For some, starting and building a business with an eye to selling out later is akin to planning and going through with a wedding just to get some sweet gifts. Planning your exit misses the whole point of being in business: the immeasurable satisfaction of building and running something that’s yours, touching (and hopefully improving) your customers’ and employees’ lives in the process.
On the other hand, it’s never good to undertake something as complex as running your own business without at least some idea of how it’s going to shake out. When you plan a wedding, for instance, you know that eventually the big day will come — and then you and your spouse have the rest of your lives to look forward to.
Scott Vollero, founder and former head of Autocats, certainly understands the importance of building a business for the long haul. During more than a decade at the helm of Autocats, he put together a strong, steady firm that proved irresistible to its eventual buyer. He guided the company from $2 million in sales to over $75 million in sales in 5 years. Here’s what he learned along the way.
Start with a Great Idea and a Coherent Plan
Well-run businesses are surprisingly resilient. They can survive a lot of vexing challenges: macroeconomic downturns, industry disruptions, loss of top talent, natural disasters, new regulations, and a host of other perilous pitfalls.
What most businesses can’t survive are subpar ideas and incoherent business plans. When inspiration strikes, take the time to craft it into something more — a complete operational model with a clear path to profitability. In short, refine your idea and implement an effective business plan. If you don’t feel like you’re capable of putting together an enterprise-grade business plan, tap a professional (or associate) who can.
Vollero certainly had a great idea for Autocats, which was built around a superior process for efficient, “close-to-the-customer” interactions in the highly fragmented auto parts recycling business. He augmented that idea with an ironclad business plan that set his company apart from the competition — and made it attractive to future buyers.
Identify Your Key Differentiators
Every attractive business needs at least one key differentiator that sets it apart from the competition. In Vollero’s case, Autocats benefited from a decentralized organization that allowed it to be extremely responsive to the customer in a cost effective manner and best of all, it was easy to scale.
Scott Vollero had another differentiator, too: a keen understanding of the ins and outs of international business. Thanks to Vollero’s intimate knowledge of local culture, customs and business practices, emerging markets became a major source of the supply market at precisely the right time — during an economic boom the likes of which the world hasn’t seen since the first Industrial Revolution. It’s no secret that Autocats’ recipe for a successful overseas operation proved attractive to its eventual buyer.
Surround Yourself with Top Talent
Much as they’d like, entrepreneurs can’t singlehandedly will their businesses to succeed. Even a modestly sized operation needs an ample supply of talent at every organizational level. For Vollero, that meant hiring competent engineers and managers to support his objectives. When it came time to sell, over 95% of that talent migrated to the buyer.
Manage Your Obligations
Vollero’s strong relationships with suppliers and downstream customers ensured that Autocats remained well-capitalized in a highly capital-intensive niche.
Early in Autocats’ history, Scott Vollero had the foresight to arrange financing agreements with some of the company’s biggest downstream customers. The mechanisms were a bit dense, but the net effect was that Autocats enjoyed a significant line of short-term operating credit to fund some of its highest-value activities. That prevented capital crunches that could have affected the company’s ability to pay its bills and hampered its efforts to obtain new financing, creating a vicious cycle that may ultimately have threatened its viability.
The takeaway: Regardless of your niche, make sure you’re using debt to your advantage — and don’t bite off more than you can chew when it comes to making promises to suppliers and customers.
Keep Everything on the Up and Up
Countless business transactions fail because of poor recordkeeping, inconsistent business practices, unfavorable legal structures, and other entirely preventable problems. To ensure that your transaction doesn’t fall victim to an unforced error, take time to ensure that your company is legally and ethically on the up and up:
- Set up a tax-favorable business structure
- Patent all business-critical intellectual property
- Separate distinct components into operational silos or subsidiaries
- For all key employees, iron out employment agreements that will survive the sale
Manage the Transition to Your Next Challenge
For some business owners, selling is the culmination of a life’s hard work — the only thing left to do after the ink is dry is to retire.
For others, whether they fit the mold of “serial entrepreneur” or not, selling is merely the end of one or many chapters in a varied professional life.
If you’re not planning to retire after selling your company, you need to think about what comes next. That could mean staying on to manage the ownership transition or provide some sort of expertise. This often involves a retained minority stake in the firm, and can be quite lucrative under the right circumstances.
You might also think about reinventing yourself as a consultant. If you have a particular competency that served you well as a business owner — for instance, management acumen or specialized process knowledge — you can likely make a great career by sharing your talents and expertise with other business owners and managers. Scott Vollero did just this after relinquishing his majority stake in Autocats, and he’s very pleased with the freedom and professional variety his new lifestyle affords.
Whatever your preference, you certainly don’t want to be caught flat-footed in the aftermath of a sale. For insights on how to plan your next challenge or make the transition out of majority ownership with minimal headaches, ask someone who’s done it before.
Scott Vollero is an international entrepreneur and expert in the precious metals and automotive parts recycling industries.