According to a survey done by The Exit Planning Institute, 80% of business owners have no written exit plans and 50% have done no exit planning at all.
For Noah Berkson, Managing Partner at Austin Capital Partners which operates and invests at the intersection of fintech and financial services, it’s not surprising.
“As people start businesses, a lot don’t see themselves doing it forever, yet you can get so ingrained in the day-to-day running of your business, you never have the time to actually put that plan in place and think about it,” he says.
With Michelle Cordeiro Grant, Founder and CEO of wellness beverage company, GORGIE, Berkson spoke about his entrepreneurial journey in a conversation moderated by Maelle Gavet, CEO of Techstars, in the latest YPO Presents Ask the Experts: The Path to Exit and Thriving Beyond.
Grant says in her first foray as a founder, she was one of the 80% without an exit plan, admitting it was part superstition but mostly because exiting wasn’t her inherent goal. She likened her perspective to purchasing a house to create a home versus buying one to flip and sell; she was more focused on building out her brand.
“When you’re building for an exit, you sometimes become too spreadsheet and statistical driven. You’re just looking for what the acquirers want versus what the acquirers don’t know they want,” she says.
Berkson and Grant shared what they learned from their exit experiences – the intricacies of the process and the challenge of what comes next.
Ready or not, acquirers will poke around
Before Austin Capital, Berkson built and sold companies across software and staffing services. His first exit was with his software staffing startup, DevBase.
“We were approached to sell the business by a strategic acquirer, and at the time we just hadn’t thought about it,” he says, explaining that traditionally a staffing company doesn’t attract acquisition interest. “But when you start to go through that process, you learn really fast how unprepared you are.” Issues such as expired vendor contracts continuing under good faith become a challenge, for example.
But even for founders who feel prepared, the path to exit is not easy.
When Grant founded WearLIVELY, a women-focused community and apparel brand, she had years of experience working for big names in the fashion industry, including Macy’s and Victoria’s Secret. Because of this, she ran LIVELY just like the public companies she’d worked for, holding board meetings before she even had a board and running operations as if she was reporting out every financial detail.
This put her in great shape when an acquisition opportunity came along, but she admits she still wasn’t ready for the level of scrutiny exiting brought.
“You need to make sure your financials, your contracts, your books, everything is in order,” she says. “Because while they might love your personality and style, behind all of that, they’re picky. They are digging around trying to find the holes.”
Both Grant and Berkson warn that the process of exiting can be draining — and that’s by design.
“You just get to a point where you want it over with so badly you start to make concessions.”
“The acquirer is there to get the best deal they can, and there’s a proven playbook of how people acquire businesses. They generally draw it out over time and re-deal throughout the process,” says Berkson. “You just get to a point where you want it over with so badly you start to make concessions, which is exactly what the whole process has been drawn out to make you do.”
Finding the right support to sell your business
What helped both founders exit successfully was surrounding themselves with the right people.
“It becomes extremely important to have people around you who don’t need too much context to get up to speed and give you relevant advice,” says Berkson.
Organizations such as YPO allow executives to seek out advice from those who have been through an exit and can shed light on a founder’s blind spots.
Enlisting lawyers you trust and with whom you can be vulnerable is also key, says Grant. You must feel comfortable asking questions about the things you don’t understand.
“Little points that might be overlooked can make a very meaningful difference in your financial outcome or your operating capacity,” says Grant, encouraging other founders to not feel shame about the things they don’t know, rather to empower themselves to find out from lawyers, other executives and professional mentors.
Losing control and finding a new path
Both Berkson and Grant stayed on at their companies after acquisition, and both faced challenges amidst what many saw as celebratory occasions, including feelings of loneliness and uncertainty.
For Berkson, it was the realization that though he was still technically running DevBase, there were decisions that he no longer had control over, such as a change in the communication channels his team used, and the amount of PTO provided.
“You lose that sense of ownership. For a lot of entrepreneurs, your whole identity is tied up in that business,” says Berkson. “You need to be able to take a step back and just be OK with that, which is really challenging,” he says.
Grant agrees the loss of control can lead to a bit of an identity crisis.
“This is something that you’ve probably built from within, and the team, culture and everything about it means so much to you,” says Grant. “You have to be psychologically prepared to let go. I wasn’t, it took me months to really process it all.”
After an exit, the question is what to do next. Berkson advises the only wrong path is sitting idle.
“As a founder, it’s about understanding what you really enjoy,” he says. “Running a business is tough but find the parts that give you energy.”
For him, it is the enjoyment he gets out of finding solutions to difficult problems.
Similarly, after trying out different opportunities post-LIVELY, Grant came back to what truly brought her joy: building a brand from scratch. Wanting to hit an inflection point in an industry where change was needed, she founded GORGIE.
And while it might not be the easiest economic climate to be an entrepreneur right now, when Gavet asked the pair if it’s still worth it to build businesses and plan for exits, she was met with a resounding “Oh hell yeah.”
“We do it for the high, for the fulfillment factor,” says Grant. “My tennis game is weak, because I like to build businesses.”
Berkson agrees, “I just don’t know what else there is? Happiness for me is solving problems and doing it in a fulfilling way keeps me coming back for more.”
