26 HARTFORDBUSINESS.COM | August 1, 2022
Expert's Corner
Biz Starts
Entrepreneurs, business owners must have an exit strategy
By Ken Cook
Entrepreneurs are investors, both in terms of time
and money. But how good of an investor are they?
When they get it right, the best venture
capitalists and investment bankers will get returns
in the 200% to 300% range or higher, often within
five years. Since we don't often get those outsized
returns in our lives, what do they
know that most of us don't?
One thing they know is how they're
going to exit before they even enter
a deal.
That raises two questions: 1.
How does one maximize the return
on their entrepreneurial investment. 2. How and
when does an entrepreneur know when to exit and
realize optimal value?
Getting to the point of a viable and desirable exit
involves two management modes.
The first is the entrepreneur as a business
operator. This is a sleeves-rolled-up, get-the-
job-done role. Entrepreneurs have to operate
in this mode because that is how the value of
the business gets built in the eyes of the most
important constituency — the customer.
Operating entrepreneurs improve their products,
service and value, identify the best customers, hire
the best people, etc. Of course, doing the right
operational things drives sustainable and profitable
revenue. It is sustainable and profitable revenue
that drives owner's equity on the balance sheet.
The second management role the entrepreneur
should incorporate is the entrepreneur as asset
manager. Asset managers are decision makers, not
doers, managing the assets of the business — the
people, management team, money and markets.
Becoming an asset manager is a significant
shift for an entrepreneur, because the majority
of entrepreneurs are business operators. Asset
management requires a change of thinking and
approach to the business.
And what are some of those changes?
• Recasting company financials, focusing on
EBIDTA (earnings before interest, depreciation,
and taxes) as a primary financial measure of
strength and success.
• Establishing and managing assets through Key
Performance Indicators (KPI). These are a few
key measurements that are insightful indicators
of success.
• Changing spending habits, tightening up on
unnecessary expenditures.
• Looking at the past for a true picture of company
status, not looking at future projections as
a statement of what a company aspires to
become.
Becoming an asset manager and manager of the
business entails truly separating from the forest,
and viewing the business as others would view it.
And how do others view a business? Five factors
come into consideration:
• Financials
• Management team and staff
• Customer pipeline
• Technology
• Intellectual property
These are the assets that interest an acquirer.
Frankly, acquirers always ask a simple question:
How will the business run without the entrepreneur
being there? Acquirers buy a customer base,
technology, staff, and the processes and systems
that deliver value to customers. They don't usually
buy the owner — instead, they buy him or her out.
The asset manager recognizes this and builds
their business accordingly by asking the questions:
How do I leverage the business' assets to optimize
value? What is my exit strategy?
Focusing on these issues means the
entrepreneur is both an operating manager and an
asset manager. Keep one eye on building value,
and the other on ROI. It's your time and your
money. You have the ability to control the return
you get on that investment, both up front and on
an ongoing basis.
Ken Cook is the co-founder of How to Who,
a source for expertise on how to build strong
relationships, and how to build business through
those relationships. Learn more at howtowho.com.
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Ken Cook
