A Happy Exit is Reserved for the Happy Few

Divesting your company often appears simpler than it truly is. Business coach and M&A advisor Eelco Smit has for years guided entrepreneurs through their exit strategies, intimately observing their dilemmas, emotions, and uncertainties. He notes, 'Eight out of ten entrepreneurs experience a profound void post-exit.'

How frequently does a company sale result in success?

'According to American research, just over one percent of all entrepreneurs achieve a happy exit. This is disheartening. I am not familiar with the Dutch figures, but they are unlikely to be significantly higher. In a happy exit, the entrepreneur receives a substantial sum in their bank account, the individuals who contributed to their success—such as staff and co-entrepreneurs—are treated equitably, and a personal future plan is in place to mitigate the void that often follows the loss of what might have been the most significant occupation of their life. Thus, it is clear that a truly happy exit is not attainable for everyone.'

Is it truly challenging to receive a substantial amount?

'In practice, the received amount often disappoints many entrepreneurs. Not that they would ever publicly disclose this. On the golf course, everyone claims to have received ten times EBITDA (earnings before interest, taxes, depreciation, and amortization, ed.). However, last year marked a historic low for the M&A market, primarily due to interest rates quadrupling.'

What makes it so challenging to achieve genuine happiness after an exit?

'That is highly personal. However, those who have anchored their identity to their enterprise will find themselves in a precarious position after the sale. Never tether your personal identity to your business. That is my urgent message.'

Do you prefer to articulate matters directly?

'Indeed, I am not the typical business coach one might encounter. When you engage with me, you will sometimes receive incisive feedback. Consider this: an ineffective entrepreneur attempts everything alone, a proficient entrepreneur seeks coaching, and a top-tier entrepreneur comes to hear the unvarnished truth.'

What do you consider the quintessential example of a successful exit?

'A 'Champions League' exit occurs when an entrepreneur does not sell their business but remains a shareholder without needing to be actively involved in its operations. This 'exit without exiting' is truly a distinct art form. Very few entrepreneurs are capable of achieving this.'

What constitutes an unfavorable exit?

‘An unfavorable exit occurs when one divests their company only to resume identical activities shortly thereafter. I consistently find this approach perplexing, as it suggests the enterprise could have simply maintained its operational status.’ This scenario marks the divestment of a business.

What is the emotional impact?

‘Upon the culmination of the process, a dichotomy of relief and sorrow emerges. These are profoundly conflicting emotions. I have witnessed individuals experiencing these emotions, even to the point of tears, during the finalization of a transaction. A successful deal is exhilarating, precisely because its achievement eludes so many. One might then commend, 'Well done.' However, such a transition, irrespective of its framing, invariably entails significant loss. For instance, the loss of status and identity: as the proprietor of your enterprise, you commanded considerable standing. Now, you are suddenly an individual with substantial capital but a perceived lack of professional engagement. This state of affairs rarely brings contentment to most individuals. We are not inherently designed for perpetual idleness. Furthermore, throughout their tenure, these entrepreneurs have inadvertently fostered an ever-expanding 'monster' within their own ventures. This entity demanded years of sustained nurturing. As stagnation was not an option, continuous growth became imperative for the company. Once the company is divested, a profound void often remains. I estimate that approximately eight out of ten entrepreneurs experience a significant post-exit void, often described as a 'black hole.''

How can one mitigate this sense of emptiness?

‘Cultivate self-compassion. This quality is conspicuously absent in the majority of entrepreneurs. Self-compassion is the pivotal element. Which entrepreneur genuinely acknowledges their own achievements? Authentic entrepreneurship may indeed be more demanding than elite sports, for there is truly no one on the sidelines applauding your efforts. Furthermore, your partner typically does not accord you the treatment of a professional athlete.’

During an exit trajectory, individuals frequently confront profound personal challenges.

What counsel do you offer entrepreneurs post-exit?

‘Initially, take a sabbatical for several months. Engage in enjoyable pursuits. Subsequently, focus on personal development and cultivate new avocations. It is during such an exit trajectory that individuals often confront profound self-realizations. Whence originated the imperative to prove oneself by leading an enterprise? Particularly within family businesses, a considerable amount of personal distress often lies concealed. What motivated the choice to join the company: was it genuinely an autonomous decision, or primarily driven by the desire to avoid disappointing one's father?’

How do most entrepreneurs deploy the capital acquired from a divestment?

‘A diverse range of activities. Spending. Launching new ventures. Supporting startups. And, naturally, investing. Equities? Many seasoned entrepreneurs exhibit a disinclination towards them due to a perceived lack of control. However, those who allocated capital to the S&P 500 (the stock index comprising the 500 largest U.S. companies listed on Wall Street, ed.) two decades ago will undoubtedly have no regrets today. And real estate, of course – virtually all entrepreneurs gravitate towards property investments. This is often perceived as a symbol of success: retaining and leasing their commercial premises, acquiring additional properties for rental income… While appealing, these endeavors are frequently not particularly challenging. Furthermore, diversification is paramount in investment strategies. Especially in light of current political measures, one should never exclusively concentrate all capital in real estate. Alternatively, one can extend loans secured by real estate collateral, which can yield a return of six percent relatively quickly. However, it is crucial to engage in ventures where one possesses expertise or can obtain sound professional advice. This could, for instance, include private equity.’

What would be your personal investment strategy?

‘Personally, I would currently allocate the proceeds from a sale – whether ten or one hundred million euros – according to my own discretion and expertise across gold, real estate, loans, the S&P 500, and a sufficient cash reserve. Bitcoin is also an option, but I would limit its allocation to a mere few percent of the total portfolio. A significant contemporary challenge is to minimize substantial tax liabilities; no one wishes to be financially exploited without recourse. Furthermore, refrain from investing capital in any asset without a clear understanding of its liquidity and exit strategy. Even for your investments, a 'happy exit' is desirable. Capital that one cannot or will not afford to lose should not be illiquid for extended periods. Hence my preference for cash: while maximizing returns is appealing, it is often a preoccupation for accountants, and should that objective not be met, it will inevitably lead to further sleepless nights. Ultimately, the overarching goal is financial maneuverability, as this is conducive to restful sleep and essential for maintaining an optimistic disposition. And that, ultimately, is what it all boils down to: an optimistic disposition.’