peterosborn.com

Commentators frequently talk about the rate of change in business, and it doesn't take much effort to find examples. Digitalisation, ubiquitous networks and other technologies are making it easier and easier for entrepreneurs to try out a new business proposition and reach customers globally. This presents investors and entrepreneurs with a big challenge if they want to build value for exit: how can you plan for value when the market may well change fundamentally and new competitors arrive to scupper your exit before you're done?

Venture capital investors and entrepreneurs often say that they're planning for an exit within three to five years. Fair enough: it's hard to build meaningful value in less that three years, and five years is longer than any of us can visualise. This glib phrase, that is so often seen in business plans and investor presentations, hides real difficulties with the pace of change we live in.

Most technology exits are by a sale of the business to a trade buyer, and that buyer is going to want value too. In fact, he's probably going to need as long to get his value as the Company took to build for exit.  So these traditional timescales mean that you would have to be confident of a prosperous outlook for between six and ten years ahead, and that's a very long time in today's technology infested world.

This presents very large challenges for entrepreneur and investor, alike:

1. What might might happen in the market between now and exit?
2. How can we get to market and build realisable value fast enough?

The threat from external change while value is being built is now so significant that hopeful investors and entrepreneurs are wise to recognise it in the choice of opportunity, the structure of plans, and the style of execution.

A very good device to help analyse and understand these threats is the classic Porters Five Forces, shown here. Each type of strategic threat can be seen and examined separately.

The rapid game-changing innovation of new business models and propositions that is so common today, drives the threat of new entrants.

A carefully considered response to this threat must shape all aspects of business for those eager to secure exit value after the development and growth of a business.

(c) 2010, 2011 Peter G. Osborn