Getting Out; When Great Plans Fail

It’s tricky to get out of the interior design business.

Winding down is hard because you never know exactly when to stop accepting projects, and so long as you accept them the lights are still on and additional new ones may come knocking on your door.

Besides, you say you want to get out, but you still love what you do (most of what you do) and have a lifetime of experience, resources, connections, etc. It’s hard to imagine waking up tomorrow and just, uh, knitting?

Plan for Your Exit Strategy

I suggest you plan at least 3-5 years in advance for when you would like to exit your business. By exiting, I don’t necessarily mean that you won’t continue some consulting here and there, but you won’t have an office, employees, a website, etc. In other words, “the business” will have been shut down or sold or otherwise transferred to another party.

There are a variety of ways to plan your exit, but here I want to talk about how one superb design-entrepreneur planned her exit from her profitable, $3 million per year firm for five years.

Steps Prior to Exiting

1) She identified two senior designers who she felt could take over the firm after she left and was open with them about the opportunity. They were both excited and formed a bond as the future co-leaders of a terrific firm.

2) She implemented some golden handcuffs with those two employees including the things they valued most such as first-class benefits including health insurance and generous 401k contributions.

3) She brought them in at the highest levels of client meetings, so much so that after a year or two, many clients started asking specifically for the designers, precisely the outcome the principal sought.

4) She purchased Microsoft Surface tablets for all top employees including top-tier software like AutoCAD and Sketchup. This allowed them, and more importantly, her, to work remotely and spend less time in the large office building. The principal had followed my advice from fifteen years earlier and purchased her building. With a $7,000/mo rental income, she wasn’t sure whether the designers might move elsewhere once they were in charge.

5) With the increased authority given to the senior designers, and the remote access, the principal began to spend days at a time out of state where she hoped to retire. Then she spent weeks. Then a month, gradually forcing the new leaders to solve the problems of running the business.

Setting a Price

After several years, it was time to value the business. I helped and we came up with a number that was fair to all parties. This is always a sticking point since the employees are almost never going to be able to come up with a seven-figure payment, so like the seller of almost any small business, the principal agreed to finance the deal. The employees would purchase the business over a seven year period with payments made out of the company’s earnings. They risked almost nothing.

And it All Fell Apart

It’s just not possible to start with a better, more profitable firm and take years to carefully prepare for a sale to employees. It was a golden opportunity, but as is often the case, when it came down to the moment of signing on the bottom line, the opportunity was “too big” for these individuals who had chosen the safety of employment over the risk taking of entrepreneurship..

They looked at the overhead, at the other six employees they would be responsible for, the thousands of dollars in software licenses, IT services, legal and accounting services, marketing campaigns and everything it takes to maintain a business this size, and they gagged.

The idea of running their own firm and doing projects their way had intrigued them, but as they got closer to owning a real company, they realized they would have less time to actually design. They’d be managers!

So, after the years of effort, the golden handcuffs, the remote technology, the fair price and the owner financing, the two employees announced they were resigning…to start their own small firm.

Lessons Learned

This wasn’t the only consulting client I have walked through the exiting process, and no matter what, more fail than succeed. Another I worked with recruited a key senior designer from out of state, paid for her move and gave her stock. This was an even larger firm and, again, when it came to the moment of truth, the designer gagged at the responsibilities. She just wanted to design, so she resigned, taking clients with her.

If I’ve learned one lesson from going through these wars, it is this: There are entrepreneurs and there are employees. It’s very, very hard to change from one to the other, sort of like trying to turn a kitten into a lion. They may look a bit alike when they’re little, but they’re completely different species.

I recommend three things differently today based on these lessons:

  1. Recruit someone who owns their own firm, even if a sole practitioner. Hire someone who has already had to deal with CPAs, attorneys, programmers, contract employees, etc.
  2. Better yet, hire someone who likes that aspect of running a business. I know some designers (though rare) who say they enjoy the business side of things at least as much as the design side of things. I’d lean toward that person; they can always hire design talent.
  3. Make the golden handcuffs more like golden shackles. Find a way to have your target buyer put so much skin in the game that they simply cannot walk away. Rather than give them stock and benefits, this is more likely an agreement under which they begin to purchase stock with real money (however small) from day one. Make sure that when the day comes for the transfer, they simply can’t walk away from the investment they’ve made.
I’ll explore other ways of “getting out” in future posts marked with the “Exiting” category label.

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