Professor Steen Thomsen, Center for Corporate Governance, CBS
“What is your exit strategy?” is one of the first questions advisors ask aspiring Danish entrepreneurs: “How do you plan to sell the company?” Some might argue against counting chickens before they hatch. In any case, it’s a peculiar question for an entrepreneur dreaming of building something substantial.
From a management perspective, the exit strategy implies viewing the company as a financial transaction, as opposed to previous ideals of creating enduring value. However, perhaps the right place to start isn’t how the entrepreneur can make money, but how the company can be of service – especially to its customers.
The next question entrepreneurs might face is: “What are your processes?” Can you document your business plan, management structure, company documents, financing, etc.? These are formalities that can be verified, but unfortunately, they don’t necessarily address the substance: Is it a good idea? Determining whether an idea is good is challenging, but it can’t be replaced by processes. The reality for entrepreneurs is different; they can’t foresee success but must solve problems as they arise.
Exit entrepreneurs, welcome professionals?
Beneath the surface, advisors, researchers, and officials often have an arrogant attitude towards entrepreneurs, whom they seek to educate. The sooner entrepreneurs are replaced by professionals, the better. However, entrepreneurs are not unintelligent; they understand what’s happening, and perhaps that’s why many attempts to reform and educate them have failed.
This is also true for the attempt to insert professional board members into the boards of smaller companies. The dream of upgrading small and medium-sized businesses through better boards persists, but owner-managers hesitate. One reason is likely the lack of respect from professional board members towards entrepreneurs and founder families who don’t express themselves in management jargon and have different ideals. A case in point is that succession within the family is almost viewed as a problem. Instead of owner-management or family ownership, advisors now focus on “ownership transfer.”
The best solution for the company and the family?
There are, of course, situations where external management or selling the company is the best solution for both the company and the family. Similarly, there may be good reason for founders and their families to have documentation and be well organised, especially as the company grows large and should not be too dependent on any individual.
However, there are also values in personal ownership that deserve recognition. It’s no coincidence that the vast majority of the world’s companies are privately owned and that families can often continue ownership for generations. Among other things, they largely avoid the conflicts of interest between ownership and management that dominate so much in listed companies, so owners often identify with the company. A prerequisite for moving forward in the dialogue must be for professionals to learn to respect these qualities.
Advisors must also learn to appreciate the work methods of entrepreneurs, which are usually more informal and less analytical than those in large companies. Entrepreneurs develop their business by trial and error, learning from their mistakes, so the right solution emerges over time. It’s likely directly harmful to replace this experience-based development with manuals and checklists, no matter how well-intentioned they may be.
Time will show.
So, the answer to the consultant asking about the exit strategy must be: We’ll figure it out. It will become clear. If everybody is asked he same pre-programmed question because it’s in the manual, it’s only fair to provide a standard response.