The final step in the entrepreneurial process is that of harvesting value from an ongoing firm or exiting the venture. This aspect of entrepreneurship is often neglected in the literature but is crucial to success. Most exit models in the entrepreneurship literature examine the exit as a utility making decision. It is often equated with failure of the entrepreneur to produce the required results. In fact the entrepreneurial exit may actually be a successful outcome of entrepreneurship (Wennberg, Wiklund, DeTienne, Cardon, 2009). An exit strategy is a critical component of the entrepreneurial process, very possibly the ultimate goal of the entrepreneur. As such, it should be examined regularly and adapted as the firm grows (Gerber, 2005).
The exit or harvest allows the entrepreneur to extract the value that has built up in the business. Only 50 percent of entrepreneurs include their exit from the business or the harvesting of the fruits of their labors as part of the strategic planning process (DeTienne, 2008). An entrepreneur is not deciding whether or not he will exit the business, but simply a when and how. The timing of the exit is an important factor to consider. Many entrepreneurs specifically enjoy the start-up stage, then seek to exit in order to start another business. Lifestyle businesses have the goal of creating a job and wealth for the entrepreneur, who does not want to start further businesses but rather is content to build a patrimony for his family and/or in prepare for retirement. Advisory boards often examine exit strategies – to indicate the long-term goals of the business and the entrepreneur, and expect them to evolve as the business matures (Lawton, 1997). An entrepreneur should weigh these issues when choosing the proper method of exit for his personal goals, objectives and the good of the ongoing business.
Of the various methods available when exiting the business, each has its own benefits and disadvantages. Liquidation is the most straightforward method for exiting a firm. A lifestyle entrepreneur may be primarily concerned with succession planning and helping the firm transition from direction by the founder to the leadership – of a son or daughter in the case of family succession; or by a professional manager or key employee, in the case of professional succession. Harvesting the value from the firm via increased dividends or payouts is another option. Selling the ongoing business usually offers the entrepreneur a high level of immediate liquidity. The sale may be to another individual, the firm’s management, or the employees through an employee stock ownership plan (ESOP). Finally, the often sought but elusive initial public offering (IPO) is usually the most profitable of exit methods. It often is pursued by professional venture capital in high growth industries. Whatever exit strategy is selected, the exit or harvest is an important aspect of entrepreneurial planning. Planning for the eventual exit from the outset will influence the choices an entrepreneur makes as the firm develops and may help maintain the viability of various exit options (DeTienne, 2008).