I can’t help thinking about life and business when I play poker. So many parallels. With apologies to the late Kenny Rogers, he provided the soundtrack to help solidify some of these thoughts into a blog post on exit strategies for our industry. I do love a good analogy after all.
Know when to hold ‘em. Know when to fold ‘em.
Staying the course, respect the status quo, and DON’T fold your cards. This is the way we want to go, right? Grow, double down, and keep pressing no matter what. This is how tiny companies become small companies, become medium companies, become large powerhouses in their industry. This is the ideology we are taught is the path to success.
But that may not be the right answer for you personally, or for your company. Knowing when to hold em’ or fold em’ shouldn’t be an emotional hasty decision based on some event or circumstance. Hopefully your exit plan is a thought out and deliberate action.
If you own an aerospace, defense, or intelligence company you have most likely found there are three final outcomes that can happen as you approach your exit.
- You can go out of business.
- You can pass it down to your children.
- You can sell the company in one way or the other.
Going out of business is not a good exit plan! I’ve never met a defense company that was planning on passing the company to their heirs. So that leaves the last option. Someday somehow, you can sell your company. It doesn’t have to be soon to need a plan to accomplish this. In fact, planning ahead is definitely in your favor.
On average, it can take over two years to close a deal on a business sale once you decide that it’s time to begin. That’s a lot longer than most people realize or hope for. It’s not something you can do “just in time.” In my experience, this means you need to be thinking about the strategy behind selling your business long before doing anything. If you are thinking about it deliberately, you will be much more prepared and have the background information you need when you do decide it’s time. It’s so much tougher to learn the world of defense M&A as you are going through it the first time. Take this time to learn: learn the vernacular, learn the options, and understand the many permutations.
Most importantly, learn about yourself and your personal goals. At the end of the day owners of small companies should have a great deal of control over the circumstances of a sale and help shape it to meet their own personal objectives. Ask yourself questions along the way such as:
- Do I want to level up myself or my company? My team?
- Am I nearing burnout? If so, how much time do I have since a process can take a while.
- What do you want to do after a sale? Change industries? Retire? Philanthropy?
- Is there some other venture you’ve always wanted to do IF you had the resources and time? You are likely to have both, if you plan well.
I’ve seen too many situations where sales, full or partial, are too hasty and last minute. They’re executed without a real plan and based on an emotion or event. This can lead to two bad outcomes. One – it wasn’t time. With a little mentoring or guidance you can stay the course and get through this bump. Remember, it’s impossible to unsell your company. Or two – the sale is executed in haste with you, the owner, only realizing all the mechanics after the fact and unhappy with the outcome.
Know when to walk away, And know when to run.
Now let’s say it IS time. You’ve made a deliberate thought-out decision that you do want to sell. As I’ve said in many other pieces, there are a variety options for you when it comes to an exit plan. Some considerations are financial and some are personal. There are dozens of ways to accomplish these, not just the one or two that most people think about.
Are you burned out and need to find a better balance in your life? There are solutions that are optimized for you to do this more quickly. Options that help you get to a new stage in your personal life at an accelerated pace.
Are you doing this because you need help realizing a bigger goal? You’re not done, but you want to take the company to a place that it cannot achieve by itself? What would you like your role to be in that next phase?
Are you simply interested in taking some chips off the table? I’m a huge fan of this and there are many ways to accomplish that goal. It often allows you to be a better strategic leader in your company, one that doesn’t have to consider the family and personal risk every time you make a big decision.
Bottom line – KNOW yourself. Understand the why, when you think about a future sale. It evolves over time, so come back to this question often. If you know what circumstances will cause you to consider an exit and what you hope to accomplish after, it will make the odds of you achieving them so much higher than just saying, “I’ll know it when I get there.”
You never count your money, When you’re sittin’ at the table.
I couldn’t agree less with this. In poker, business, and life you need to have an idea of what you have. It impacts your decision making and strategies, or at least it should. I’m not saying that a business owner should be constantly getting a valuation done, I’m emphasizing that it’s useful to know the elements that drive and impact value. You don’t need to know an exact number, but you should have a sense. Understand what the market for similar companies is and why. Understand the strengths and shortcoming of your company that impacts your value.
This may not matter at all right now. In fact, it usually does not. Most of the driving factors behind value cannot be changed overnight, or even within a year.
Most people think they know the individual areas or items that cause business value to be higher or lower. The interesting thing that I’ve come to realize is that they are wrong more often than they are right. I’ve repeatedly seen people put material investments into some aspect of their company and justifying it by saying it increases the value. When in fact, it may do the opposite. You can’t know this stuff if you don’t learn now. while you are making those decisions and planning your exit strategy. The time to learn isn’t as you are talking to a broker or a buyer. That seems obvious, but let’s be honest, who has time to learn M&A stuff when you’re spending 80 hours every week just running and growing a company? After all, a process takes time.
As a CEO and leader of a company, that value creation is something that should permeate your strategic decision process whether you are near or years away from an exit. How can that happen if you don’t really understand the value you have and are creating? So don’t think about it as an education preparing you for a sale, think of it as a skill you need to make excellent strategic CEO decisions. And 20 years (or 2 years) from now, when you sell, these skills will help with that too.
After all
If you’re gonna play the game, boy You gotta learn to play it right
And
That the secret to survivin’, is knowin’ what to throw away, and knowin’ what to keep. ‘Cause every hands a winner and every hands a loser.
Kenny Rogers
Let us help you with your education. If you’re interested in learning more about when to hold em’ and when to fold em’, or even developing a long-lasting strategy for your defense, aerospace, or intelligence business, contact High Stake Partners. We’re happy to have a conversation with you to figure out if we can help.