Minding Your Exit Strategy: How to Think About Your Exit Plan Before You Need It
It was a pleasure to be interviewed by Danielle Fateaux on her podcast about exiting a business. Our conversation also covers:
Lessons Learned in Coping with Changes
How to Think About Your Exit Strategy
Addressing Common Fallacies and Misconceptions Pertaining to Business Exit Strategies
Watch the interview on YouTube or read the transcript below.
[Music]
Danielle:
welcome back to RecalibrAgency I'm your host Danielle Faueauxt pleased to have with me today Sarah Durham she is a Serial entrepreneur and the brain behind Compton Durham LLC she's a fellow coach of entrepreneurs, especially agency owners she has wrangled quite a few big names herself so Sarah welcome can you tell us a little bit about your background.
Sarah:
hey Danielle thanks for having me fun to be here um so I started my first agency which is called Big Duck when I was 24 years old and I grew and ran that company uh over nearly three decades built an incredible team of of um client relationships worked very deeply in the nonprofit sector, it's an agency that specializes in non-profit Communications and really um as part of my journey manage dozens of people did a lot of marketing and sales loved that and um and then in 2018 while I was still running Big Duck I had the opportunity to acquire a second agency, a digital agency called Advomatic, which was a partner of Big Ducks, and I acquired Advomatic and I ran both companies for a few years and then in 2021, I sold Big Duck to my employees it became a worker owned cooperative and I sold Advomatic to a fabulous larger agency called for kitchens and we went through sort of a merger process for for uh Advomatic to absorb into Four Kitchens. So through those experiences I learned a lot about running agencies and a lot about leadership. Like many agency owners I have an art school background not a business background and um and also got very passionate about um agencies and small business owners understanding what it means to exit a business or sell a business and a lot of the coaching work I do right now is around that
Danielle:
and that's exactly why we're talking today too is to really dig into how to mind your exit strategy and really think about that Exit Plan long before you actually need it so that when you do need it you already have it in place you're already set up and ready to go so let's start with something you wish you'd known to make your life easier going through those different processes of exiting doing some mergers selling some agencies what do you wish you'd known sooner
Sarah:
well the truth of the matter is that most people who start businesses don't necessarily kind of think, oh I'm starting a business I should really think about the Journey of this business and the life expectancy of this business. you know Stephen Covey who wrote The Seven Habits of Highly Effective People has this quote begin with the end in mind, and I think if more agencies got started with that question being asked, how are we going to exit when do we want to exit what should that look like it would be very different for me, um I I decided to exit my my first business Big Duck probably about 10 years before I actually did I set the intention to exit in about 10 years and what I wish I had known a lot earlier was really um uh what that might look like like what what um not what the journey to get there would look like I had some some great help figuring that out but really how do you exit a business what are the options what what are the pros and cons of those options um I think that people tend to work with mergers and Acquisitions people M & A Consultants who have some skin in the game about how you exit your business and there's actually so many other choices so starting at the beginning by understanding some of those options setting some intentions finding one that really aligns with your personal goals and your values you know I wish I had known that that's part of what I'm trying to help folks with now yeah
Danielle:
I mean what are some of those other options other than an M & A?
Sarah:
Well so you know I think what a lot of people think about when they think about about exiting is selling and selling to probably another agency or maybe they think about merging with another agency which is actually also a sale usually there is one acquiring agency and one agency being absorbed in a merger um you know most most agency owners don't really understand employee ownership options there's several ways you can sell your business to your employees and um and very few understand things like holding companies or Roll-Ups or even considering the possibility of just uh taking a few key clients and going independent you know I did some work recently with an agency owner where we figured out that actually they could exit their business much faster and much more profitably by just pocketing the cash winding down the clients hanging on to a couple of good client relationships and walking away that would actually be a lot faster a lot easier and potentially a lot more profitable than selling so really under really looking at the whole landscape and figuring out the best best approach
Danielle:
That's such an interesting point you make that a lot of agency owners don't tend to look at the option of winding down their client base and kind of doing that that slow exit. Why do you think that is?
Sarah:
Well I think that we in capitalist America have really internalized a belief that selling is some sort of badge of honor that that when you sell your business um and you get to tell people you've sold your business that that is a metric of success so I think for a lot of people the idea of just shutting the door and walking away or or winding down over a period of time um sort of feels a little less maybe glamorous or or less like a marker of success although although if you really you know focus on what your personal goals are or your your financial needs are it might sometimes be the best option.
Danielle:
absolutely and I think you're spot on. it's it's a quote-unquote success marker but there's a lot of those success markers that aren't actually always indicators of success I mean being bigger like running a 200 plus head count agency not always better but that's how a lot of people define success same thing with profitability not always better not not necessarily meaning that you're going to be resilient and actually able to withstand the changing of the marketplace either so what are some of the other kind of false markers we'll say of success that we can start to rethink when we're evaluating how to proceed with our agencies and how to look at their exit strategies?
Sarah:
well yeah first of all I really I really want to like you know lift up something you just said that I 100% agree with which is the fallacy that bigger is better. you know um I I saw this in my own agency life and now I see it with a lot of the agencies that I coach some of the most profitable businesses I've ever seen are two-person shops three-person shops not the the 50 people shops they tend to really struggle and they tend to make a lot of compromised decisions because they're carrying such huge amount of overhead um so I do think that's a big one you know I think another fallacy that people carry around that really holds them back is about what Um what sort of business they are running. you know Harvard Business Review published this thing that was interesting about the difference between a hobby business a lifestyle business or a business that's desirable to sell and I think a lot of people are really running hobby businesses and lifestyle businesses and if you ever want to sell your business that's not going to work. you know it can't be a business that crumbles when you step away you cannot hold all the relationships you need to you know build systems and processes and teams that um you know where it's a kind of a well run machine that isn't dependent on any one person or or anyone one thing so um so I don't think this is a conscious choice but I do think that a lot of entrepreneurs build businesses that are really built around them and their unique talents and that's awesome when you're starting a business but um but in the long run it leads to a lot of burnout and makes it harder to exit
Danielle:
well especially to in the agency space thinking of creatives you are successful as a creative because people like your style they like what you do and so when you try to build a business around that iit can be very difficult would you agree would you add would you you know assert something different to that point
Sarah:
I do agree you know I went to art school I started my business as a designer and I did a lot of writing and I I was very invested in being hands-on and creative and one of the the first and probably most challenging moments of letting go for me as I was building my team was not
doing the creative work anymore and I had to find new outlets for my creative energy which I which I did that that I think actually turned out to be better at than than the creative work but I do think it is very hard you know one of one of the things that I was told by a consultant years and years ago early on in my agency life is that my standards for the creative work were probably a lot higher than my clients standards for the creative work, and um that's a tough pill swallow too, if you're a creative person you want everything to be incredible but if you're working super hard to make something this this good and really your clients just as happy if it's this good and you can get it done faster and more profitably you know you have to you have to decide where you're going to come out with that if you can live with that
Danielle:
Yeah, the business level decision as opposed to the creative level decision
Sarah:
yeah that's challenging and I don't think there's a right or wrong answer there I I coach people who are all in on the best quality and I coach people who are all in on a profitable business and both work in different ways so I think it's very much about you know really thinking about what kind of business you're trying to run and build.
Danielle:
And thinking about it over the long term right it's more than like three or five years it's actually the 10 years the 20 years down the road so what are the day-to-day functions of your current business and your day-to-day operations have to look like if you're planning for 20 years or 10 years down the road?
Sarah:
yeah so when I'm when I'm coaching folks on thinking about their exit I often encourage them to begin with the end in mind I I've done some work with younger businesses around this but also you know 10 years is a great timeline 20 years is tricky because you just don't know what the world's going to be like in 20 years you know it's a little bit unpredictable but I think what's really important at any point when you're thinking about exiting is to begin thinking about it and to begin working towards it well before it's upon you and you're desperate to get out. so the worst time to start thinking about exit planning is when you need need or want to retire, you know you you need to stop working, and you need to pull money out of your business and you're burnt out and you need to do it now. you know that your options are extremely limited. if you start planning years in advance you have the ability to focus on two key things that are the the primary levers that set your business up for success, the first is the line the financials you know running a business that is is profitable where you're paying yourself a normalized salary where the numbers look good and make sense and somebody else can actually read the numbers and uh you know see how the business works and potentially take over that business and do all the things you've been doing, so there's nothing in the numbers that's kind of just like again unique to you, you know like like you're doing an incredible essential volume of work and you're not paying yourself like that financially, that doesn't look good to a buyer um the other area that I think is really important to work towards over time is operational stability, so how does the business operate without any one person and it's not just you it might be a key employee being essential to a success how does your marketing machine run how does your sales machine run how do you do your creative work your strategic work you know do you have things written down and processified do you have metrics and dashboards like all that kind of stuff you know when you're smaller, maybe you can be a little less formal about it, but um but certainly as you grow past you know maybe five six seven people, um it's really important to build a business that isn't wholly dependent on on one person and their superpowers
Danielle:
Absolutely and I want to take one phrase that you've been using which is planning and I want to kind of dig into what it looks like to actually be planning and look at it from a habits perspective because to plan something you're actually also doing the same process of building habits so what would you say are some of the habits and behaviors that you need to start integrating sooner than later into your agency if you want to have a good solid Exit Plan for down the road?
Sarah:
yeah well I love that you're bringing up planning because I am a huge fan of planning and I I love planning personally, I have I I believe that when you plan what you're doing is kind of setting a destination and and you can't sail towards a destination unless you've set the destination so I'm a big advocate for planning you know I think I would answer your question a little differently though what one of the things that I I did and, I don't know that I would call this a habit, but that it was really important to be sailing towards the destination in a purposeful way for me was um I had I had both the ability and the good fortune to hire some exceptional people in my companies um at Big Duck for instance I had uh two women Elizabeth Ricca and Farrah Trompeter that I hired you know a long time ago probably um 12- 13 years before I sold and they became thought partners and leaders in the business there were other people who were leaders in the business too but they for me became um my confidants, and so one of my habits was being very transparent with them, so so 10 years before I wanted to sell I said to them hey I just did some personal planning and I think I'm going to want to exit you know in 10 years and I want to maintain a conversation with you both about what that would look like and what that could look like for you um, when I when I sold the company to my employee,s uh everybody had the option to to buy in as a worker owner, but Liz and Farah are now the co-directors of Big Duck, so they today are running the business and they ran huge parts of it when I was there they're both just exceptional leaders, so so I think that that is um maybe about not doing it all on your own not just keeping it all in your head and a way to build some accountability and to distribute information and distribute power you know which I think is really important
Danielle:
It is important also scary Distributing power especially so can we talk about that a little bit Sarah what are some ways to start Distributing power without the ship sinking?
Sarah:
You know I have to say my experiences with this were so positive and I I think I think again I was fortunate and strategic in hiring great people you know I I consistently found that there were lots of people that I could bring into my businesses who were awesome and much better at the things I was doing than I was, so you know when you're doing the thing you're protective of how it's done and when you give the thing to somebody else to do you have to you have to trust that they can do it, but once you see that they can do it maybe better than you can certainly differently than you can you have to have to make peace with like it's not going to be the same thing you would do, but um but it's really inspiring I have learned so much from watching folks that that I've worked with and hired over the years developed their own skills teach other skills, it's it's just phenomenal I think it's one of the best parts of running an agency honestly, so maybe the maybe the shift that people have to make or be focused on is to embrace the people that they work with as with an abundance mentality rather than a scarcity mentality, there is a lot to do there is a lot of power to have and we can share it we can all do good things, you know one of them, one of the great experiences I had at Big Duck was um a few years after I hired Farah Trompeter. Farah is an incredible dynamic person charismatic speaker a real extrovert. I am not she loves to go to conferences speak at conferences right do all that stuff so she started doing that and a couple of years into doing that first of all it was great for the business brought in lots of new business great for me because it meant I didn't have to do all of that, and a couple of years into into that somebody said to me does it bother you a lot of people think that Big Duck is Farrah’s company and I was like no that's awesome like she the fact that she's so invested and she's out there that's great you know that benefits me so I think you have to you have to be okay with things like that yeah well and especially for introverted business owners.
Danielle:
I love that you brought that up because I'm such a strong proponent for people being engaged in speaking events and making sure that there is a face of the brand even if it's not the owner yeah and so Distributing the marketing of your agency as well and the Business Development efforts so critical and by distributing some of those responsibilities you're also allowing your team members to take ownership in the outcomes of the agency too which I think really does tie into your long-term exit strategy because you're building something that's going to last because people are bought into it right, they're not just a cog in a machine but you're building something that's scalable, it's repeatabl,e and they're invested in it, which I think is the magical Secret Sauce that everyone's trying to achieve hard to do for sure because finding the right people is the biggest part of that equation for sure so do you have any tips on that front?
Sarah:
I don't, I mean I you know I have I have uh hired a lot of people and I guess I I guess the piece that I can't quite quantify does come down a little bit to gut but me I guess my my maybe there is one tip which is um I think it's really important when you're interviewing people and hiring to really listen for who where they are in their life and their career and what their trajectory is and to not try to impose your fantasy on them about who they are or what they could do for you but really to listen carefully to what they are looking for and to to look for how does this position align with where they want to go so if I'm interviewing somebody who in the interview process says one day I want to start my own agency and I'm hiring them for a job where they're going to learn a lot about working in an agency that's a good fit they're going to be interested in that it aligns with their goals um but if I'm hiring them in a job where they're not going to see anything about how an agency works and they're gonna you know potentially not be doing particularly fun or good stuff they're not gonna love that they're not going to stay long you know so so I think really listening to where where people are and trying to find see if you can find a place for them that is truly gratifying for them and that's that's when the magic happens
Danielle:
For sure um if you're interested in that topic you can go listen to Wayne Pelletier's episode as well he dives into that a little bit more and how he views it which is very similar, Sarah, you view it he goes into some other examples too but that's spot on is because the people make the place you have to make sure that the places where they're going to want to be so yeah listening for that asking questions so like actually designing your interview process around uncovering some of that information which is not typical people aren't usually prepared to be that transparent and open and you know kind of share their personal vision for their life so it might be a little bit weird for them but that's the information that you're really going to need to make a good long-term decision to what are um what are some things. I want to shift over to your team and what you're up to these days, Sarah so what are some things that you're working on these days or that you're launching that you're really excited about?
Sarah:
Yeah so now in my in my you know third business as an executive coach Ium I have the great privilege to be kind of the pit crew for other people in their in their leadership which I love um I'm working on all kinds of fun things in that but one of the things I'm about to launch in the late summer 2023 early fall is a group for people who run businesses that they're hoping to exit at some point in the future not tomorrow in the future but maybe three years five years ten years down the road and it's going to be a cohort where people will earn all about the options learn how to do it kind of get their arms around it so that they can run their businesses with intention to be ready to exit the way they want when they want so I'mreally excited excited about that andum and honestly I'm just you know really thankful for the the the opportunities I had and the support I got and very happy to be able to sort of be on the other side of the table supporting you know supporting people who are coming intotheir own as leaders today it's not an easy time to be a boss or be a leader and so I'm glad to be kind of you know as I said earlier the pit crew
Danielle:
Very important role for sure and Sarah I want to thank you for coming on today and sharing your wisdom and your thoughts with everyone. I really appreciate it
Sarah:
thanks for having me
Danielle:
of course and to kind of round out today's episode with a few key takeaways I want to really spotlight Sarah's emphasis on the fact that you have to know where you're going in order to be stepping in the right direction today so sit down think for yourself what does this look like for me personally where do I want this business to have taken me five years 10 years 20 years from now and then don't be afraid to share that with the key players on your team get their insights get their input and get them thinking about ways to actually make that a reality too because it's not going to happen overnight but burnout definitely can happen overnight so you definitely want to plan for this before you burn out or before you needing to Just pull cash out or something else comes up in life so you want to plan for that another thing that Sarah really mentioned closer to the beginning of this episode was how you have more options than selling your agency and you have more options than being acquired or merging with other agencies too so don't be afraid to investigate those options and look at true success metrics not the fake success metrics that Society wants to impose on you and your business look at what actually is going to define success for you for your team and for you personally that's all I have for you today on RecaliberAgency. I'm your host Danielle Fauteaux. cheers till next time
[Music]
