Finding Your Exit Strategy
What's the Big Idea? with Ron Davis
This month's great idea come from Doug Pierce, a chief executive at Guardian Security in Detroit. Guardian is usually ranked in the top 10 companies in the industry. I have visited there and know, firsthand, the quality of work, service and training the company employs.
Pierce's Great Idea
"Sell your business, put hte mony in the bank, collect interest and have a nice life! But sell at the right time. It's not so much a business decision anymore, but rather a family decision."
The more I examine Pierce’s statement, the more I realized it is not so much that you have to find a new business, but find something that excites you like a new business. Most of us who own companies tend to have family involved in the business. As a result, family drives many of the decisions regarding the long-term management of the business. Pierce is suggesting that sometimes you don’t have to sell in order to reinvigorate yourself. I find that many dealers may have spent 20 years in the alarm business, but really have only one or two years of growth. Why hasn’t the entrepreneurial spirit that started the business stayed with it?
The answer to that sometimes lies with the fact that the business, when it started, was a means of survival. It was a vehicle to help the family get from where they were to where they wanted to be. And somewhere along the way, that vehicle got stalled and the owner(s) developed a fear of taking the next leap forward. Business psychologists call it a fear of success. Entrepreneurs may feel that if they’re successful they take a correspondingly larger risk and are afraid of putting their family, sons and daughters, stockholders, and others in harms way by taking those risks.
Timing Is Everything
Selling at the right time is pretty much right on. Every business should have an exit strategy. In large public corporations, that strategy may involve mergers, acquisitions or organic growth. In smaller businesses, it usually involves getting into an adjacent business — in security that could mean access control, CCTV, integrated technologies and so forth — or it could mean selling the business. If the goal is to financially protect investors, family members and friends, then by extension that has to include selling at the right time and under the right circumstances.
The right time is not necessarily when everyone else is selling. It is not necessarily when multiples seem high, or when new entries come in to the industry and start making acquisitions. While it may involve some or all of the preceding, what it really involves is your understanding of your company’s strengths and weaknesses, your understanding of the markets you serve, and the advice you get from outside advisors such as lawyers, accountants or consultants.
It is necessary to do a complete outside evaluation of the company before you can understand its value. In a transaction, this is known as due diligence. Do your own due diligence on your company. Look at it with a pair of “outside eyes” and see it from both a financial perspective as well as an operational perspective. Once you know what you have, then you know what your exit strategy might be if you chose to sell the company at any time in the near future.
Ron Davis is Security Sales & Integration's "What's the Big Idea?" columnist and contributing market analyst. He is president of Davis Group, a full-service consulting firm serving the security industry, which also includes GraybeardsRus. He has 35 years of industry experience, including founding Security Associates Int’l in the 1980s.