Channel markets, Channel partner events, Channel partners, Sales and marketing, Channel partners

Exit Strategies, Legacy Planning, Business Valuations (And Your Values)

Silhouettes of family

Rewind to May 2014. My business partner (Amy Katz) and dropped out of the IT media market. The exit strategy, at least for me, went something like this: We had sold our company, I was burned out, and I needed to recharge and rethink my life.

Fortunately, we had a decent exit strategy (i.e., selling a business). But frankly, much of it was based on pure luck -- the luck of working with Amy and her business wizardry. So there was an exit. And there was a business valuation. But there was absolutely no legacy plan -- nothing that really described what I wanted my life to represent.

During my time away from the market, I heard from dozens of VARs, MSPs and IT service providers. Frankly, most of the emails, texts and phone calls were from entrepreneurs who were building and running small businesses. Vendors kept telling Amy and me to launch a new media company -- perhaps focusing on hot markets like big data or the Internet of Things. We appreciated the advice, but we were looking to do something more meaningful.

Rethinking the Entrepreneurial Journey

ConnectWise VP Arlin Sorensen
Arlin Sorensen
Service Leadership Inc. CEO Paul Dippell

And then it dawned on us. A few really major trends were combining to dramatically reshape the IT services market. They included:

  • Pure demographics: Thousands of "gray hair" business owners who required exit strategies -- either immediately or within the next few years.
  • Pure financials: Goodbye hardware and software sales, hello just about everything as a service.
  • Pure emotion: Folks like HTG founder Arlin Sorensen and Service Leadership CEO Paul Dippell kept telling me about massive valuation gaps in the market. Business owners thought their companies were worth X. But buyers said the valuations were closer to 20 percent of X. Ouch.

Mix all those variables together -- plus a few dozen other conversations -- and we launched ChannelE2E in September 2015. Our mission: Guide IT Service Providers From Entrepreneur to Exit (E2E).

Reprioritizing Life, Business

We're nearly two years into the ChannelE2E journey and I've learned a few things:

  • Be careful of the term "exit strategy" -- which can make you look like you're desperate to find a buyer for your business.
  • Instead, emphasize "valuation strategy" -- what steps are you taking to increase your business's value every quarter? Notice I didn't say "increase your revenue." The true winners drive their EBITDA margins higher and higher, and therefore earn higher multiples for their businesses. Brag a bit about your high margins in peer groups or industry circles and buyers will seek you out -- instead of you seeking them out.
  • Legacy planning: This really ties back to your own personal values. (1) What do you want out of life right now? (2) What do you want your personal name to represent once you're gone? The interesting part: Run your business correctly, and it becomes the engine that fuels and funds your legacy plan. Instead of using money to buy "things," think of money as the currency that buys your freedom -- and the time you need to work on your legacy plan. With the right legacy plan, you business can also be the fuel that funds your family's prosperity for generations to come.

Building Your Legacy Plan

With those thoughts in mind, I highly recommend all readers check out HTG's Legacy Summit, which is set for Sept. 13-14 in Omaha, Nebraska.

It's not a vendor fair. It's not a junket. There are no hidden ties, barters or business relationships between HTG and ChannelE2E. In fact, we're not involved in the conference. But I consider it extremely important. It could be a conference that helps us all to answer some tough questions that rarely get discussed in open forums.

PS: I'll share a deeper podcast conversation with Arlin Sorensen in the days ahead.

Joe Panettieri

Joe Panettieri is co-founder & editorial director of MSSP Alert and ChannelE2E, the two leading news & analysis sites for managed service providers in the cybersecurity market.