Scaling for Sale: Growth Strategies that Double as Exit Plans

/in , , /by Al Statz

As a business owner, you’re likely consumed with the daily challenges of building and growing your business. The question of selling might seem like a distant concern—something to worry about years down the road. But the reality is that planning your exit and growing your business are two sides of the same coin.

We’ve been conditioned to think about entrepreneurship in distinct phases: First, you build; then, you grow; finally, you sell or pass it on. It seems logical, doesn’t it? But this linear thinking misses a crucial point: Building scalable value and preparing for an exit are not separate processes—they’re intrinsically linked.

By viewing them as separate endeavors, we put ourselves at a disadvantage. We might inadvertently grow a business that provides a decent income in the here and now but has little value to future buyers. Instead, adopting a seller’s mindset from the outset can transform how you approach your business, driving growth and creating lasting value.

Most Entrepreneurs Exit Empty Handed
Estimates suggest only about 25% of businesses on the M&A market will successfully transition to new owners. Even certified and well-networked M&A advisors report that 50% of their engagements terminate without closing, according to the IBBA and M&A Source Market Pulse Report.

The reasons are myriad from valuation discrepancies, conflicting expectations, and due diligence challenges, to underlying operational issues such as customer concentration, overreliance on key personnel, and static business models.

So while starting a business is challenging, successfully exiting one can be just as difficult. This is where the wisdom of maintaining a “seller’s mindset” comes into play. Business owners who adopt a seller’s mindset aren’t just building for today or tomorrow; they’re crafting a legacy designed for eventual transition.

This approach doesn’t mean these leaders are any less passionate or committed to their ventures. On the contrary, it adds a layer of strategy and foresight that can significantly enhance a business’s long-term value and success.

The Entrepreneur’s Paradox: Less Doing, More Growing
One of the key principles of building a business with a seller’s mindset is focusing on working “on” the business rather than “in” it. This shift in perspective is part of creating a company that can operate independently of its owner.

When you work “in” the business, you’re caught up in day-to-day operations, fighting fires, and personally handling key client relationships. While this hands-on approach is often necessary in the early stages, it can create a business that’s overly dependent on you as the owner.

Working “on” the business, however, involves:

  1. Developing systems and processes that can run without your constant oversight
  2. Building a strong management team that can operate the business in your absence
  3. Creating a strategic plan for long-term growth and sustainability
  4. Investing in technology and infrastructure to improve efficiency and scalability
  5. Focusing on strategic partnerships and market positioning

By adopting this approach, you’re not only creating a more valuable business in the eyes of potential buyers, but you’re also giving yourself more freedom to focus on high-level strategy and personal goals.

From Owner’s Pride to Buyer’s Prize
As you shift from working in your business to working on it, your perspective naturally begins to align more closely to that of a potential buyer. And ultimately, your business is only worth what someone else is willing to pay for it.

So, what exactly makes a business valuable to buyers? The answer might surprise you. While profitability matters, it’s not always the primary driver of value in M&A transactions. Buyers are looking for businesses that offer more than just a healthy bottom line—they want potential for growth, strategic advantages, and operations that can thrive under new ownership.

For example, we sometimes see businesses with 40% or more customer concentration, particularly in the manufacturing space. It happens easily enough—the business has a great relationship with its biggest customer, and the work is steady and profitable. It’s great income now, but it makes this business a risky proposition for a future buyer.

As mentioned above, over-reliance on an owner can also diminish business value. A business that depends heavily on the owner’s personal relationships, expertise, or daily involvement may struggle to maintain performance under new leadership.

Other factors that can negatively impact value include:

  • Failure to innovate or keep up with industry trends
  • Delayed investments in technology or equipment
  • An unstable workforce or high turnover rates
  • Lack of documented processes and procedures
  • Inconsistent financial performance or unclear financial records

Building your business with a seller’s mindset means identifying and developing value drivers while simultaneously driving out risk factors that could reduce buyer confidence or limit their ability to succeed.

The Valuation Report Card
Now that you know a little bit about what buyers value, it’s time to take an honest look at your own business. But how can you objectively assess your company’s worth and identify areas for improvement? Consider getting a regular estimate of value.

Imagine sending your child through 12 years of school, only to discover in their senior year that they’re woefully unprepared for graduation. It would be a shocking and potentially devastating revelation, wouldn’t it? Yet, many business owners unknowingly put themselves in a similar position.

Just like a report card provides feedback on a student’s progress, a business valuation can offer vital insights into your company’s health and market position. A valuation can serve as a comprehensive scorecard, highlighting your business’s strengths and pinpointing areas that need improvement. It provides a clear picture of how the market perceives your company and what factors are driving or diminishing its value.

Without this periodic assessment, you might be operating under false assumptions about your business’s worth. Perhaps you’re overestimating its value, setting yourself up for disappointment when it comes time to sell. Or maybe you’re undervaluing your company, putting your financial security and legacy at risk.

Calculating Your Exit Equation
But knowing your business’s value is only half the equation. The other half? Understanding what that value means for your personal goals. After all, the ultimate purpose of building a valuable business isn’t just to create an attractive asset—it’s to create the financial foundation for the life you want to lead.

Many business owners fall into the trap of waiting for a predetermined age or milestone to sell their company. However, this approach can lead to missed opportunities or, worse, financial shortfalls. Instead, consider aligning your exit strategy with your personal financial goals by understanding your “lifestyle number.”

Your lifestyle number is the amount of capital you need to receive from your business exit to achieve financial freedom and realize your goals or live your ideal lifestyle. When you get clear about your goals—and have an objective opinion on how much your business is worth—you can make better informed decisions about growing (and exiting) your business.

The Exit Roadmap
Finally, it’s time to think about the actual nuts and bolts of preparing for a sale. Many business owners make the mistake of treating their exit as an event rather than a process. For some owners, this means they’re leaving significant money on the table when it’s time to sell.

Depending on the nature of your business, a comprehensive exit plan might address areas like these:

  1. Transferrable contracts: Ensure key contracts can be transferred to a new owner without dispute or disruption.
  2. Management team retention: Consider tying up your management team with stay bonuses or equity to ensure continuity.
  3. Clean financials: Maintain clear, organized accounting records. Consider audits to boost buyer confidence or a sell-side quality of earnings report prior to going to market.
  4. Working capital optimization: Understand how working capital impacts your take-home money after a sale and optimize it in the years leading up to a sale.
  5. Tax planning: Understand the tax implications of different deal scenarios to maximize your after-tax proceeds.
  6. Buyer options: Explore different exit options and the pros and cons of each. Understand how each option might impact your key managers, family members, or real estate strategy.

Some of these strategies can take two or three years to put in place. Plus, some sellers can’t walk away immediately after a transaction. Depending on deal terms, you may need to provide a certain amount of seller financing or stay involved in a consulting role.

Don’t wait to find out you have to trade value for time. Plus, the sooner you plan, the more options you will have and the better prepared you’ll be to exit with leverage, on your own terms.

Seller Strategy = Growth Strategy
At the end of the day, growing your business with a seller’s mindset isn’t about looking for a quick cash-out; it’s about creating something of lasting value that can thrive even as ownership changes hands. By adopting a seller’s mindset, you’re committing to:

  1. Creating systems and processes that allow your business to thrive without your constant involvement
  2. Building a strong, capable team that can drive the business forward
  3. Focusing on sustainable growth and diversification
  4. Maintaining clean, transparent financials
  5. Continually assessing and improving your business’s value

This approach not only prepares you for a successful exit but also creates a stronger, more resilient business in the present. It pushes you to think strategically, to focus on what truly adds value, and to build something that can stand the test of time.

Whether you plan to sell your business next year, pass it on to the next generation, or continue growing it for decades to come, building your business with a seller’s mindset will serve you well. It’s not about whether you’re ready to sell right now; it’s about maximizing the value of what you’ve been building and creating options for your future.