Is an Exit Plan a Project or a Process, and Why It Matters To Know?

Even landbankers invest with the end in mind. You should too.

Unless you bought a parcel of land 30 years ago on the edge of Sydney, selling your business will be your life's biggest capital realisation even

Unlike a landbanker, a business owner cannot be a passive investor if they wish to achieve the ultimate exit value. The facts are plain. The vast majority of business owners exit their business for less than the book value of the assets unless they own their office or factory.

Here's the irony. Landbankers invest with the end in mind. They've thought through some scenarios and are comfortable with the potential end path.?

In contrast, a minuscule number of business owners have started with an end path in mind or cultivated an end path, yet they have much more at risk. Consequently, business owners consciously place their earned life's value at risk.

How does this make sense?

As a business owner, you are at it every day, dealing with staff shortages, new competition, new demands from customers, unexpected competition, supply chain shortages, WIP adding up, interest rates rising, wars, and energy price hikes.

How does it make you feel when you think that you could have just bought a parcel of land, sat on it, and then retired to your dream estate on the north island of New Zealand?

The best time to buy land was 30 years ago, so let's move on.

Here's what you need to do now to realise the peak value from the business you have today. It starts with an exit strategy.

My characterisation of landbankers as "passive" doesn't do them justice. They have a process. They nudge the future to favour them and create paths that lead to decisions that favour all stakeholders. They don't so much care about the ultimate buyer, but they shape the landscape to nurture and grow the competition for their asset.

Process or project matters because they have different timelines

A successful exit path is the result of a process.

A successful exit path is also the result of a project. The project kicks in as you near the goal line.

The project part is the head of an arrow that lodges into the end game - the ultimate M&A project to be run by the M&A advisors. The process, is the shaft of that arrow that gets you to the penultimate project.

Today I will focus on the process, not the project.

(If you are contemplating how to be bought within the next two years by a strategic buyer, then it's too late for a process; you need to jump directly into the project phase.)

The process part of an exit strategy (which, tied with the project part, creates your exit path) comprises two cycles of planning:

• Long Wave Planning
• Paranoia Planning.

Long Wave Planning

Long Wave Planning is a process of looking over the horizon for the big swells approaching from across the ocean, combined with some local reinforcement of the seawalls. There are three components:

1. Porter-type 5 force analysis. Choose your own. I still like Porter's.
2. Shell-like Scenario Planning - again, choose your own, but Shell's works well.
3. Business Innovation Portfolio Planning. This planning aims to ensure that the sum of R&D and capability investments adds up to more than the parts.

Do Long Wave Planning at least once a year, perhaps off-site, and probably with external expert contributions. For smaller businesses, you could forgo the experts and invite your expert customers.

The timing should precede or be part of the annual planning period for the 5-year Forward Plan.?

Important: This is not generic strategic planning because the WHY is different. The "why" here is to optimise the business's long-term positioning to catch a strategic buyer's attention.

Paranoia Planning

Paranoia Planning is a process of scanning the visible horizon for waves and currents that might soon rock the boat. There are three components:

1. Competitor analysis. In particular, who are we seeing that we didn't think was a competitor, and why are our customers talking to them?
2. Customer dynamics - especially what pressures are they under and are the centres of decision-making changing, for what reasons? For example, you could use McKinsey's "3 horizons" thinking applied to customer dynamics.
3. Contracts - are customers imposing new T&Cs and why? Are we being offered contracts that exceed our current risk mandate, and how do we respond?

Do Paranoia Planning with the Executive Team once a year as part of the business planning process. The participation of business unit experts, and strategic partners (suppliers), can also add value.

The "why" of Paranoia Planning is to proactively stimulate reinvention of the business with the least impact on growth. A by-product is to spot opportunities to accelerate growth.

What's this week's insight?

If you don’t have an exit strategy then your business exit will, by default, become a series of tactics put together by your deal maker, typically an M&A firm.

They will no doubt do a good job and get you a satisfying price.

But for all the hard work you have put into building your business, you deserve the peak market value, and to get that you will have to put in the effort. Ask yourself, why would you put more focus into building the business than you would into setting it up for the best possible sale?

By bringing a well-executed exit strategy to an M&A firm, they get excited. It helps them do their job better, and that helps you get a greater return. In fact, you'll get more competition from M&A firms wanting your business.

The first step is to set up the exit strategy processes - the Long Wave Planning cycle and the Paranoia Planning cycle. The ideal person to do this is the CFO as they are good at organising processes and work across the whole organisation.

The CFO doesn't need to chair components within the two planning processes but is ideal to lead the Business Innovation Portfolio Planning component of the Long Wave Planning.

Alternatives: Other excellent processes include Touraj Parang's Exit Strategy Canvas, and the FAIR process by Mark Achler and Mert Iseri.

This Week's Reading

Two articles from my reading list to help you grow and exit successfully.

Article 1: In conversation: The CFO’s critical role in innovation

CFOs today must lead across silos. This includes leading the finance function within the broader organisational structure; serving as a trusted advisor to the CEO; and working closely with other key stakeholders such as the board of directors, strategy teams, and marketing/communications departments.

These responsibilities require CFOs to become strategic leaders and integrators—a skill set that goes beyond traditional accounting functions.

By embracing discipline and well-defined processes, finance leaders can play a crucial role in establishing long-term future-oriented processes, such as those required in the formulation and execution of an exit path.

CFOs also play a crucial role in getting the right people and processes in place to consistently manage innovation, and innovation is a critical component of any exit strategy.?

Source: mckinsey.com

Article 2: What to consider before taking a job at a family-owned company

The future role of family members in a business is often foremost on the mind of owners pursuing an exit strategy. However, their roles in the business today deserve equal consideration and may have a much greater impact on the ultimate exit value.

In order to attract and retain the best talent, and to build a cooperative inclusive culture, the governance of family members needs to be clear, transparent and equitable. Without the best talent and culture, a strategic buyer will lower their offer, or walk away.

Are you prepared when a candidate asks questions about how family-member employees are recruited and treated compared to others? The article suggests four key governance mechanisms:

1. A strong Board to ensure that family versus nonfamily culture and issues are resolved objectively.
2. Clear incentive schemes that ensure nonfamily members benefit when the business succeeds.
3. Regular review and justification of any guardrails that restrict which decisions by nonfamily members e.g. "sacred cows" that cannot be touched, divisions that will not be sold, or a debt cap no matter the business case.
4. Being prepared for and encouraging questions from job candidates about how being family-owned impacts the day-to-day business.

Source: Kellogg School of Management

This Week's 3 Business Books

Free for you as a subscriber to my newsletter: Three of the world's most essential and popular business books in acclaimed 12-minute videos. Listen, or watch and listen, so you never miss another big idea.

Book 1: Crucial Conversations by Kerry Patterson (watch on Monday-Tuesday)

As the authors of Crucial Conversations tell us, most human problems lie in how people behave when others disagree with them about important and emotional issues.

How these moments turn out often decides the trajectory of your life. Which is why having a strategy you can rely on to produce results in those moments is so crucial.

In this summary you'll learn the 7 principles for having crucial conversations in a productive way.

Watch or listen to Book 1

Book 2: The Ultimate Sales Machine by Chet Holmes (watch on Wednesday-Thursday)

According to Holmes, there are two things that are required if you want to have success in business and in sales.

The first key is what he calls "pigheaded discipline." The second key is to focus on mastery. Doing 12 things 4,000 times will generate far better results than doing 4,000 different things.

And what are those 12 things? You'll find out in this summary.

Watch or listen to Book 2

Book 3: The Checklist Manifesto by Atul Gawande (watch on Friday-Sunday)

Atul Gawande has a startling idea: that many of the problems that we face today can be solved by the simple, humble checklist.

His book outlines the solutions he helped implement across surgery sites worldwide (saving millions of lives), but also how checklists are solving problems in other industries too - like construction and aviation.

Watch or listen to Book 3

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? Previous Newsletter:?How Tassal Leveraged the Existential Threat to Land-based Protein Production to Be Acquired

? Next Newsletter: Crucial Conversations: The Number One Reason M&A Firms Are Ghosting You

Keep winning, Walter

P.S.?If you know you’re ready … it might be time to explore my?Proactive Exit Mastery model, to see how you might capture the ultimate exit value for your business.?If you'd like to know a bit more, just message me or comment below with "Ultimate Exit Value".