There is an endrepreneur in every entrepreneur. Endrepreneur (end-ruh-preneur) is a phrase I coined that replaces “ent” in entrepreneur with “end.” I’ve defined endrepreneurship as the progression of time, effort and risk toward exit, and underlies the entire period of association the entrepreneur has with the business as its primary owner. That’s right, I am suggesting that more of an entrepreneur’s association with a business is spent on exit than on entry, even though many people start businesses without much thought to exit.
The endrepreneur undertakes exit behaviors throughout the life of the venture and assumes the financial risks of leaving the business. These behaviors affect the options for exit. Some exit behaviors are intentional, such as succession planning, and some are unintentional, such as a decision to compete on price that ends up devaluing a business unit. Some exits have little lead time.
There is wide variation among endrepreneurs but all become owners who exit their businesses. Exit generally falls into two broad categories of voluntary and involuntary. According to the Small Business Administration Office of Advocacy, exits range from unsuccessful (closure with losses) to successful (reaching owner’s tangible and intangible goals, with no loss). Exit can involve disposition by transfer or closure of the business in whole or in part. There are also different, personal definitions of successful exit. Some founders will go on to start and leave many businesses, and for some, exit may only happen once and involve some form of retirement. Sometimes the owner assumes a new role in the company.
The importance of understanding exit cannot be overstated, especially when the impact of small business across the economy is considered. Yet, as compared with business exit, business entry is front-loaded with support, focus and research. For example, economic development offices focus on business attraction, but how much time is spent on business retention or transfer? In the United States, economic development and community planning are typically positioned for growth, not for contraction or business exit. In Western Europe low barriers to exit through the transfer of businesses and other retention activities are considered part of sound economic development. The European Commission instituted a number of initiatives, including assessment of institutional hurdles, to improve the probability of transfer vs. closure. Another front-loaded area is in academics where we teach a lot about business entry, but how much time is spent on exit? Exit is as challenging, risky, exciting and dynamic as the startup, and yet I find that textbooks on small venture management devote little if any focus to business exit.
It would be easy to assume that because they have successfully launched a business, entrepreneurs possess the competencies that are required to exit; the skills are distinct from those required by a startup. Endrepreneurs do not need to become experts themselves but they do need a frank assessment of their weaknesses and to seek expertise early and often. The National Federation of Independent Businesses provides an example of where business owners are adrift, in this case for exit leading to retirement.
According to a survey the National Federation of Independent Businesses conducted, eight in 10 business owners felt they would be able to retire, yet only a about a third had retirement savings. Many business owners intended to rely on the sale of the business to partially or fully fund their retirement, but not all businesses are predictably salable. In its annual report of small business valuations, Inc. magazine reports that the median sales price for private companies fell 27 percent in 2008, and that depending on market sector, valuations also were down by 23 percent to 61 percent for the same period. Also, a substantial percent of small-business sales involve some kind of owner financing, according to both Inc. and the Small Business Administration.
Although exit is a personal decision and is the responsibility of the endrepreneur, stakeholders include local economies, employees, suppliers and customers. Those who study and teach about entrepreneurship need to consider that they are focusing on only half of the story. The front-loaded focus on entrepreneurship should be balanced with the understanding that exit comes throughout the life of the company in the form of decisions that lead or do not lead to options for exit. Without a coherent theory and lacking a strong conceptual approach of how owners approach the exit from their business, researchers, academics and policymakers may have helped to create entrepreneurs who know just enough to be dangerous, focusing in the “now” and not the “later.”
Nancy Forster-Holt is an assistant professor and executive director of entrepreneurship and executive education at Husson University’s College of Business. A graduate of Cornell University and the University of Maine, she is also co-owner of Shaw & Tenney, a 153–year-old manufacturing company in Orono. She introduced the concept of the endrepreneur at the Babson College Entrepreneurship Conference in Lausanne, Switzerland.