The long goodbye: Business exits for founders

In summary

• Exits are inevitable, but many business founders don’t plan or leave it too late
• Failure to put in place a strategy reduces owners’ options and is likely to leave the business worse off
• People, governance and due diligence are all vital for successions and exits
• The key measure of success for a business exit must always be what comes next

Steve Jobs’ ousting from Apple in 1985 shocked the business world. Having built the company up from his garage to a global business, he was abruptly shown the door by his own board. The episode reflected deep tensions over Apple’s direction and governance,and has become a cautionary tale for visionary founders: They can create extraordinary value, but, without a succession plan, even the most brilliant can lose control of their creation.

Jobs’s exit was particularly dramatic, but few founders stay in control long-term. Research by Harvard Business School shows that fewer than 25% still occupy the chief executive role by the time their companies reach an initial public offering.

Despite this, in the UK, 48% of business owners admit they have no exit plan and 37% lack a succession plan.

That’s probably partly because, for founders, stepping aside is not just a financial event, but also a pivotal life event. Vanessa Lee, Head of Private Wealth and Family Offices at global business advisory group S&W, says it can be an “emotional rollercoaster”, especially when identity and business are deeply intertwined.

“Even the smallest details can be difficult to relinquish,” she says. “The founder is often intrinsically linked with so many aspects of an organisation.”

This attachment can make leaders reluctant to consider a transition, even when it’s in the business’s interests. This is the “rich versus king” dilemma outlined by business academic Noam Wasserman: The choice between building a more valuable company by ceding control, or holding on and risking stalling its growth. It’s not always a choice that’s theirs to make, however. Founders who resist change often find investors, boards or family dynamics decide for them.

Kirsty Dougan, Managing Director of Warren Partners, a C-suite executive recruitment firm, has seen exit planning from both sides: selling her own legal business, and overseeing the retirement of Warren Partners founder Joëlle Warren. She stresses the importance of clarity and communication.

“The transition doesn’t have to be abrupt. In Joëlle’s case, it was a carefully managed three-year process with governance and a strong chair in place. My sale to Axiom was much quicker, however. Both worked, but the key is open dialogue and trust between outgoing and incoming leaders.”

Founders frequently underestimate the demands of due diligence and tax planning, as well as the emotional toll.

Alex Berman, Tax Partner at S&W, says that preparation should start far earlier than most imagine. “Too often, founders underestimate the demands of due diligence, tax planning and the emotional toll. They leave it too late, and that limits their options,” he says.

“Three years is a good runway.”

The risks of failing to prepare are not only operational but also financial. A 2021 study estimated that poor succession planning among S&P 1500 firms destroys nearly $1 trillion in market value each year. Conversely, companies that deliberately identify and develop successors can deliver company valuations and investor returns up to 25% higher.

The human side of succession is also frequently underestimated. Dougan warns that incentive structures for key staff can make or break a succession. “You must look after your people. If they feel uncertain about their jobs or the future, the risk of attrition during transition rises sharply.”

Governance is another blind spot, according to Lee. “When families or founders exit, the company loses the framework that kept it together and, without strong governance, there’s nothing to stop fragmentation.”

A capable chair, she suggests, is critical for objectivity and stability. For Berman, the ultimate measure of success is what happens after the handover: “A good exit is when the business continues to thrive once you’ve gone.”

Knowing when to go is perhaps the hardest decision of all. Founders frequently stay too long, either because they are wary of losing control or because there is no obvious successor. Investor pressure, health or family priorities may accelerate an exit, but it’s much better if there is a strategy that allows leaders to choose their moment.

Ultimately, letting go is the final act of leadership. It requires the same qualities that fuelled growth: discipline, courage and vision. As Lee says: “Founders need to have both a business plan and a personal plan. What happens next matters as much as the deal itself.”

Exits and succession will always be emotionally charged, but they are also inevitable. The leaders who face that reality early, communicate openly and prepare both their people and themselves are those who leave not just a business, but also a legacy.

The original version of this article first appeared as partner content on the Financial Times website.