The Dual Path to Your Exit Strategy

I've been involved in several discussions of KPIs recently. (And I hope you saw my big webinar on KPIs at https://mspwebinar.com/measuring-success/.)

KPIs have become a big discussion topic in the SMB IT world over the last few years because of the frenzied activity around mergers and acquisitions. This has led to discussions focused specifically on a series of KPIs that are not necessarily related to running a good, solid, profitable company with a long-term view of success. But they are useful to companies with a bunch of money who are trying to find measures of profitability so they can filter the companies they might buy.

Last week, I spoke at a conference where I was asked to give my thoughts about exit strategies. But the intro was not about a variety of exit strategies. The session intro focused on buying an MSP business or selling your MSP business. And that led me to give some thoughts they were not looking for.

Truth: What it takes to run a healthy long-term business is NOT the same as what it takes to maximize the sales value of your business in the 12-24 months before you sell.

For years (decades), I have quoted the following line from George Sierchio: "Run your business as if you're going to sell it."

The theory behind that is that focusing on things like profit, contract renewals, excellent service, and a great culture are good for the long-term health of your business. And that's still true. But today, I would take a two-pronged approach to success.

You need to follow TWO tracks toward your business success. The first is the long-term, good, healthy way to run your business. Focus on that for years and for decades. Focus on that for as long as you need to build a great, well-run business.

The second track only applies to the one or two years before you sell. ONLY then should you explore what companies are looking for to filter through managed service businesses to see which ones they want to buy. There are two big reasons for this. First, many of those measure are useful for big money investors but are totally unrelated to running your business well. Really!!! 

Second, unless you're going to sell your business in the next three years, the chances are excellent that these targets will change. As a rule, the people who are buying businesses want to spend the least amount of money to buy companies that will make the largest amount of money. They will lie to your face and tell you that they have a long-term interest in your company. But they will start changing things and extracting revenue as soon as they can after the sale is complete. So, as time goes on, they will change the filters they are looking for in order to maximize their return.

I know that nobody wants to hear this message, but I promise you that it's true. 

Let's say you're in business for thirty years. For the first twenty-eight years, you need to focus on building a great, sustainable, profitable, reproducible service business with a great culture. That's the only game to play until you're ready to sell.

If you plan to merge with a friend, sell to your service manager, let one partner buy out the rest, sell your client list, or other "friendly" exit strategies, then you never need to change the way you operate. Just keep doing what you do.

Finally, if you plan to sell to strangers or well-funded companies who are gobbling up MSP businesses, then you need to re-focus on the measures that matter to them. For many of these measures, there is ZERO connection to a well-run business. The goal is simply to meet whatever metrics someone came up with to compare a bunch of companies they might buy. And what they're looking for today may not be what they will be looking for next year or the year after.

That's why I say to follow the long-term strategy until you really are ready to switch to your end-game. Run you company well, with a great culture and great profit, for as long as you can. Only spend time measuring things that don't build long-term success when you no longer need to focus on the long term.

I welcome your feedback.

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If you haven't seen my webinar on KPIs, today's a good day. I'm not selling you anything. https://mspwebinar.com/measuring-success/

:-)