As a founder of an early-stage startup, you may wonder what your exit strategy is. An exit strategy is a plan on how you intend to sell or even transfer your ownership of your startup over an acquirer, investor, or public among others. Both your financial and personal-professional goals depend on a satisfactory exit strategy.

According to UserGuiding, 53% of startups believed that they were within two years of an exit before COVID-19, while 44% anticipated an exit in a one-to-two-year time frame. This indicates the importance of planning ahead for an exit strategy.

But how do you plan an exit strategy? And when should you begin to think about it? In this blog post, we will address these questions and give you some advice on how to prepare for your startup’s future success.

What is the need for having an exit strategy?

Not having an exit strategy is not indicative of failure or surrender. On the contrary, it is a symbol of vision and aspiration.

Having an exit strategy can help you:

Your stakeholders should align with your vision. Your exit plan should demonstrate your vision for the future of your startup and what value you aim to provide to customers, employees, partners, and investors. Communicate your ‘exit plan’ to your stakeholders, so that they will share your vision and support the walk towards it.

Focus on your core competencies. Your exit strategy may also help you realize your strengths and competitive edge, and how best these strings can be used to grow on the startup. By defining your core competencies, you could eliminate unnecessary distractions and allocate resources effectively.

Prepare for contingencies. Your exit strategy will allow you to anticipate and mitigate potential risks and challenges in your startup journey. Your startup may be subject to market changes, regulatory issues, legal disputes, or personal circumstances. By planning an exit strategy you can be prepared in case of a need to adjust or change.

Maximize your valuation. Your exit strategy can enhance your startup’s valuation and appeal to potential buyers or investors. By planning and organizing the process well, your financial performance will be optimal, your brand reputation will be built better, you can build a customer base, and secure your intellectual property rights.

How to plan for an exit strategy?

Planning for an exit strategy is never a one-time event, it evolves as your startup does.

Here are some steps you can take to plan for your exit strategy:

Define your goals and timeline. First of all, try to define your personal and professional goals and how they align with your exit strategy. For instance, do you wish to retire, undertake a new venture, or join another company? How much do you want to earn from your exit? How long do you want to remain involved with your startup after you leave? These questions can act as a guideline to help you decide the best form of exit strategy that would work best for you, such as a merger, an acquisition, and so on.

Research your options and opportunities. Then, research your possible exit options and opportunities to decide if they fit with what you want and when. For example, you can analyze the trends in the market, industry landscape, competitive analysis, and valuation methods for your startup. You can also consider the exit histories and preferences of buyers or investors you have been targeting as well, and how they fit with your vision and values.

Build your network and relationships. Maintain a healthy relationship with your potential buyers or investors and other major players in your industry – this is the third step. You can visit events, engage with other communities, find mentors, and contact influencers. You can also highlight your startup successes, traction, and potential via a website, social media outlet, news or blogger site, podcasts, or newsletter. By developing your network and relationships you will be able to become more noticeable, believable, and credible in the market.

Prepare your documents and materials. The last step in the process is preparing the various documents and materials you will need for exits such as a pitch deck, financial statements, reports, customer testimonials, product demonstrations, legal contracts agreements, due diligence checklist, etc… You also need to prepare your team and your culture for the transition, and how you will deal with it all in terms of communication, integration, employee and customer retention.

Conclusion

An exit strategy is a crucial component of your startup’s future success. Planning for exit enables your vision to be in full agreement with stakeholders, focusing on the core competencies and contingency planning, as well as maximizing your valuation. You need to start thinking about your exit strategy as early as possible and keep refining it as your startup evolves. An exit strategy is not the final stage of your startup adventure, but just the beginning of a new one.

If you need help with preparing the pitch deck and the financial statements for your startup, we would love to help! Book a FREE complimentary call to get started and learn more about how we can help you.