Whether you decide you want to sell your business someday or not, it's extremely helpful to think deeply about that issue early on.
There are many ways to exit your business as an entrepreneur. You might sell to a larger company, go public, pass it on to your children, or retire and live off your share of the earnings. You could also go bust, but that's not a scenario anyone aims for.
The point is, you will eventually leave your business. Planning ahead for this eventuality is important for any entrepreneur. Like it or not, it can affect the way you manage both your business and your personal finances. Here are just a few reasons why going in with a well-defined endgame increases your probability of success.
It Helps Define Your Strategic Priorities
Some entrepreneurs start out with the assumption that they're going to sell their company within a few years. Especially among tech startups, getting bought can often be the most-desired measure of success. If a sale is your endgame, you'll want to focus on certain strategic goals, namely growth. Big companies generally already have stable cash flows, so they're more willing to pay a big premium for a company that might have thin or no profits but rapid revenue growth.
On the other hand, if you want to live off your company's profits, it may be worth taking a more cautious, long-term approach to growth. Maintaining margins and avoiding major risks can be worth slow growth in this case.
It Sets Tangible Financial Goals
An endgame gives you a defined criterion to work towards in your business. If you decide, "In 5 years, my business will go public for at least $100 million", that's something tangible for you to work towards. You can consider what sort of scale and profitability it will take to hit that valuation, and structure your plans around those goals.
Your goal doesn't have to include multi-million dollar IPO's. Maybe for your goal you choose, "I will pass down a profitable and stable business to my children." In that case, you can pursue projects that will ensure your company remains competitive 20 or 30 years down the line.
Once a business goes public, its tangible goal is always keeping that stock price up. When you own a business yourself, its goals should align with whatever you want to achieve for your own financial future.
It Clears Up Succession Questions
No one likes thinking about their replacement, but if you value your company at all, you need to ensure it winds up in capable hands after you're gone. More importantly, unclear succession plans can create tension amongst employees even before you've made your exit.
If you're going to pass down a business to your children, establishing that (and which one) early on ensures continuity and gives people time to adjust to the thought of a new boss. Letting everyone know a sale is the ultimate goal can keep people from jockeying to get your job someday.
It Helps You Get The Right Team Around You
Ideally, you want to surround yourself with a team of employees who share your long-term goals for the company. Everyone's an individual, and you're never going to get unanimous agreement, but at the very least your employees should understand and be on board with the overall strategic plan.
That means you don't have some employees expecting to work there for two years and then get bought out by an acquirer while others expect to stay at their jobs for over a decade. This is a good way to get friction and people working at cross purposes, not to mention disgruntled workers when they find out the company's plan doesn't match their own.
It Lets You Focus On The Important Stuff
Some entrepreneurs shy away from thinking about their endgame because they're worried it will detract from their management of the company in the present. Perhaps the best approach here is to strike a balance between defining your endgame, which can free your mind, while concentrating on the daily nitty gritty of your business too.
"Startups can have an endgame in mind, but for some entrepreneurs it is more important to have set goals for each quarter that fit into a larger vision rather than to only have an endgame in mind," says Ben Roodman, Director of Business Development at AppsFlyer. "Anything that falls outside those major objectives may just be a distraction on your calendar. Startup growth is about pushing to the next milestone. For some entrepreneurs that's financial goals, but it can also mean communicating the most important internal company metrics to your organization. Don't forget that both the financial and growth part rely on customers."
Questions about the future are never going to go away. If you try to push them down to focus on your business, they're just going to keep coming back until you have an answer. This doesn't mean that you can't be flexible. New circumstances can absolutely justify changing your long-term plans, but that doesn't mean they're not worth making in the first place.