Exit-eer? Or a long-term income?

We live on the edge of a forest, situated on the outskirts of Nairobi city. As I write this, the usual sounds of the African night filter through the open windows, throughout the evening each section of the orchestra grabs its moment in the starlight. As I start to pen my thoughts, it is the turn of the frogs, chirping to celebrate the last few days of rain. Before the end I expect the murderous sound of the tree hyrax, ear-splitting shrieks that eventually one gets used to and over time begins to miss.

The forest is great for walking the dogs and catching up with friends. It has a few steep hills, to get you breathless and feel that some goodness is getting into your body at a time when natural danger is lurking all around. Earlier this morning, with the dogs tearing through the undergrowth along random scent trails that only a dog finds interesting, my friend started tearing up herself. We were walking in single file so the tears flowed out of sight but the emotion was palpable.

Six years ago, she left her comfortable job with a good salary and set up on her own to make a difference in an exciting niche. Three months in, the niche imploded. But she is made of strong stuff and pivoted to other, slightly rockier paths in the sector. Six years later she has built a brand that people often talk about building. It is honest, clear, constructive and is literally saving lives. Amazing.

So why the tears? Because, after six years of hard slog and toil, she is not only the amazing brand ambassador that she has been since day one, but she is still the core of the whole show and the go-to person in almost every emergency. As we crested one of the hills, the metaphor hit home, she was out of breath. In her body, in her business, in her life. Of course I offered crumbs of comfort but better than that, we talked about the basic principles of what she first set out to achieve, for herself as well as the business.

In this article I am going to discuss one of the topics that came up, one of the unsung but critical trade-offs that business people often unconsciously need to make. The difference between aiming to earn an income and/or aiming to make a capital gain on sale of the business. Both outcomes are positive but I believe that you need to have clarity between them when setting entrepreneurial goals. Examining the benefits and drawbacks of each should help to understand the consequences. The scenarios need different execution strategies, to make the most of their unique opportunity, so we will explore these too.

So this post aims to help give that ever-illusive helicopter point of view, force consideration of the path down which entrepreneurial life is leading and help to make active choices, enabling necessary changes to happen , before it is too late.

The frogs have fallen quiet.....here comes the tree-hyrax.

Who needs a business? Most people have a job, contributing their time and skills within groups of other people. The basic rewards are often financial, and hopefully the job gives other less tangible but no less important rewards such as empowerment, fulfilment etc. Many other people don't have steady jobs and need or want to do something else.

Some create their own way of earning an income, outside (or alongside) formal employment. This income is needed for meeting life's financial commitments, however humble or extravagant. And then there are those who are willing, and somehow able, to sacrifice today's reward in order to try to attain something much bigger at a later point in time. It is these two groups that I want to explore, in the context of those who set up a business to achieve either of these two goals.

The first is the Income Earner.

Whatever they do, the Income Earner tends to set up their business endeavour on strong fundamental principles that will pass the test of time. "Built to Last" by James Collins and Jerry Porras is a well regarded book that considers the core principles that makes these types of business a success. The key point of difference in this reflection is that this business is not "For Sale", except in unusual circumstances.

The alternative is the Exit-eer.

For them setting up in business is to exploit an opportunity for something other than a steady income. It is often to identify and carve out a niche and once done, find an appropriate exit. This business is "For Sale" from the outset.

Income Earners tend to have special skillsets. They also are often strongly independent and enjoy the opportunity to be their own boss. Their daily life is theirs to shape, setting their own working location, timings and rewards within the context of what they do. The business can be as simple as a hardware store in the local town or as glamorous as a pop star. It can be a service business like plumbing or bookkeeping. It can become huge like Marriot Hotels or stay small and niche, like my father's holiday cancellation insurance brokerage.

The key elements are managing the cashflows to pay the bills, reinvesting excess earnings back into the business so as not to dilute control of both management or direction of travel and often taking a longer, less risky time horizon when making decisions about things like investment into new assets that will help drive the business forward.

Ascribing a definitive financial value to the business at any point in time is not very critical to the Income Earner. The value lies in what the business gives back, as it goes along, today and for many years to come.

Now is the cry of the bushbaby, seemingly lost in the trees. They are marsupial like animals, and jump with surprising power, if you are lucky to see them.

I did a bit of freelance journalism at one point in my life, working for Business Week and an internet based e-zine. I loved the freedom of it. The e-zine paid me by the word so my earnings were very literally linked to my output. My interest with storytelling led me to screenplays and I got really into it, designing intricate plots to be filmed in sumptuous locations around the world.

One day my passion led to the film set of a cat-food commercial, in one of Hitler's old propaganda warehouse film studios outside Prague. It was then that a certain reality struck. The cat commercial had a lengthy script but this was just one of a number of starting points. The director and the actors changed anything they felt like (cats can't read for a start) and the final outcome was very different from the script that I was given on arrival.

It became very clear that my personal genius as a writer (cough, cough) needed a host of other actors (pun intended) to turn my dreams into a reality. Producers, Finance, Actors, Director, Casting, Location....I looked around the filmset and saw a new understanding emerge from the debris of my crumbled expectations.

I could and did write my stories. But if I wanted them to appear on any screen whatsoever, I would need to hand them over and watch as other people turned them into a finished product such as a film. If I had been a Hollywood superstar then perhaps I could control things, spending my own money and telling people what to do......Hmmm.

The same truth hits an Exit-eer. They have dreamt up some amazing solution to one of the world's numerous problems. They have written it down in detail, perhaps built a prototype and tested it in the market, with success. All looks rosy, doesn't it? Hmmm.

The key for a true Exit-eer is that what matters most is finishing their part of the puzzle and getting the appropriate reward. They may have strong views but ultimately if their concept needs money or skills that the Exit-eer doesn't already have to bring the project to fruition, then they need to get hold of these in a timely fashion.

Time is a critical concept. The Income Earner has long horizons. The Exit-eer is far more concerned about closing the time gap quickly. Perhaps the new product will be copied by others, perhaps the market will develop and today's innovative need will become obsolete. The Exit-eer's greatest fear is that the exit opportunity will disappear.

The hyena doesn't laugh. She whoops, long crescendos that never cease to thrill and somehow at the same moment chill the back of your spine.

My friend's momentary cause of upset was tiredness. It has been a difficult time for us all. As we talked, this wider theme came forth; for her work and her business feels like an income earner role, without enough of an income (!), and yet truly she set out to be and still is an Exit-eer.

The problem that we identified on the walk is that she is so busy fighting the daily fires that she has lost sight of the overall goal. She has built a profitable platform with an enviable reputation. What is missing is a set of embedded scalable processes that will enable the business to operate more autonomously and be in a position to grow at speed over the coming years. This process-driven scalability is what a buyer will look for, and pay handsomely for too, as they bring to bear their own value-creating synergies and advantages to ramp up the trading volumes in the market place.

The first question is whether you are an Income Earner or an Exiteer. If the former then make careful, long-term decisions and grow steadily, taking ample reward along the way. Exiteer? You need to focus on the Exit, build quicker and ensure you put in place systems and processes that will enable other people to scale your ideas when their time comes.

The hyrax has obviously found its friends and has fallen silent. The hyenas have moved along and the bush baby is..... well, in the bush I suppose. A neighbourhood dog is all that is left to remind me that I still live in the city.