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Introduction

In this wild and ever-changing world, countless businesses are being launched every year. But only a measly 10% of these ventures actually see the light of success through mergers, acquisitions, buyouts, or listings. So how can an entrepreneur ensure that their business is one of the few that make it? Well, it all starts with asking the right questions. If you’re an aspiring business owner, here are some key questions you need to ponder before embarking on your new venture:

• Is there a golden opportunity waiting for you?
• Does your profile match the needs of that opportunity?
• Will the economics of your venture be acceptable?
• Can you gain a competitive edge?
• Will you have a solid exit strategy?

This article will delve into the questions entrepreneurs must answer satisfactorily before leaping into a new venture with an exit strategy in mind.

Is There a Genuine Window of Opportunity?

The world is changing at breakneck speed, presenting entrepreneurs with countless opportunities. But how can you be sure that a genuine window of opportunity exists? Here are some crucial questions to ask:

• Does the industry or sector have a high growth rate? A growth rate of over 25% per annum, on the rise, is a sure sign of possibilities.
• Is the potential market large enough? A market with a current size of $50 million is a good starting point, and if the growth rate is high, it can quickly grow into billions of dollars.
• Is there a real need for your products or services? Solid market research is an absolute must.
• Will your venture be financially attractive? Comprehensive financial analysis and projections are essential.
• Is the opportunity sustainable in the long run? The dynamics of your venture should be sturdy enough to support a successful harvest.

Does Your Profile Match the Opportunity?

When the right opportunity meets the right team, amazing things can happen. To ensure that your profile perfectly aligns with the opportunity, here are some questions you should ask yourself:

• Are you truly passionate about the venture? Passion breeds energy, inspires others, and creates a learning environment.
• Do you possess the necessary skills to succeed? If not, do you have the ability to acquire those skills through talented individuals?
• Are you at the right stage in your life for entrepreneurship? Taking on the responsibilities of entrepreneurship requires a specific phase of life.
• Do you have the right mindset to build a successful business? Completion of tasks is crucial, so entrepreneurs must have personalities that drive them forward.
• Do the risks of the venture align with your risk tolerance? Risk profiles should match to avoid unnecessary complications.

Are the Economics of the Venture Acceptable?

Financial performance plays a substantial role in measuring the success of a business, although it is not the sole criterion. However, it is still critical to ensure that your business is financially viable. Here are some questions to ponder:

• Does your venture have enough sales potential? Without enough turnover potential, your business won’t even stand a chance.
• Are your gross profit margins sufficient? You need margins that can cover expenses, allow for price flexibility, and generate profitability. At least 30% is considered adequate.
• Can you reach the break-even point quickly enough? The timeframe for breaking even and achieving payback should be tailored to your specific venture. For example, an IT venture should make a profit in just a few months, while a mining operation may take several years.
• Is the capital requirement achievable? Capital requirements should not hinder your venture or dilute your equity too much.
• Will the expected return on investment satisfy you? Remember, it should exceed the risk-free interest rate plus the risk associated with your venture. Ideally, it should be much higher than 20%.

Can You Achieve a Competitive Edge?

Realism is key when it comes to gaining a competitive edge through your venture. Consider the following questions:

• Are there enough barriers to entry? Overcoming hurdles such as lack of expertise, finances, proprietary rights, contracts, and contacts can deter other companies from entering your industry.
• Can you provide significant value to your customers? Your product or service must truly enhance the lives of your clients.
• Can you secure a significant market share? A market share of 20% or more is highly desirable, whether it’s in a specific niche or across a larger market.
• What sets you apart from competitors? Your company should have a distinctive quality that sets it apart in the industry.
• Can you significantly cut costs compared to your competition? Economies of scale, production techniques, and shrewd purchasing agreements can help you achieve cost reductions.

Are the Potential Harvesting Dynamics Sound?

Planning for the future is essential, so entrepreneurs need to ensure that their business will be harvestable when the time comes. Here are some questions to consider:

• Can you separate yourself from the venture? Implementing proper systems, training, and succession plans can help separate yourself from the daily operations.
• Are industry trends favorable for harvesting? Timing is crucial for choosing a business and planning for its exit.
• Are profitability and cash flow sustainable? Your business should not rely on a single customer or product but should have annuity income streams and a diverse range of suppliers, customers, products, and services.
• Can you sustain your competitive advantage long-term? Intellectual property, reputation, relationships, and systems all play a key role in maintaining your competitive edge.
• Is your business harvestable? Your business and industry should not be a passing fad. There should be a continuous need for your type of business over time. Some businesses are more easily harvested than others, with manufacturing companies being in higher demand than consultancy service firms, for instance.

Summary

The first step toward creating an exit strategy for your company is to choose a new venture that can eventually be harvested. Asking in-depth questions and conducting thorough research increases the likelihood of successfully harvesting your business. By ensuring a strong fit between yourself, the business venture, and the exit potential, you significantly improve your chances of a fruitful harvest. Selecting a new business venture should be an integral part of your company’s exit strategy and must be approached with professionalism.

Copyright© 2008 by Wim Venter. ALL RIGHTS RESERVED.

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Ihab Salloum