You’d have made a bad career move if you spent your first day in a new job working out how to leave it. But when you’re starting a business, having an exit plan from the outset is a good idea, according to entrepreneurs who have been there – and sold that.
Joanna Jensen, whose kids’ toiletry business Childs Farm was sold to listed soap-maker PZ Cussons for some £40 million in 2022, said she always had an eye on the exit.
“I’m an extremely commercial individual – my background was in investment banking,” Jensen explains. “When I started Childs Farm, I was already thinking about my ultimate objective. Most entrepreneurs – especially men – claim it was never about the money for them... they wanted to make a difference to the community. That’s complete horseshit: we’re all doing it for the money.
“But the clarifying moment – when you have to work out the details – is at the stage when you seek out external investment. As soon as you have third-party money, you need to have an end in mind.”
Greg Marsh, who sold hospitality business onefinestay to French hotel giant Accor for £117 million in 2018 and is now building cost of living tool Nous, says it’s confusing to ponder an exit from the start. “On the one hand, thinking about the end of your journey (which might be in a decade’s time, and is hugely contingent on factors you probably don’t even know about yet) is distracting and irrelevant. Plus, investors are looking for entrepreneurs who are intensely focused on building businesses.
“But equally, when you walk into an office of a VC and choose to pitch for their capital, you’re accepting the reality that, if it succeeds, you’ll have to sell your business, or at least a large interest in it. A VC’s game is to put money in, double down on winners and get cash out at the end of the journey. So if you’re playing the game with institutional investors, you’re saying to the world, ‘at some point, I’m open to the prospect of selling the company.’”
Today, the old thought about five years being the archetypal exit point is outmoded – it takes longer to start and scale-up successfully. “It’s often more like 10 years,” Jensen says. “Things take longer to build than you think - although how long you get will depend on your investors. In my experience, angel investors are much more relaxed and understanding, VCs will give you a finite amount of time: they too have someone else’s money that they’re investing in your business. And as you get bigger, and take on private equity money, that’s where there’s likely to be a set five-year timetable.”
When planning for an exit, don’t forget to think about your personal extrication from the business. “When I sold Childs Farm, it was like having the rug pulled out from underneath me,” Jensen admits. “I’d been working every waking moment for seven days a week, for 12 years, then it was like being an empty nester: your child has moved on and is having fun without you, whilst part of you has just disappeared. It took me eight months to stop stalking Childs Farm on Instagram and wanting to know every single decision that was being made – it was quite tough,” she adds. “A sale leaves a really empty hole.”
“As soon as you have third-party money, you need to have an end in mind.”
How can founders best get towards that exit successfully? By networking, Marsh says. At onefinestay, three years into building the business, “I opted to spend one day a week at conferences and events, building industry relationships. It was a way to raise the company’s profile in the trade, to get PR, but also a very good way to establish our reputation amongst a community of potential acquirers of the company.”
Marsh found, as a scaling-up minnow in a field of hospitality giants, he was often booked for panel debates with a senior executive of a large hotel company. “The organisers wanted that frisson between incumbent and a challenger,” he explains. “And I made the most of it. When I walked off the stage, I’d always have a chat with them, and that would turn into a coffee, and then a lunch meeting... By the time we were approached about a possible sale, I was on first-name terms with most of the chief executives of the largest hotel groups in the world. Not,” Marsh grins, “because I’m great company – but just because I’d done that industry trade brand work so I could pick up the phone to any of the big groups and say, this might happen – are you interested in a conversation?”
What is Marsh doing differently in building Nous as compared to onefinestay? “This time around I’m even more judicious about which investors I want to involve in the company and on what terms,” he responds. “It’s now so clear to me that having an alignment of long-term interests and goals with your investors is the path to a happy and successful partnership. Otherwise, board meetings become difficult and you’re setting yourself up for battles.”
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