Finish Big: How Great Entrepreneurs Exit Their Companies on Top

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9781469089195: Finish Big: How Great Entrepreneurs Exit Their Companies on Top


Bo Burlingham's book Small Giants became an instant classic for its original take on a common business problem - how to handle the pressure to grow. It used deeply researched entrepreneurship stories to provide fresh insight into what really makes a great small business.
Now Burlingham returns with a look at an even more common problem - how to leave your company gracefully. He interviewed dozens of owner who have sold or bequeathed their companies and distilled nine key lessons for success.
For example, Ray Pagano turned down an initial offer for his twenty-eight-year-old company that manufactured housings for security cameras in favor of making the business more efficient and profitable. The effort paid off when he sold his newly improved company at the bottom of a recession for four time the original offer.
Through stories like Pagano's, Burlingham offers an inspirational and enlightening guide through one of the most stressful processes every business owner must face.

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About the Author:

Bo Burlingham is the author of Small Giants: Companies That Choose to Be Great Instead of Big, a finalist for the Financial Times/Goldman Sachs Business Book of the Year in 2006. An editor at large at Inc., he has also written for Esquire, Harper's, Mother Jones, and the Boston Globe, among other publications.

Excerpt. Reprinted by permission. All rights reserved.:

INTRODUCTION

Are We There Yet?

Every entrepreneur exits. It’s one of the few absolute certainties in business. Assuming you’ve built a viable company, you can choose when and how you exit, but you can’t choose whether. It’s going to happen. You can count on it.

That this simple fact of business life comes as a shock to many owners of private companies is in itself a testament to how little attention the final phase of the journey receives compared to other aspects of business. Do an online search for business marketing, finance, customer service, managing, or culture, and you’ll find oceans of information. What’s available on exits is a mere trickle by comparison, and almost all of it has to do with maximizing the amount of money you can get from a sale of your business. But there are many other aspects to the process and they play a larger role than the size of the deal in determining whether the exit has a happy ending—that is, whether you “finish big.”

Or so I have learned. When I set out to write this book, I didn’t know much about exiting a business. Inc. magazine, where I’ve worked for more than three decades, had paid scant attention to the subject over the years. My introduction to it—and, I suspect, that of many Inc. readers as well—had come from a series of columns I had written with veteran entrepreneur Norm Brodsky about an offer he’d received for his records-storage business, CitiStorage. Norm and I have been doing a monthly column in Inc. called “Street Smarts” since 1995. (We’ve also written a book of the same name.) While he’d said on numerous occasions that he intended to sell CitiStorage someday, he enjoyed what he was doing so much that I imagined he was talking about the distant future. So I was taken aback when, in the summer of 2006, he told me he was in serious discussions with a potential acquirer.

He had recently attended an industry conference where he had met a partner in a private equity firm that had a significant stake in a competitor. The partner had asked Norm what it would take to get him to sell CitiStorage. Norm had named a price he thought was higher than anyone would pay. The partner didn’t bat an eye. Norm had then said that, in addition to CitiStorage, an acquirer would have to buy two adjunct businesses—a trucking company and a document-destruction company. That apparently was not a problem either. There had been a series of follow-up discussions. Norm told me he was waiting for the would-be buyer to send over a so-called “letter of intent” (LOI) outlining the preliminary understanding they had reached. He expected the LOI to be followed soon after by “due diligence”—the in-depth investigation that a buyer does prior to the negotiation of the purchase and sale agreement.

Norm wasn’t sure where the discussions might lead, but he said this could be the opportunity of a lifetime. The money being discussed would be enough, not only to satisfy him and his two minority partners, but to share the wealth with his managers and employees. He also felt that the timing was right given his age, sixty-three, and the unusually high premiums being paid for companies like his in 2006. I told our editor at Inc., Loren Feldman, what Norm had said and he suggested we write about the offer in our column. When I relayed the suggestion to Norm, he said, “Okay. Why not?”

At the time, neither one of us had any idea what we’d just signed up for. It turned out not to be a column but a series of columns. For the next nine months, we chronicled the unfolding drama in as close to real time as you can get in a monthly publication. Nothing similar had ever been done before or is likely to be done again. Even Norm admitted after the series ended that, when we started, he didn’t really think the sale would happen. He said he wouldn’t have agreed to do it if he’d known in advance that we’d wind up giving a blow-by-blow account of the negotiations to the entire world.

But once we’d started, it was hard to stop, especially after it became clear that we were attracting a growing number of followers who eagerly awaited each new installment. At one point, Norm invited readers to send him advice about whether he should go through with the sale. Hundreds of e-mails poured in. People would stop him on the street or at conferences and ask him to share the latest developments that hadn’t yet been published.

The saga took many unexpected twists and turns, the most surprising of which was the last one. After much thought and discussion, Norm had made up his mind to sell. The series had become so popular by then that Inc.’s editor in chief, Jane Berentson, decided to announce his decision on the cover of the magazine. But just a few days before the contract was to be signed, he learned that the ultimate decision maker among the buyers was the person he trusted least—a crucial piece of information that the other side had failed to mention. That fact and its cover-up made him question whether he could depend on the acquirer to keep its promises about the treatment of his employees after the sale. To the astonishment of everyone, including Norm, he decided to walk away.

So ended the real-time magazine series—but not the story. Norm and his partners subsequently sold a majority stake in the business to a so-called business development company right as the economy was sliding into the Great Recession. Although many more twists and turns followed, they occurred out of the public eye. Meanwhile, the response to the series had made me realize there was an enormous gap in the business literature and it had to do with the experience of selling a business. That experience was clearly a huge unknown to many business owners.

It was new territory for me as well. Up to that point, I’d had only a vague understanding of the exit process. I’d never given much thought to the details of when, how, why, or what it felt like. In my mind, the exit was simply an event that marked the end of a journey. I had always been more interested in what happened during the journey—the experiences people had, the discoveries they made, the obstacles they encountered, the joys and sorrows along the way. I’d also tended to regard exiting as a choice, not a necessity. I associated it with cashing out, and I associated cashing out with giving up. I had written many articles and three books about entrepreneurs who didn’t have the slightest interest in exiting their businesses, focused as they were on creating great, enduring companies. Some of these owners had walked away from nine-figure paydays rather than risk having their companies wind up in the wrong hands.

But, as time passed and we all grew older, it began to dawn on me—and on many business owners as well—that sooner or later they would have no choice but to take such a risk. We really weren’t going to live forever after all. The best the owners could do would be to orchestrate transitions of ownership and leadership that would improve the odds of their companies surviving and thriving after they were gone.

But how? Where do you even begin? For that matter, when should you begin? What are your options? How much money should you be looking for? What role models are there, if any? What pitfalls should you be aware of? How do you identify and qualify potential successors, if that’s the route you choose to take? Alternatively, how do you find potential acquirers? What sort of outside help do you need? How much should you tell other people in the company? What will you do after you leave? And on and on and on.

Once I took a closer look at exiting, I realized that it is a far more complex subject than I’d realized. It isn’t an event. It is a phase of business, just as the start-up period is a phase. As in a start-up, there are many factors that affect how successful the exit will be. For that matter, there are different ways to define what a successful exit looks like.

That was my hunch, at any rate. Granted, the books and articles I read on the subject all shared an assumption that an exit was successful if the owners didn’t “leave anything on the table”—that is, if they got the best possible price from the buyer. But none of these books and articles had been written by owners who’d actually gone through the process of selling their companies. Norm’s experience had shown that there was much more to it than getting a good price. I couldn’t help wondering about the experiences of other exiting business owners. And so I decided to find out.

Over the next three years or so, I had conversations with scores of entrepreneurs who had exited, were in the process of exiting, or were getting ready to exit their companies. More than a hundred of those conversations were in-depth interviews that I conducted either in person or by telephone. While it soon became clear that no two exit experiences were exactly alike, it was equally obvious that some were a lot better than others. By that, I mean that some people wound up happy with the process and satisfied with the way it turned out, while others looked back on it as a nightmare and came away with deep regrets about the outcome. My question was, why. What did the people with “good exits” do differently from those who’d had “bad exits”?

I had to begin by clarifying in my own mind what a good exit consisted of. For most people, I’d found, there were four elements:

1) Owners felt that they’d been treated fairly during the exit process and appropriately compensated for the work they’d put in and the risks they’d taken to build their businesses.

2) They had a sense of accomplishment. They could look back and know that through their businesses they’d contributed something of value to the world and had fun doing it.

3) They were at peace with what had happened to other people who’d helped build their businesses—how those people had been treated, how they’d been rewarded, and what they’d taken away from the experience.

4) They had discovered a new sense of purpose outside of their businesses. They had new lives that they were fully engaged in and excited about.

For some people, there was a fifth element:

5) The companies they’d created were going on without them and doing better than ever, and they could take pride in the way they’d handled one of the most difficult tasks faced by any CEO: succession.

It was harder to generalize about bad exits, if only because what might be terrible for one person was sometimes unimportant for another. But I figured almost all owners would think they’d had a bad exit if they walked away feeling that the process had been unfair; that they hadn’t received the reward they deserved; that what they’d built was being destroyed; that their people were being screwed; or that they felt completely lost and had no idea what to do next.

So how had the owners who’d had good exits gone about preparing for the day they would leave? What were the patterns? Looking at them as a group, I could identify eight common characteristics, and I’ve organized this book around them.

The first was the same one I’d noticed in entrepreneurs who’d built great businesses, including those I’d written about in my book Small Giants: These were all people with a crystal clear understanding of who they were, what they wanted out of business, and why.

Second, the owners who’d exited well had realized early on that it was not enough just to have a viable business. Most viable businesses are, in fact, unsellable. To create market value, these owners had learned to look at their businesses through the eyes of a potential buyer or investor.

Third, they had given themselves plenty of time—measured in years, not months—to prepare for their eventual departure and had developed options, so that they, or their heirs, would never find themselves in a situation where they would be forced to sell under disadvantageous circumstances.

The fourth characteristic didn’t apply to all owners, but it was vitally important to a significant percentage of them, including those with the highest aspirations for their companies. I’m referring here to succession—specifically, the importance of leaving the company in good hands.

Fifth, happy former owners had had the right kind of help, which had come not just from professionals who specialize in the buying and selling of businesses but also from former business owners, who had learned how to do it by making mistakes in exiting their own companies.

Sixth, the owners had thought about and come to terms with their responsibilities to employees and investors. While every owner did not reach the same conclusion, those who had had good exits had all given the matter serious thought and were at peace with whatever decisions they had made.

Seventh, these owners had also understood in advance whom they were selling their companies to and what was motivating the buyers. Owners who didn’t often had nasty surprises later when it became clear what the new owners actually planned to do.

Eighth, the owners who did best had a vision of what they would do after the sale and thus were better able to handle their metamorphosis from top banana one day to ordinary piece of fruit the next.

These eight factors, I found, went a long way toward explaining the vast differences in the experiences of the entrepreneurs I interviewed, and I couldn’t help but think that current and future business owners would benefit by knowing about them. That said, my purpose in writing this book is not to provide a how-to guide, but rather to illuminate the exit process by telling the stories of entrepreneurs who’ve gone through it. Many of those people have had good exits, as defined above. Other stories are cautionary, in recognition that we often learn what works by observing what hasn’t worked. In most cases, I have been able to use the real names of the people and companies involved. For several, however, I’ve used pseudonyms, in some instances because of my source’s legal commitments, in others to avoid gratuitous harm to the people mentioned. When I have disguised an individual, I have so indicated. Other than changing names and, in two instances, some telltale details about the company, I have reported what actually happened.

As in Small Giants, the companies I write about are all privately owned and closely held, with one exception: Cadence Inc. in chapter 5, which I would describe as quasi-public. Three of the companies, in fact, were in Small Giants: Zingerman’s, CitiStorage, and ECCO. There are some issues I’ve deliberately avoided—for example, the unique succession challenges faced by family businesses when ownership and leadership are passed from one generation to the next. There is plenty of information elsewhere on that topic. Nor do I address the unique challenges of very small businesses whose primary purpose is to provide the owner with an income. If they’re sellable at all—and the great majority aren’t—what’s being sold is a job, not a company. Nevertheless, I think that both family business owners and solo entrepreneurs will find much to identify with in the stories I tell.

In listening to the entrepreneurs I interviewed, I was constantly reminded of an old saying: You should build a business today ...

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Book Description Gildan Media Corporation, United States, 2015. CD-Audio. Book Condition: New. Unabridged. Language: English . Brand New. Bo Burlingham s book Small Giants became an instant classic for its original take on a common business problem - how to handle the pressure to grow. It used deeply researched entrepreneurship stories to provide fresh insight into what really makes a great small business. Now Burlingham returns with a look at an even more common problem - how to leave your company gracefully. He interviewed dozens of owner who have sold or bequeathed their companies and distilled nine key lessons for success. For example, Ray Pagano turned down an initial offer for his twenty-eight-year-old company that manufactured housings for security cameras in favor of making the business more efficient and profitable. The effort paid off when he sold his newly improved company at the bottom of a recession for four time the original offer. Through stories like Pagano s, Burlingham offers an inspirational and enlightening guide through one of the most stressful processes every business owner must face. Bookseller Inventory # BZE9781469089195

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