How to avoid founder exit regret

A study by the US-based Exit Planning Institute reveals that between 50-75% of founders and business owners experience regret after exiting their company. This figure might appear alarming, but it resonates with the complex emotions experienced by anyone who has built and run a business. The emotions can persist long after the founder is no longer part of the company.

The feelings are a blend of gratitude for the years of sacrifices, long hours, and risks undertaken while starting and growing a company, along with a deep emotional bond to the business and the associated identity as a founder. Despite the rational decision to exit, there will always be a lingering question in the founder's heart: what if things don't turn out as expected? This can quickly turn into regret if life post-exit doesn't meet the founder's expectations. However, how realistic are these expectations?

A founder may imagine a post-exit life of lounging on a beach, but will the exit support that lifestyle? Moreover, what about more practical responsibilities? Too often, we see founders with lofty post-exit goals that aren't aligned with the exit option they're considering. While it's great to have ambitious goals, the exit must be the right one to enable those ambitions.

There are several exit options available, including selling to external buyers or through a Management Buyout (MBO). External buyers might be natural first options, but they could risk the business culture and values built over years, potentially putting long-standing staff, including family members, at risk of restructuring. Conversely, an MBO ensures the business culture is protected, and long-standing staff remain with the business.

The emotional factors were the primary trigger for 56% of founders, while 44% cite personal wellbeing and family considerations. These are all valid reasons for selling. However, even if a founder has just had enough and wants to pursue a new path or focus on other projects, they must have a clear exit strategy. Almost half (48%) of owners do not have an exit strategy, while 13% haven't even considered the need for one.

A comprehensive exit plan comprises two primary aspects: the exit strategy, which dictates how a founder divests their stake in the business, and the personal plan, which outlines how the wealth generated will be used to meet the founder's responsibilities and achieve their goals. Both these aspects must work in harmony. Without these plans in place, it becomes challenging to dictate both the type of exit and what success looks like.

For instance, if a founder's motivation for exiting is to spend more time with family, without a solid plan in place, the founder might end up selling their stake without realizing its full value. They could end up tied to the business with a strict earn-out period, continuing to work as hard as ever, but with less autonomy.

A successful entrepreneur, after retiring from a 30-year consultancy, sought to step back while preserving their business legacy. External buyers were initially considered, but this could jeopardize the business culture and risk long-standing staff. Instead, an MBO was recommended, which aligned with the founder's goals of financial security and ensuring a smooth transition to retirement.

By combining an exit strategy with a personal finance plan, the founder could exit on their own terms, financially secure, confident in their retirement, and assured that their legacy would be in good hands.