Platt Perspective on Business and Technology

Planning for and building the right business model 101 – 11: exit strategies, entrance strategies and significant business transitions 1

Posted in startups, strategy and planning by Timothy Platt on August 18, 2015

This is my eleventh posting to a series that addresses the issues of planning for and developing the right business model, and both for initial small business needs and for scalability and capacity to evolve from there (see Business Strategy and Operations – 3, postings 499 and loosely following for Parts 1-10.)

I focused in Part 10 of this series on long-term business planning and development and ended that by noting that I would turn here to consider more fundamental business transitions: exit strategies, entrance strategies and related fundamental change. And I noted a relevant background reference from an earlier series in preparation for that where I focused essentially entirely on the exit side to business transitions:

Online Store, Online Market Space – Part 18: exit strategies and long term planning.

I add to that, a second more recent reference posting from an also-related series as well:

Building a Startup for What You Want It to Become 5: exit strategies and goal directed strategy and planning

Both of those postings are about transitions that would have fundamental impact upon a business, and represent change in it of a type and scale that would fall outside of the scope of any simple evolutionary adjustments in what had been done there before, and either strategically or operationally. That point of detail is crucially defining here: both of those postings dealt with fundamental operational and strategic change and both referred to this in what would more fully be seen as transition terms.

I build from that prior discussion here, to at least begin to more fully consider business transitions as a whole. And I note in this regard that with the exception of complete business endings (e.g. business closings and liquidations), significant business transitions are usually demarcated by entrance points for what is to come next and beginning, as well as exit points for what is closing down and ending.

I noted in my above-cited Online Store, Online Market Space posting, as transition examples of relevance to businesses exiting their startup or early business stages, the possibilities of:

1. Maintaining your business yourself as a privately held, wholly owned entity.
2. Maintaining your business yourself as a privately held entity but with a restricted set of shareholders in the form of angel and/or venture capital investors backing you.
3. Going public as an initial public offering (IPO).
4. Selling your business for incorporation into another, probably larger business through merger and acquisition processes.

The first of these scenarios, at least as a matter of initial consideration, would seem to involve minimal change per se. And as such it would seem to be included as more of a default reference point for evaluating and understanding the more fundamental change inherent in the other three scenarios, and not represent a significant transition itself. But as it is stated above, Scenario 1 simply identifies itself as a transition that takes place under a single, same ongoing management and leadership team and without new unavoidably contributing voices helping to shape next-stage business decisions. This is, or at least can represent a significant point of transition too.

So I begin this stage of this series’ discussion with this “default setting”, startup and early stage exit-oriented, transition example. And I will follow it in this series with at least briefly and selectively expanded discussions of the other three scenarios too, offering them as variations on this one, with additional specific complexities added in, in accordance with the scenario defining terms added above.

And I begin all of that by offering a briefly sketched, more general outline of what a business transition actually is. Setting aside fundamentally one sided transitions such as initially planning and launching a new business enterprise from scratch, or closing down a business and selling off its remaining assets piecemeal where everything that went into that business as a once viable enterprise per se, now ends:

• Business transitions are complex processes and even complex systems of processes that generally include within them exits where an old is being closed down and transitioned out of, and entrances where a new is being developed and transitioned into.
• So transitions are marked by both a need for exit strategies and exit operations, and entrance strategies and entrance operations.
• And making a transition work smoothly and effectively is all a matter of smoothly and efficiently switching out of old, outgoing goals, priories and understandings and their accompanying operational and strategic frameworks, and into a new.

General, abstract statements of this type can offer organizing, conceptual value for further thought and discussion, but making them functionally useful and at both an operational and a strategic level calls for more details.

My two earlier cited series, as noted above in this posting, focused on startups and early stage businesses, and more specifically on exiting from those stages. I am going to continue their lines of discussion here, and as stated above starting with Scenario 1 from my already repeated list. And I begin that by considering what startup and early stage functionally mean in a business development context, and at the fundamental “life blood for a business” level of cash flow and revenue (see my series: Understanding and Navigating Burn Rate: a startup primer, as can be found at Startups and Early Stage Businesses, as postings 67-78.) And unlike prior coverage of this scenario, I will focus here more on next steps and on what follows as a business exits these first stages.

• Startups begin as sources of potential for success and for ongoing value creation. But they start out with limited resources, including a limited liquidity pool that is not being replenished at least yet, at least by this business enterprise and its own activities. Startups begin, for the most part as pure potential for what might follow, and as overall loss centers, as their monetary resources are being drawn from but not replenished.
• And as these enterprises come together and as they start to become product and/or service creating, strategy and operations driven businesses, and as they start bringing their offerings to market, they (hopefully) begin to bring in their first income – which at first does not match their level of expenses – their burn rate when this is viewed in terms of their initial starter funding. But they do begin bringing in revenue and on what becomes a consistent basis and they transition out of their initial startup phase.
• And sales grow, and certainly if this venture is to succeed. And a point is reached where revenue coming in matches expenses going out, and this new business is no longer significantly drawing from the initial starter funds that it began with. This is an early stage business that has successfully transitioned out of its earliest, riskiest new startup phase and it is well on its way to exiting its early business stage too.
• And sales continue to grow and markets start becoming comfortable with this new brand with its product and/or service lines and it reaches a point where it is now making a profit, and consistently so. And it is now in a position where it can both build and grow towards being significantly competitive in its marketplace, and it exits its early business phase as it proceeds to do this.

This basic starting point outline forms the foundation for all four of the numbered scenarios offered above. And now let’s consider Scenario 1 and the need to begin scaling up, and for essentially all aspects of this still young venture.

From a next-step entrance strategy perspective, Scenario 1 is all about scaling up, and from the point where incoming revenue has started to consistently arrive at a sufficient level as to create a profit. I have already offered a 35 part series: Moving Past Early Stage and the Challenge of Scalability that addresses a range of issues and challenges that arise when scaling up a business per se (see Startups and Early Stage Businesses, postings 96 and loosely following.) A number of the installments to that series are more specifically relevant to this posting and its discussion, and particularly from among the earlier installments to that series where my focus was on earlier stage scalability and growth. But I focus here on a very specific set of early stage scaling up considerations, that can become dominating considerations as this transition is completed and as a new business transitions out of its early stage per se.

• These businesses and their managers, leaders and owners have to develop strong, reliable consistent business processes and systems that can reliably maintain cost-effective, consistent quality production – in the face of a great many unknowns and uncertainties, and particularly for first time business founders.
• The same people are most likely in charge who started this new venture, but now they have to chart and follow a new path forward that includes bringing in new people, and sharing responsibility into new hands that had not been there from the beginning.
• They have to expand out and flesh out their operations, and deal with a seemingly ever-expanding complex of issues that would not have shown themselves earlier on. And this means expanding out their overall strategies so that they address and coordinate all of this new operational complexity.
• And it is essentially certain that while some of this can and will be done proactively and in anticipation of direct and immediate need, much of it will also take place and for planning as well as in execution, on an immediately as needed basis and even on a Plan B course correction reactive basis.

When the founders of a business transition it out of early stage business establishment and into a more profitability and growth stage, and when they move on, attempting to capture the opportunities that are now becoming available to them from that, they have to be prepared to grow out their still young business in new ways and in new directions, and not simply according to some simple pre-established linear growth pattern – and even if their overall growth plan is to at least eventually create a stable profitable business model that they can in effect cookie-cutter expand from further, through branch stores and outlets for example, when and as they reach that developmental stage possibility.

I am going to continue this discussion in a next series installment, adding some further details to this Scenario 1 discussion, then turning to Scenario 2. And as noted above, I will proceed from there to delve into Scenarios 3 and 4 as well. And as a crucial point of clarification, I offer all of this as a series of special case examples. I have at least tentatively scheduled a first part to a new series for August 26, 2015 publication, with a working series title for that of: Rethinking Exit and Entrance Strategies. And my intent for that is to more systematically examine business transitions as a process category and as a general business development activity. And in that anticipated context, I repeat here, the third of my three orienting bullet points from above as to what these transitions are:

• And making a transition work smoothly and effectively is all a matter of smoothly and efficiently switching out of old, outgoing goals, priories and understandings and their accompanying operational and strategic frameworks, and into a new.

I will analytically discuss this point in particular, and what it means and how it can be accomplished, and in more detail than would fit into a series such as this one. But that is for another series; I am going to complete my discussion, at least for purposes of this series, of Scenario 1 and will continue from there with Scenario 2 in my next installment to this series. And then after completing my discussion of Scenario 2, I will as noted above, discuss scenarios 3 and 4.

Meanwhile, you can find this and related postings and series at Business Strategy and Operations – 3 and also at Page 1 and Page 2 of that directory. And you can find this and related material at my Startups and Early Stage Businesses directory too.

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