If your exit isn’t planned, your exit will be forced. I was forced into some unanticipated business exits because of 9/11, as were countless small businesses. Obviously, nobody could control 9/11, but it taught me to think more seriously about exit strategies, planned and unplanned. Bad exits can also come if the competition tramples over you or the wave moves away. If a bad exit comes, you and your partners need rules to govern that (see chapter 5, “Make the Rules, Live the Rules”); however, good exits need just as much planning.
Drafting an up-front exit strategy uses many of the same startup tools you’ve already employed. Keep in mind, though, that when you plan your business with your exit strategy up front, you aren’t just looking to break into the market. You’re looking to break in, and thinking about how to get out. In this way, one of my favorite exercises is competitive landscape mapping. This kind of mapping obviously gives you an idea of where to put your product in the market, but it also indicates how long and well you can operate and how you ought to exit.
I talked briefly about this model in chapter 3, “Power Tools.” Remember the gourmet root beer? In that example, we plotted out regions and price as we determined just how viable our market opportunity would be. In this chapter, we will plot products and price. Considering your competition, this is what they will be most interested in. Knowing where your competition stands tells you how to best use that for your exit. The energy expended up front gives you power at the end.
As you enter the market, diagram your competitors and the segments they play in. Are they high-cost providers? Low-cost? What breadth of service do they offer? By taking time to draw out the landscape and understand where you operate in relation to your competition, you can deliberately position your company to fit.
This little exercise will also tell you who will be in any fistfight you get into—or, if you play it right, which way you can turn to get away from the fight. The companies that your chosen space runs up against will be your most aggressive competitors. While competition helps them, they will, in some degree, want you out. Buying you might be a viable option. Definitely, the companies that border you are potential acquirers. If, you have a large gap, though, you’ll have a larger market opportunity, which means it could take you longer to have a high-dollar exit event.
Let’s consider a retailer in the outdoor market. We’ll use the vertical axis to plot competitors’ pricing. On the horizontal axis, we’ll label competitors’ specialization through the gamut of outdoor sporting equipment. You should have something that looks like this:
The next step is to identify the key players. Fill in your matrix so that you put these companies where they fit into the market. Make this accurate: bigger market shares need bigger circles. Go through each of the competitors in the context of your competition. Map the coverage and look for the gaps. For example:
- Wal-Mart is a low-cost, low-quality provider that competes mostly in the camper, trailer, and family camping sections.
- Outdoor World competes in the camper and trailer market, but they are a higher-quality, higher cost provider, so you place them in the top left quadrant.
- Sportsman’s Warehouse competes in the family camping and hunting markets, and pushes into the hiking markets, covering a fairly large area. They are a mid-range to higher-cost provider.
- Back Country provides online, mid-range cost, focusing on higher quality but primarily the hiking and high-altitude market.
- REI is very high quality, focusing primarily on the camping, hiking, and climbing market.
- Kirkham’s competes directly with REI but at a much lower cost.
Your matrix is shaping up nicely. It should look something like this by now:
Now that you have the landscape drawn out, examine the holes. Where are the overlaps? Can you compete at potential intersections? The larger the hole, the bigger the opportunity; however, it will take more effort to fill and more time to build to an exit event. If your venture fills a smaller opening, one of two things will happen—one, competitors at your borders could try to acquire you; or, two, they will strike aggressively and
cross the line to compete in your space.
My personality fits best with small holes. I like to fill them and plan for quick-liquidity exit events. In fact, the map we drew above is one that Ron and I used right before we acquired Campman.com. We chose to fill a small hole right at the intersection of Back Country, Sportsman’s Warehouse, and Kirkham’s. We were able to sell the company within a year.
The area you choose to enter determines what type of exit you will have. If we had tried to go nose-to-nose with Wal-Mart, we would have been stomped flat. It takes far more money and time for that kind of fight than what I was willing to invest. I learned a long time ago that you have to look for the niche and fill the space. That brings success.
Porter’s Points – Map It
- Consider your competitive landscape map not only in terms of your potential market presence, but your potential market absence—that is, determine at the outset how you are going to go out.
- Don’t take on the big market players at the heart of their empires. Look for a niche where a few smaller players overlap and build up to a sale.
- Keep in mind all the possible variables in your competitive landscape map. Location may be important for some, but don’t forget product, price, and quality.