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An Exit Strategy Mindset – A Case Study On Choosing "Good" Vs "Bad" New Business Ventures



The crafting of an exit technique for a enterprise and the harvesting thereof is the final word measure of success for entrepreneurs. This course of begins when entrepreneurs select new ventures (to construct or to begin from scratch). These selections can both be good or dangerous so far as harvesting potential are involved.

Over greater than a decade Ventex Company suggested and assisted firms with their exit methods. This case research highlights varied “good” vs. “dangerous” ventures on this regard that we consulted to. Contrasting firms are mentioned beneath among the key elements of selecting the best enterprise with an exit technique mindset. These key elements are:

  1. The window of alternative.
  2. Match of entrepreneurs’ profile with alternative.
  3. The economics of the enterprise.
  4. Aggressive edge achieved.
  5. Harvesting dynamics.

The Window of Alternative

The timing of an exit technique must be fastidiously deliberate. Ideally entrepreneurs ought to embark on new ventures when a window of alternative begins to open up and harvest it when the window of alternative remains to be huge open. The IT trade and particular the dot.com bubble that burst is well-known on this regard.

Two of our shoppers within the mobile trade are wonderful contrasting examples of timing. Mobile Good launched into a selected area of interest space within the pre-paid voucher market simply when the window of alternative began to open up. The corporate shortly grew into fairly a power and was purchased inside 18 months for a price-to-earnings ratio of 12 primarily based on its serial earnings and projected progress.

Mobile Unhealthy launched into the same area of interest space, however solely some time after Mobile Good was offered. The corporate grew moderately quick, however after they wish to harvest the window of alternative was closing down quickly. Lastly they offered the corporate for less than the online asset worth to a significant participant (who mainly purchased the shopper listing to whom they wish to promote different merchandise).

Match of Entrepreneurs’ Profile with Alternative

Entrepreneurs want to make sure not solely that an actual alternative exists, but in addition that there’s a match between their profile and the chance. They should have the suitable angle, expertise and threat profile to match the necessities of the alternatives.

Two of our shoppers within the service station trade (gas and meals courtroom) spotlight the truth that ardour for an trade and dedication to it are important for the success of the enterprise. Station Unhealthy purchased a enterprise in a residential space when the world was booming. The entrepreneurs did very nicely to start with, however quickly misplaced curiosity and turnover declined drastically. They lastly offered the enterprise after 4 years to Station Good for a small revenue.

The entrepreneurs in Station Good had an actual ardour for the trade they usually put all their power into the enterprise. The enterprise grew tremendously and after 30 months they offered it for greater than twice the acquisition worth.

The Economics of the Enterprise

Sound economics are essential for any new enterprise. This contains components akin to dimension, revenue margins, break-even factors, capital necessities and return on funding. Entrepreneurs have to fastidiously analyze any new enterprise on this regard. If the economics should not sound the enterprise has a small probability of surviving and even much less probability of being harvested.

Two of our shoppers launched into ventures in comparable industries (agro-related), however with completely different area of interest markets. Agro Unhealthy began a brand new enterprise in a crowded market and will solely obtain a mean gross revenue of 18%. Because of the depth of competitors their price of doing enterprise was very excessive they usually solely achieved a internet revenue of 1.5%.Agro Good was established in a a lot much less crowded market. The corporate did their enterprise with out making an excessive amount of waves. Their gross revenue margins have been shut to twenty-eight% with a internet margin that averaged out at 14%. This firm is at the moment price greater than ten instances as a lot as Firm Unhealthy (with comparable turnovers) and additionally it is simpler to reap.

Aggressive Edge Achieved

Entrepreneurs want to make sure that they’ll obtain a aggressive edge in any new enterprise in the event that they wish to generate profits and have an exit technique in thoughts. This could for example be achieved by means of proprietary merchandise, know-how, economies of scale, relationships and programs.

Two of our shoppers within the IT trade introduced completely different choices to their clientele. IT Good had specialised data on pc networks and sole distribution rights for particular merchandise within the geographic space the place they operated. They grew their income at 37% cumulative per 12 months during the last seven years and have become a significant participant within the area and are at the moment in excessive demand by worldwide firms.

IT Unhealthy began out the identical time, however aside from good service and the suitable to promote sure merchandise (not completely) that they had no aggressive edge. They grew their income at a very good 11% per 12 months cumulatively during the last seven years. Seven years in the past each firms have been about the identical dimension. The turnover of IT Good in the present day is greater than 4 instances that of IT Unhealthy and the worth of the corporate is about eight instances that of IT Unhealthy.

Harvesting Dynamics

The integral dynamics of a enterprise and its trade ought to be sound for good harvesting potential to exist. The traits within the trade, the kind of enterprise, the sustainability of the income and the cashflows are among the elements that should be thought-about by the entrepreneurs.

Two of our shoppers within the coaching trade present the significance of separating the entrepreneur from the enterprise. Coaching Unhealthy is in enterprise for 15 years. They supply custom-made coaching for multi-nationals. They’re well-sought after on this market however they mainly work from contract to contract. The corporate tried to promote shares and in addition tried to convey an fairness accomplice in, however with none success. The rationale for that is that the would-be traders really feel that the corporate is to intently linked to the house owners (growing older) and their data.Coaching Good is in enterprise for 12 years. Additionally they promote custom-made coaching, however along with it they’ve many well-packaged coaching programs which are offered beneath license by many facilitators. This firm has a number of outdoors shareholders that purchased into the corporate. A significant listed firm lately additionally purchased a considerable fairness stake within the firm.


Many individuals see entrepreneurs, which are profitable in harvesting their enterprise, as fortunate. Though luck can play a small half in it, the main substances are the required assets (e.g. capital and folks), detailed planning, correct execution and arduous work.

To boost the prospect of a profitable exit technique entrepreneurs want to research and select a brand new enterprise with the utmost care.

Copyright© 2008 – Wim Venter


Source by Wim Venter

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