Reverse Exit Strategy
What if you are forced to buy up shares of your own company
Why we take on this rollercoaster is the vision of getting financially strong with little effort to change the world for better and to have a big impact. Yet sometimes it doesn’t happen. Sometimes someone gives up waiting. Sometimes health issues or family matters kick in and plans change.
What if instead of growing fast you don’t grow and you need to exit from sinking ship and the only buyer is your partner on that ship still having belief. What if that sinking partner is you and yet you see ways how to patch up holes and sail high and long? What would be the right price for these shares you’re to buy up from leaving partner?
What if you have your own criteria how you want to make deals
It could be a simple deal if you’d not be a grown up and complicated, complex, difficult person who envisions to change the world in your own terms. And these “your own terms” are ones that makes your deals hard to close and expensive for you. Yet there’s no other way to remain true to yourself in long run. So accept it and deal with it.
Common criteria when it comes to dealmaking are:
- Ethically correct – arguments that are correct, relevant, no twisting arms, not threats.
- Fair price – emotionally, financially, considering personal impact added/removed, including all known data.
- Other shareholders – will gain from the deal equally.
- Employees – remain taken care of in the same or better way, no policies are changed for worse.
- Clients – remain taken care of in the same or better way, no policies are changed for worse.
- Feel good morning – after the deal is done, for yourself, for buyer/seller. No hurt feelings.
What if you get that it means a strategic approach
And you realise, it’s not so easy or simple. Sellers/buyers tend to be people as well, with their feelings, emotions, dreams, expectations. Every deal is a compromise. So in essence it means – everyone loses for granted. How to avoid that?
Yes, it needs a negotiation strategy, a story that starts soft and leads to right arguments defending the purchase/sales price that is acceptable for the other party. So you gotta go through it yourself, analyse cards in seller’s/buyer’s hand. You gotta build a strategy that serves both parties meeting your criteria and having a closure to the deal. For me again it’s the thing what I do – the value proposition design.
What if you don’t know how to evaluate your assets worth
Purchase deal should not be very complicated. Older and bigger the company, more complex and expensive it gets. If it’s a classical business, if it’s a startup, if it’s something else…
I was my client’s 3-rd opinion. Flattering? Insulting? Smart move?
Usually you are told to have second opinion if you get relatively bad news from you doctor. Why shouldn’t we use same principles in business deals? Right!
The price is an emotional evaluation. First of all there is your gut feeling for how much would you sell your shares. It’s an emotional decision, having no basis or grounds to anything. I’ve given away shares of very respectful company today. But at the time I could not imagine working together with the biggest shareholder. Some shares exchange hands for nothing because new shareholders bring some values that grow the business tremendously, or they are critical players in the business.
Financially to calculate the worth of assets is usually pretty easy. There are formulas that are used per industry and there you have it. Things may get ugly of due diligence process reveals something in accounting or decisionmaking. But still – can be found, investigated, calculated, decided.
What about declining startups or businesses exiting partner’s shares buy-up? As for startups usually investor buy the hope/promise about coming wealth. But what if it doesn’t happen? What if there’s nothing valuable to sell but just some shares?
What if you saw the same branch you’re sitting on while twisting seller’s arms
A smart business owner designs her/his business in a way it is protected from unexpected attacks and competition. There might be several layers of protection.
- Legally, by having enough power over company.
- Financial superiority.
- Patents, francaise, technology, technical skills, knowledge.
- Assets that are used to keep the company going.
- Processes that grant consistency and sustainability.
- Team that is professional, loyal and makes things happen.
Yet I can give you 2 samples that serve you not well, both from real life.
- I myself managed to build a protective line using technology and data structure that generated huge upside when it came to serving clients and saving costs on block-related technology components. Yet it became impossible to get rid of that such a complex integrated solution when the exit time approached and …no good happened to it.
- One of my very experienced clients had built a dependency which let them control the entire business, even though he had no majority shares. At the same time he was dependent on these same relations himself. Talking down the shares buy-up price of the exiting shareholder using the angle, he also hurted himself, as the angel wasn’t working for his good in these negotiations.
Bottom line question – how to build defence lines and dependencies to protect your own without hurting yourself?Would I design my powerplay in a different manner today, I’d sure do. You’d need to keep in mind – there’s no equal partners, no equal human beings. Everything is in the constant move. Winning angle today might be your threat tomorrow. Design your business wisely!
What if you are equally or more experienced compared to your mentor/advisor
In general I have a background of generalist, I know a some of a lot as I’ve been forced to learn fast to differentiate what are the most valuable decisions to make, therefore I’ve always picked only business critical jobs. The rest have been delegated for a reason. Not that these are less important or are not critical. Yet considering my personal abilities to develop the most value in time for the company. Then there should be no surprise someone knows more about areas you are less experienced.
Yet the importance is not knowledge, as context keeps on changing and more important becomes clarity and cutting strategies that make the difference. And even if you have a very cool mirror, 2 or 3 opinions make a huge difference. My favorite though is to have at least 4 opinions. Try it out yourself and see the difference!
Also, reserve enough time to make a decision. Decisions made under time scarcity or pressure tend not to be very creative, rather these tend to use known approaches. Good deals are creative with their strategies.
Use all the help you see needed to come up with all possible strategies your opponent may have and how you respond to these. Good homework saves your nerves and lets you behave confidently at negotiations guiding the deal towards your goals. Oh, and don’t hesitate to switch advisors, mentors, coaches when it’s time. No-one but you is responsible for your success.