Brand and Exit are two of the most difficult challenges the entrepreneur faces in creating and then subsequently realising value in the business venture.
There are four stages in the brand and exit challenge: at the business start up stage its about selecting one of the two exit objectives and establishing the personal brand position; stage two is then about building the business value having regard to and with a total focus on the exit objective chosen; stage three involves marketing and communication in advance of executing the exit objective and finally; stage four is about execution and implementation of the exit for maximum value realisation.
1. STARTING OUT IS IDEALLY THE TIME TO SELECT THE BUSINESS EXIT OBJECTIVE
At the start up stage, the entrepreneur needs to decide and know the ultimate exit objective. This doesn’t have to be hugely detailed at this point, rather it’s like a target posted up on the wall- a daily reminder on the direction the business is headed for. As the business progresses beyond start up, however, the exit objective will become a formal and increasingly detailed part of the Annual Business Plan. This in turn will see sets of actions being planned and taken to achieve the chosen exit objective. These are illustrated in the next section (Stage2: Building Business Value for the Chosen Exit Objective)
A useful way to consider and decide on the ultimate business exit objective is to think about it and discuss it in the context of devising your business Mission Statement. For example, the Mission Statement is a key input into the decision making process on the new company’s corporate name. A ‘family’ corporate name, for example is well suited to a business with a business exit objective of ‘family succession’. Such a ‘family name’ may not however be best suited for the business aiming for ‘value realisation’. Seek and consider family input into this, as well as the input of any founding partners and employees. Figure 1 has a checklist of questions for you, your family and employees to consider about exit objective as the business Mission Statement is being defined.
Figure 1: Considering the Exit Objective during Business Mission Definition
- Why are you in this business? What do you want for yourself, your family and your customers? Think about the spark that ignited your decision to start the business. What will keep it burning?
- Who are your customers? What can you do for them that will enrich their lives and contribute to their success – now and in the future?
- What image of your business do you want to convey? Customers, suppliers, employees and the public will all have perceptions of your What is the nature of your products and services? What factors determine pricing and quality? Consider how these relate to the reasons for your business’s existence. How will this change over time?
- What level of service do you provide? Most companies believe they offer the “best service available”, but do your customers agree? Do not be vague; define what makes your service so extraordinary
- What roles do you and your employees play? Wise captains develop a leadership style that organises, challenges and recognises employees.
- What kind of relationships will you maintain with suppliers? Every business is in partnership with its suppliers – when you succeed, so do they.
- How do you differ from competitors? Many entrepreneurs forget they are pursuing the same dollars as their competitors. What do you do better, cheaper or faster than other competitors do? How can you use competitors’ weaknesses to your advantage?
- How will you use technology, capital, processes products and services to reach your goals? A description of your strategy will keep your energies focused on your goals.
- What underlying philosophies or values guided your responses to the previous questions? Some businesses choose to list these separately. Writing them down clarifies the “why” behind your mission.
Source : Figure 3.1: Questions to Help you Define your Mission Statement from ‘The Winning Marketing Decisions That Grow A Business – How Successful Entrepreneurs Do It’. Greg Byrne. Blackhall Publishing ISBN 1 8421 807 1 (HB)
Another useful tool to help decide the ultimate exit objective is the ‘Defining Success’ Chart. As you think about how you will define success, in both financial and non-financial ways and about what that success will be for the company and for you – it may well become apparent from these insights, just which exit objective is right for you.
In summary therefore it is advisable to decide your business exit objective – value realisation or family succession – at the start up. Enshrine it in your business Mission Statement as a daily reminder and guidance on the future direction of the business.
2. BUILDING THE BUSINESS VALUE
Value is created by what you have done –not what you should have done. Whether you are building value for realisation or for family succession, investment analysts and financiers agree that a market leadership brand grows significant business value.
Brands are the most stable and sustainable assets in a business, living beyond the years of most CEOs, Chairmen, management teams /changes and through any short-term family, economic or technological cycle. They create sustainable wealth and therefore reliable income and earnings for a business. Consider the following brands in this regard:
- Xerox , invented in 1938 and selling now in more than 150 countries
- Hoover, invented in 1907 and synonym for suction cleaning
- Bassett’s Allsorts, created in 1899 and represented by ‘Bertie’
- Horlicks , invented in 1873 and now consumed at the rate of 200 million mugs –full in 20 countries.
How They Work
Strong brands sit on a three-leg stool: first, they are built on a compelling idea that attracts loyal customers by solving an unmet or unsatisfied need; second, they ‘stand for’ something important in and to their markets and third, they become the ‘organising’ principle and lever for all management process and decisions within the business.
Brands become the short-hand for a consumer in markets – shortening the consumers ‘learn’ time and maximising their ‘feel’ of assurance about the purchase. Over time the brand comes to encompass all of the positive and negative associations, perceptions and experiences that an interested (or potentially interested) consumer has about the company and its brand position. The sum total of these will define the brands equity or value for the consumer. Where brand equity or value is high or higher than competing brands, then the consumer will always include it in their purchase consideration set. According to McKinsey & Co. the top three brands in a consideration set will secure as high as 70% of the sales opportunities in a market. For those brands placed fourth or lower, the opportunity for sales falls to 40%.
3. BRAND BUILDING TO SELL
If you are going for the ‘value realisation’ exit objective, then your business decisions and the way you operate the business is going to be singularly focussed on attaining the best price that a target buyer will pay , when the time is right. You’ll be considering and learning about why a potential buyer would want the business? Just who are the prospective buyers to target? – becomes a key business issue.
Building to sell is different to building to operate over the long term. Knowing who and what the target buyer wants has important operational and strategic implications. For example, it can be the case that the buyer is not interested in the real estate, buildings and assets of the business. It makes financial sense therefore to strip these out of the company and then concentrate on what the buyer would be interested in – customer base. Potential buyers may have a critical customer base size criteria, which then becomes a driver for your business to perhaps acquire smaller competitors in your space to speed up attainment of that customer base size.
Building to sell also crucially means taking the steps to create the ‘brand platform’ for your leadership brand position and which then operates the business to continually and consistently deliver the value that customers will pay for.
This process entails translating the brand position into a set of key customer ‘brand values’. These ‘values’ guide how all staff, processes and technology are engineered to deliver the brand position – in effect becoming the set of levers or short-hand to guide all management decisions and business strategy (Figure 6). This can be done by creating a set of ‘brand principles’. Often these brand principles are then translated into staff manuals and customer charters.
It is in this crucial process (brand position – brand values-brand principles – brand platform for business operation) that the entrepreneur achieves the twin key challenges of securing the leadership brand position that is delivered by the organisation consistently and continuously – thereby enabling him/her to exit the business in a sale at maximum value realisation or in a successful family succession.
4. KEY MARKETING AND COMMUNICATIONS IN THE PRE-EXIT RUN UP
For the venture with a ‘value realisation’ objective, the business has to be positioned to the two markets – the capital markets and the prospective buyer markets. In terms of marketing to the capital markets, it is important to develop and nurture relationships with your industry’s investment bankers and advisors. They not only take companies public, but also act as intermediaries between the two parties involved in an acquisition. Building these relationships involves personal meetings & contacts and participating in investment conferences sponsored and hosted by the bankers and advisors. In order to get on the radar of prospective buyers, attendance and exhibition at key shows and conferences is critical as are carefully targeted one2one presentations to prospective buyers.
5. SUCCESSFUL EXIT EXECUTION
To get the best price, your business is going to have to be at its maximum value to any buyer. This means planning strategically for the optimum time of sale to the most likely buyers- not about when is the best time for you to sell it.
There are two basic types of buyers, financial and strategic. Financial buyers look for businesses they can buy to then subsequently sell. Many look for niche companies with strong managers who want to remain with the company after the closing. They may not acquire 100% of the business. Their objective is to take the business to the next level and sell for maximum value. This ‘gradual exit’, with a further share of new value realised at sale time, is an attractive option for many entrepreneurs.
Strategic buyers typically operate in allied industries and acquire because of expected operational benefits or strategic advantages when the two companies come together. This is also known as a ‘trade sale’. Strategic buyers will acquire 100% of the business.
Selling to either type of buyer means the entrepreneur will have to stay on for a ‘transition period’. An unwillingness to do this will result in sacrificing value, as the buyer discounts the added risk of an abrupt departure.
A Trade Sale – Understand the Purchaser’s Objectives
A potential trade purchaser will have specific reasons for targeting your company for acquisition. It is important to understand where the purchaser perceives value to be and the motivation for acquisition. Most of the reasons will be related to leadership brand positioning, such as:
- Market Share /Entry – objective may be to increase market share or establishing a presence for existing products in new markets
- Vertical Integration – motivation may be to secure sources of supply or distribution outlets for the purchaser’s goods or services.
- Diversification – objective may be to broaden product range or enter new markets.
- Strengthening – purchaser may be interested in acquiring specific resources such as management team, production capabilities, distribution channels.
The key criteria which any potential purchaser will consider include:
- Employee Numbers
- Main Products or services
- Customer base
- Distribution arrangements
- Fixed Assets
When a prospective buyer comes along , the likelihood of the deal being done , at a price that maximises the entrepreneurs exit value , is influenced by the degree to which the ‘brand’ and ‘business’ has their ‘ducks in a row’.
Get the ‘ducks in a row’ / leverage the brand platform
Nothing protects a seller’s position better than having a competitive buyer in the wings. Make sure your brand is admired by your target buyer audience.
Focus on increasing the businesses recurring profits
Most purchasers will place most value on the core business of the company – its brand position- they will look for this to evidence continuing profits and discount any exceptional gains or profits form peripheral activities. Focus should be on ensuring that the core business has been fully developed i.e. all products and markets exploited. Eliminate weak product lines to increase overall profit margins and improve return on assets. Buyers don’t want diversified businesses- they want resources concentrated in the activities that underpin a leadership brand position.
Enhance the quality of earnings by developing relationships with key customers
Evidence of satisfied and committed customers/clients will greatly enhance the value of the company.This, again is a dimension of a leadership brand position. Efforts should be made to develop close relationships with key customers to the extent that they can be used as reference points for the business and that they are willing to nominate the business as first choice supplier.
A business plan focussed on a leadership brand position, with a Non Disclosure Agreement (NDA) is the best way to show your company to prospective buyers –without signalling an intense desire on your behalf to sell soon.
Transfer key owner-knowledge to management and staff
New owners will need comfort that the business can operate without the seller. In the absence of a brand platform to sustain delivery of the leadership brand position, other measures will have to be taken. Management depth adds value. Appointing a deputy and department heads alleviates buyer risk It will be important that any knowledge or contacts which are currently exclusive to you are passed on to appropriate management and staff.
Ensure suppliers and customers can be used as reference points for the company.
Interested parties will often approach suppliers and customers for independent opinions of your company. It is important to recognise this in advance and resolve any issues or practices which may result in an unfavourable reference.
Get the ‘ducks in a row’ / tidy up the business
CONCLUSION AND RECAP
When it comes to ‘exit’ – an inevitable outcome for all entrepreneurs and the crystallization of all of the sweat-equity invested – the two most important things to get right at the very earliest stage of the venture, is to decide on which of the two exit objectives you are targeting and how you are going to build the leadership brand position and platform needed to maximise the value realisation or family wealth transfer on exit.
Brand fosters customer loyalty, which in turn generates more reliable earnings and income for a business. Sustainable wealth generation- beyond the time and stewardship of any one CEO, Management Team or Board of Directors – is essential for the prospective buyer of the business. It is also key to the transfer of wealth across generations in family succession.
Brand is the way to align organisation-wide delivery of the customer value proposition. With a brand platform in place, communication and delivery of the value proposition is embedded into the organisation and becomes an ongoing activity and focus. This releases the entrepreneur to exit the business.