Why you need an exit strategy for your business

OPINION: While most of us use holidays to chill out and think of anything but business, Chanelle O’Sullivan​ uses that time to plan out cool business ideas on paper, napkins, anything she can find.

This was the beginning of her meadery Borage and Bee, a sparkling mead in a can sold here in New Zealand, gaining huge interest overseas.

Chanelle operates Borage and Bee Meadery from her home in Glenorchy in the South Island, arguably one of the most beautiful places to live in the world. Mead’s core product is honey, and has no artificial preservatives, cane sugar or anything not created by nature. It’s surprisingly unsweet (for those who’ve never tried it, the honey gets “eaten up” in the fermentation process).

Keeping the process as pure as possible was part of Chanelle’s vision.

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“I went to this consultant who was a beer brewer. He’d never made mead. I told him ‘I want no sulphites. I want nothing nasty. I don’t want any of this, I want this, I want this’. He said, ‘basically, you’re probably gonna be difficult’. And that was fair! From the start I’ve wanted to do everything right from the beginning.”

The idea for launching a meadery came from Chanelle watching international growth in the industry. She explains: “Currently the mead industry globally is worth around $400 million. And the next four years is expecting to double to over $800 million. In 2017 there were 160 meaderies in the United States, now there’s over 600, with around 200 more waiting on certification training.“

South Island entrepreneur Chanelle O'Sullivan with her daughter Isabelle and son Hunter.

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South Island entrepreneur Chanelle O’Sullivan with her daughter Isabelle and son Hunter.

Chanelle believes mead will grow in popularity as cider has.

Chanelle is now two years deep into her business, the third she’s launched and run. This is the first business she’s developed with a clear goal for growth, and she’s spent time taking on advisors to help her think bigger. One of the defining moments was when someone asked her “What’s your exit strategy?”

It was a question that stopped Chanelle in her tracks and made her rethink how her business would grow. It helped her to think bigger, and continues to help her create a strategy that serves her business now, but also helps her plan for the future

When I first approached Chanelle to interview her for my podcast, I was wanting her to talk about some of the benefits and drawbacks of running a business from a small town in the South Island. While we also talked about this, when she mentioned exit strategies, I knew we were covering a topic so many small business owners avoid.

Of course an exit strategy is not a promise. For many business owners over the last few years, the exit plans they did create were smashed under the weight of Covid. People like Jacqui Wilkerson had to choose to completely shut down her tourism business rather than hibernate or sell far below the value of the business.

However, an exit strategy can help you make better decisions today, while working in the present. These decisions could include how you systemise your business, working on improving profitability, ensuring you’re paying yourself for working in the business, and making your business overall more marketable to a potential buyer.

For Chanelle, from Borage and Bee Meadery, the exit strategy allows her to think big, plan for external investment as they business plans to expand into international markets and keeps her plans focussed on ensuring her investors get the benefit of putting their trust in her, and her business.

It also helps her use this business as a stepping stone to her long term goal – of working with other women in business.

“I want to support other women entrepreneurs, specifically those in regional New Zealand, who are trying to balance business with husbands working on the farm all the time, living in the middle of nowhere, with kids running around the house.”

“The idea is that in 10 years time, I would exit Borage and Bee, my investors would all benefit, and I’d be able to then invest in others. I felt I had to create something and go through it myself before I could really be useful to others,” she explains.

Being bought out is a common exit goal for business owners, but there are other options. You could choose to wind it down, close the doors overnight, sell it to family, gift it, or take a step back, appointing someone else to manage and run the business for you.

Even if you never plan to sell, asking yourself if your business is valuable enough to be sold will help you see your business in another way. It helps you choose how you’ll grow your business, which in turn helps you work out how best to market your business to reach that growth.

In these days of “hustle hard, win big”, it’s important we remember that a business that helps you earn a consistently good income and provides profit on top of that for 20 or 30 hours a week is just as valid a business as one where you manage hundreds of staff, have a turnover of millions, and plan to take your business public within a few years.

There is no one correct exit strategy, but whatever you choose needs to fit your end goal.

Several years ago we were tempted to purchase another business, and amalgamate it with ours. It ticked a lot of boxes, until we noticed that the profit from the business was actually the salary you’d need to pay someone to replace that role if the business was owned by someone else. This made it difficult to see where the value of the business was, in line with our goals.

If we’d bought the business, we’d essentially be buying another job, and we had two of those already! If you are a solopreneur, and you want to sell your business at some point, it needs to be able to stand alone from your work in it, and have profit over and above what you take out as your pay, unless you’re planning to sell it to another solopreneur, who’ll have your help to transition the change.

As a business owner who turned 50 this year, I’m looking at our business and how we’ll want to operate within it in the future. We talk and plan often around having a blended exit strategy, with parts of our business being sold off, some shut down, and others staying with us forever.

These conversations help us make decisions now that make those plans more possible in the future. It drives our marketing strategy and actions across different areas of our business.

When I shared Chanelle’s podcast interview on my networks, one of my regular listeners Jo Carson-Barr from VA Publishing, sent me a message, laughing. “We joke that our exit strategy is death!” she said. Jo and her husband Rod travel around the country selling picture books that Jo has written and her son illustrated, to Early Childhood Centres and parents. Their business is perfect for their stage of life, and the exit strategy of winding it down, or shutting it down completely in the future, fits.

It might be that your exit strategy involves succession.

“As a business owner who turned 50 this year, I’m looking at our business and how we’ll want to operate within it in the future,” says Rachel Klaver.

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“As a business owner who turned 50 this year, I’m looking at our business and how we’ll want to operate within it in the future,” says Rachel Klaver.

In 2007, I wrote a book called She’ll Be Right for Penguin Books, about farming women in New Zealand. It was a book that profiled 25 women and their work running farms. While some had set out with the intent to run one all along, others had found themselves having to take over the operations of a large enterprise, due to a death or illness of a partner or family member.

A recurrent issue was that there had been no succession plan, and often little record keeping to help make this step into the role simple. Recording systems and processes is a huge part of the exit strategy planning.

Systems and processes are part of Chanelle O’Sullivan’s plans too. While she’s currently doing everything in the business besides the fermentation, bottling and distribution, to grow the business she’ll need a team.

She’s documenting her processes and establishing systems to make sure that not only her future team will know how to work best in the business, but also to create a more sellable asset.

“Right now, I’m the marketing sales, admin, strategist, project manager and everything else in the business. I’m creating procedures, and I’m really looking forward to the day that I can have some people on board with me to look after all of this with me.”

Having the end goal of a future buy out helps Chanelle push through the discomfort of growing pains now. She’s confident she’s building a business that will benefit her own, and others’ investment into it. Whether she ends up keeping the business, or selling it in the future is not a decision she needs to make today.

It’s having the exit goal before her that’s helping her build a better business now.

Rachel Klaver is a marketing strategist, specialising in lead generation and content marketing. She owns Identify Marketing, which works with businesses to create the strategy they need to tell their story better to the right people. Tune in to her weekly podcast MAP IT Marketing – created to help small business owners learn about marketing.

Identify Marketing is a content partner with Stuff for specialist small business information. Find Rachel’s events here.

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