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When did you last think about your (future) exit?
Exit thinking is a crucial aspect of an entrepreneur's life, but most business owners leave the point ignored. That's a bad idea, and here's why!
Exit Thinking: One Key Mindset Change to Gear Up & Scale
It’s funny how entrepreneurs and people with big ideas that have the potential to change the world (and make money along the way) tend to think about how to make things happen.
I mean, the goal is usually the same: you spend a lot of time on building a business and a team to run it, and so you expect to cash in down the road. Right?
But how do you get there, exactly?
Long story short, you need to think about funding your development, which typically implies self-financing, debt raising, or equity funding. And to get there, you have to think long-term.
If you plan on self-funding everything, you have to think cashflow and margin.
If you plan on raising debt, you have to think cashflow (again) and repayment capacity (because bankers lend to those who can repay).
And if you plan on raising equity, you have to think cashflow (still!) and return on investment (because investors want their equity investment back with a premium).
The common denominator here? Your best chance to get somewhere you want is to think about where you want to get a few years from now – which is called exit thinking.
Do entrepreneurs and business owners do it? Definitely not enough, and definitely not the right way either. And that’s because the topic is typically in a blind spot for most.
Exit thinking means planning to pass on.
First angle – business owners and entrepreneurs often keep their nose to the grindstone and focus on the daily and operational routines.
They focus on getting sh** done (quoting here, excuse my French) and by the same token they drop the long-term perspective every captain should keep in mind at all times.
Instead of building a system that progressively works for them, they keep doing ‘stuff’.
Instead of focusing on how to pass on to the next leader, they hold on to what they have as hard as they can.
Instead of showing that they are looking to let go, they show the business is worth nothing without them.
And instead of inspiring partners and funders looking for sustainable projects to invest in, they give them the certitude that the business will never be able to roll on its own.
Too bad, isn’t it?
Exit thinking means anticipation and strategic thinking.
Second angle – having the exit in mind means that you now have a way to define what you want to achieve, and to anticipate whatever strategic steps will need to be taken along the way.
Think about it this way: which type of business owner would you partner with?
The ones who have big dreams but no real sense of direction and achievement, and no idea of how to leverage financial previsions?
Or the ones who approach their development pragmatically and have a sensible idea of what money and partners they need to secure to obtain specific results five years from now, because they think in terms of business planning and can come up with a reasonable business plan illustrating their thinking?
Some plan their next step(s) based on their exit plans, but most don’t!
No exit thinking means no vision, and no funding!
Said differently? No exit thinking means no vision, no long-term thinking, no strategic thinking, a lot of randomness, and no funding prospects!
Why? Because exit thinking typically suggests that you have some basic business planning skills every partner expects to find.
In case you’d want a pragmatic illustration of this, here is a basic mathematical translation of the point I’m making.
Consider that any investor will take ten percent of your company in exchange for the money you ask for (typical situation).
Option A: you have a five-year strategy with a five-year profit estimate that takes into account carefully anticipated development funding needs. You can therefore reasonably assume that your business could be worth a 10m paycheck – hence an investor would typically give you 1m for ten percent of the equity right now.
Option B: you have no strategy and mostly focus on today and tomorrow. By the end of the year your business might make half a million in turnover (lucky scenario) but you have no clue about short-term profit estimates – let alone long-term!
Well, guess what? That’s what your business is worth. “No clue”.
Tell me, though. What is ten percent of ‘no clue’?
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Help yourself. Think exit.
You got my point. If you want to give your business a chance, exit thinking is key.
It’ll get you to build the vision you need, but it will also give you a strong basis to start thinking in terms of business planning.
Now that you know, you have no excuse! As usual, though, it’s up to you! 💪🏻
Until next time,
Ps: this newsletter was written in partnership with e27, the Asian source of insights for Asian Startup entrepreneurs.
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