Platt Perspective on Business and Technology

Planning for and building the right business model 101 – 31: goals and benchmarks and effective development and communication of them 11

Posted in startups, strategy and planning by Timothy Platt on September 1, 2017

This is my 31st 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 and its Page 4 continuation, postings 499 and loosely following for Parts 1-30.) I also include this series in my Startups and Early Stage Businesses directory and its Page 2 continuation.

I have been actively and very specifically addressing the issue of value creation in a new business, and what that word means to various demographics and constituencies that can become involved there, in the most recent several postings to this series. And I have focused there on business founders and the startup building teams that they bring together, and different categories of possible outside investors. Then at the end of Part 30, I said that I would turn here to consider exit strategies. And I begin doing so here, by clarifying more precisely what I mean by that often unfortunately misnamed business development process:

• Exit strategies represent fundamental change and true transition points where same and linear evolutionary change in a developing business, gives way to fundamentally new and different.
• As such they represent new beginnings for businesses as much as they do ending points, where a once perhaps essential approach to running a business gives way to a distinctly different and new one, and one that probably would not have worked for it earlier even as it would offer a good and even best path forward now.
• An effective exit strategy leads a business into what would at least ideally be its best possible next step forward, and both strategically and operationally.

Why are these transitions generally referred to as “exit” strategies, and not “transition” strategies or something else that would be less bound by implicit assumptions? The first strategically defined transition points to rise to general attention as disruptive changes in this manner, were primarily ones in which a business’ owners sold their new venture and walked away from it, perhaps after some agreed to transition-in-leadership period, or after staying on as a consultant for some period of time. But most of the transitions that I would include here do not involve any walking away of that sort, even if they can and often do include a change (e.g. a widening) of the executive team and an increased diversity of perspective and action coming out of that.

I have at least occasionally touched on this aspect to business development in earlier postings and series here in this blog. But to round out these introductory notes to this topic for purposes of this series, I at least briefly list a few other possibilities here, that are all most likely to start to become viable as options for most businesses, as they starting becoming consistently profitable – if they are to do so at all:

1. A new venture that has at least preliminarily proven itself as viable and as a source of profitability can go public and with all of the organizational change and all of the transparency and reporting requirements that this entails as they begin offering stock shares.
2. A new venture can transition from pursuing an organic growth and development model to one in which they seek out and acquire larger outside capital investment resources, and particularly from venture capitalists as briefly touched upon in Part 28, Part 29 and Part 30 of this series.
3. A new venture, and certainly one that is built around a growth-oriented business model, might build its first bricks and mortar site, in effect as a prototype effort that it would refine with a goal of replication through, for example a franchise system.

Yes there are exceptions to my assertion that these exit strategy options all become more viable only after a business has achieved consistent profitability. Just looking to the performance track records of businesses pursuing the first of the above three options, consider Google and businesses that like it, have gone public with an initial public offering (IPO) before they have actually became consistently profitable, where this has worked out and for essentially all concerned. But businesses like that are still exceptions and other much-hyped ventures that have attempted to follow Google’s lead there have sometimes all but vaporized into failure – after bringing in outside shareholder investor money. So I still argue the case that these three scenarios all become more viable and certainly on an investor risk management level, only after a business in question has transitioned into becoming genuinely profitable and reliably so.

That contextual detail noted, these and other transitions from early development into maturing business, can be viable as next step options and even best choices for moving forward when they are well thought out, timed and executed upon. And of course these basic exit strategies can, in many cases be combined too, with for example an exit strategy goal 3, as just listed here, also seeking to raise working capital by going public, essentially simultaneously pursuing a goal 1 approach too. As a growth-oriented business, such a venture would probably be more inclined to orient its system of publically traded shares so as to return as much of the profits generated back into the business in order to expand it, creating future value for itself and for its investors rather than short-term returns on investment that could be drawn out of the business.

And of course, simply selling off a new venture that has begun to prove itself could be added here as a fourth possibility, but for purposes of this narrative, I focus on the above numbered three, just as I have only addressed a few possible stakeholder categories here (e.g. no marketplace consumer, or supply chain or related participants considered here, at least at this point in the series.) And with this note added as to how I am bringing this discussion into focus, and with these background notes offered, I turn back to further consider the issues cited in the title of this series installment: “goals and benchmarks and effective development and communication of them.”

I am going to continue this discussion in a next series installment, where I will more fully examine goals and benchmarks, and communications issues as they play out in businesses going through the above three stated exit strategies. Meanwhile, you can find this and related postings and series at Business Strategy and Operations – 4, and also at Page 1, Page 2 and Page 3 of that directory. And you can find this and related material at my Startups and Early Stage Businesses directory too and at its Page 2 continuation.

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