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Reconceptualizing entrepreneurial exit: Divergent exit routes and their drivers

Karl Wennberg, Johan Wiklund, and Dawn R. DeTienne · 2010 · Journal of Business Venturing, vol. 25, no. 4, pp. 361-375

Preparing to sellAny owner who has started thinking about leaving
Why it is on the shelf. Owners often arrive at the question of exit carrying an assumption they have never examined: that leaving means either a triumphant sale or an admission of failure. This paper takes that apart. It separates exit into four distinct routes, by sale or by liquidation, from firms that are performing well or from firms in distress, and shows the drivers of each are genuinely different.

The Institute's reading

The four routes are harvest sale, distress sale, harvest liquidation and distress liquidation, and the authors test them against two Swedish databases following 1,735 new ventures and their founders over eight years. What emerges is that entrepreneurs exit from healthy firms as well as failing ones, and that the human capital factors usually cited as predictors, such as experience, age and education, behave differently depending on which route is taken.

For an owner, the value is in being handed vocabulary for a decision usually made without any. Naming which of the four you are actually contemplating clarifies who your buyer is, how much preparation time you have, and whether you are optimizing for price or for finality. It also removes the shame that attaches to the word exit, which is the emotional obstacle that keeps many owners from preparing until it is too late to prepare well.

Key propositions

  • Entrepreneurial exit divides into four distinct routes: harvest sale, distress sale, harvest liquidation and distress liquidation.
  • Entrepreneurs exit from firms performing well as well as from firms in financial distress, so exit cannot be equated with failure.
  • Human capital factors and failure-avoidance strategies differ substantially across the four routes, which helps explain inconsistencies in earlier studies.

In practice

  • Name the route you are actually on before choosing advisors. A harvest sale and a distress sale are different transactions with different buyers.
  • If the honest answer is liquidation rather than sale, that is a legitimate outcome and worth planning properly rather than avoiding.

Where authorities disagree

The sample is new ventures rather than mature family firms, so an owner of a forty-year-old business should read the taxonomy as portable and the base rates as not. Read alongside the family firm transfer study on this shelf, which covers established private firms and adds succession as a fifth route this framework does not treat separately.

Related entries

Implications of intra-family and external ownership transfer of family firms: short-term and long-term performance differences (Karl Wennberg, Johan Wiklund, Karin Hellerstedt, and Mattias Nordqvist) Finish Big: How Great Entrepreneurs Exit Their Companies on Top (Bo Burlingham) The Messy Marketplace: Selling Your Business in a World of Imperfect Buyers (Brent Beshore)
Read at the source
Acquisition Conciergeorientation · not legal, tax or valuation advice
Happy to dig into it. What would you like to pressure-test from Reconceptualizing entrepreneurial exit: Divergent exit routes and their drivers: one of its propositions, how it applies to your situation, or where it disagrees with the rest of the shelf?