Succession Leveraged buyout Employee stock ownership plan

All In the Family Share power Form a limited partnership Set up a trust

Leveraged Buyouts Managers borrow money to pay the owner an agreed-upon price. The new owners pledge their stock as collateral, or… Lenders accept an equity position in the company to cover part or all of the funds.

Employee Stock Ownership Ordinary ESOP Leveraged plan Transfer ownership plan

Selling to Outsiders Sell at the right stage Sell when the business cycle is strong Compensate for loss of talent Identify and protect intellectual property Adopt transparent and conservative accounting policies Resolve open questions that make it difficult to estimate value

Factors in Terms of the Sale Valuation of the company Negotiation process

What’s It Worth? Balance sheet methods Earnings methods Market method

Balance Sheet Methods Balance sheet method Net worth = Assets – Liabilities Adjusted balance sheet method Estimates market value of assets

Earnings Methods Excess earnings method Capitalized earnings method Discounted future earnings method

Advantages of IPOs Cash Aura of respectability Market provides continuing valuation of worth Ability to use stock options for employees Ability to use stock to acquire other companies

Disadvantages of IPOs A tremendously expensive process Lock-up agreements Subject to careful scrutiny

Bargaining Tactics Beginning with an extreme initial offer Using the “big lie” technique Convincing the other side you have an “out”

Unethical Negotiation Tactics False promises Misrepresentation Inappropriate information gathering

Reaching Integrative Agreements Logrolling Nonspecific compensation Broadening the pie Cost-cutting Bridging

Changes Over Time Physical appearance and energy Cognition and memory Intelligence Creativity

Eras of Our Lives Age 30 transition Midlife transition Late-adult transition Consider your stage in life as you consider your exit strategy