What is Your Exit?
It was only when I met Taj Chahal for coffee last week that I learned about his completely UnReasonable life as an entrepreneur.
When he was 19 and his brother Gurbaksh was only 16, they started their first company from a shared bedroom in their family’s modest home in San Jose, CA during the Web 1.0 craze in the late ‘90’s.
ClickAgents was a performance-based online advertising network that pioneered the “cost per click” model that has since become the standard for Internet advertising worldwide.
Taj and Gurbaksh soon dropped out of school: Taj from a local community college, Gurbaksh from high school, to scale to their business and to pursue a dream.
After only 18 months they quickly positioned ClickAgents into a multi-million dollar profitable business, an unconventional feat in the dot com era.
Then in 2000 they were acquired by publicly traded Value Click for $40MM.
But Taj and Gurbaksh were just getting started.
In 2004, the Chahal brothers started another online advertising company, BlueLithium, which employed analytics and behavioral targeting to optimize display ad placement and performance. The company grew into six domestic and three international offices, building the second largest online advertisement network in the UK and fifth largest in the US.
BlueLithium was soon recognized by AlwaysOn as one of the “Top 100 Private Companies” in America for three years in a row (2005-2007) and “Top Innovator of the Year” (2006).
Within three years BlueLithium was sold to Yahoo! for $300 million.
Gurbaksh’s has since then started a third venture, which Taj has also invested in.
But Taj wanted a breather from starting startups.
This latest company, RadiumOne, is an online/mobile advertising network that leverages social data and connections to target and optimize display advertisements.
It is currently on a similar trajectory as their first two companies.
Taj just turned 33, Gurbaksh is about to turn 30.
Meanwhile, Taj’s “breather” brought him to NYC after signing a non-compete with the Yahoo! sale.
He recently completed his schooling, only this time at Columbia University.
He is also a member of New York Angels, a federation of investors that seed and advise early-stage companies with high growth potential.
Taj is also an active practitioner at the Eugene Lang Center for Entrepreneurship at the Columbia Business School.
This is where Taj and I first met when we were judges for their Greenhouse Incubator program for their best MBA entrepreneurs.
The Chahal’s are an unusual case of entrepreneur financial success that we can all learn from.
One of the key components of making financially successful entrepreneurs is one that most entrepreneurs never do, let alone do on day one: have an exit strategy.
Exit Strategy is how you will get your investment in the company back out. Your investment of money, time, and resources.
Knowing your exit up front can be crucial for making strategic decisions, timing expansions, monitoring results, building teams, staying focused and sometimes even keeping sane.
Types of Exits:
- 1. Go Bankrupt—involuntary, but over 56,000 businesses in the US went this route in 2010. Pros: relief from creditors as courts take over and do some of the “hard work” and serious lessons learned for the entrepreneur. Cons: messes up your credit, name and reputation for a while.
- 2. Lifestyle Business— many entrepreneurs use their company as a piggy bank. It is used to pay themselves with all or most of the profits. The logic goes, “Why use the money to expand the business when I can work 30-hours a week and getting paid large 6-figure paychecks/bonuses?” Pros: easy, little planning, fun to spend on yourself. Cons: often not sustainable, can over-milk and run out of cash and more difficult to really scale.
- 3. Quit— one day you decide to throw in the towel. You had a good run and now it is time to sell off what you can of the business and either retire or move onto your next gig. Pros: straight forward, quick, clean. Cons: you leave a lot on the table: customer lists, brand, reputation, etc.
- 4. Friendly Sale—to someone who you know: colleagues, family, friends, or employees. Selling to a “true believer” in your vision, company or legacy. The buyer takes over the business and brand as an easy entry into your industry. Pros: less due-diligence, easier sell, and legacy/vision preservation. Cons: can get emotionally-tied where entrepreneur may not negotiate favorable terms and/or can strain relationships if any company surprises after the sale.
- 5. Business Acquisition—from a company that wants to gain a foothold into your industry, customer base and/or technology. Pros: strategic value to the buyer usually means higher purchase price. Cons: difficult and often messy process with non-compete clauses.
- 6. Go IPO—put your company on the public stock market and over time you can sell your shares in the company like Facebook’s Mark Zuckerberg. Pros: can become a gazillionaire and famous. Cons: success is very rare, process is extremely complicated and time-consuming, most of entrepreneur’s shares cannot be sold initially, and must be positioned for an IPO from very early stages of company’s history.
So, how do you choose your exit?
First, determine what the purpose of your business is for you, the entrepreneur: what makes it important to you. What is the legacy you want to leave behind, if any? What is the company’s vision? How about your stakeholders: investors, employees, suppliers, and customers?
Then determine your stomach for risk.
Are you at a point in your life where you can really risk it all and go for the acquisition or public offering? Or would you rather play it a bit safer and grow it organically and sell or close down when you are ready?
Action Steps for the Week
Why did you start your company? What is it’s purpose? What are your financial goals?
What is the vision of the business?
And at what point do you think you would have accomplished these things?
Once you are clear on the answers to these questions, “try on” each of the above-mentioned exits to see which one might feel best to you.
Next, do a cost-benefit analysis on the one(s) that are of most interest.
Then select one or two options and bounce it/them off at least three trusted and respected colleagues.
Lastly, build your strategy to start building your exit… today!