Strategic Planning – Part 1: Exit vs. Operate: Start Strategic Planning By Framing Ownership Intent

A black swan event can destroy our faith in our ability to plan. In the wake of unexpected shocks, it is easy to default to short-term, tactical reactions. But that feeling is akin to relying on a minuscule chance of rain during a motorsport race as a reason to go into the competition unprepared. All stakeholders of a company deserve an effective plan despite the effort required to create and maintain one.

Mergers and acquisitions activity creates the biggest distraction from running the business and creating customer value. In peak market cycles, deal volume surges as companies chase inorganic growth. But mergers and acquisitions, by definition, mask underlying operational fundamentals.

To build an effective strategic plan, the management team must first frame the purpose of the business. Every private company must start planning with this question in mind:

Do we plan to run the business as an organically growing entity for the foreseeable future, or do we plan to exit within a reasonable time horizon?

I have seen many companies try to play both sides of this answer without making a decisive choice. Often, the result is stalling organic growth due to limitations in the quality of offerings, followed by an eventual exit at diminished share price where the company is a pale reflection of its best days. Make a choice. As difficult as it may be, it is impossible to pursue both paths effectively. Like anything else in life, half measures do not end well.

The Exit Choice

Anyone who owns an asset wants to ensure that it is liquid. For a private company, an exit serves this purpose. Shareholders want the option to liquidate their holdings, which is logical. But an exit fundamentally changes a company. Many with short-term incentives view an exit as the finish line. However, an exit is simply a transfer of ownership. Without a tangible future beyond transferring ownership, why would a new owner ever partake in the transaction?

Bankers and lawyers have the transaction mechanics down to a repeatable process, but the strategy and operations side is not a science. The fate of operations post-exit is often tackled on the fly. We must look further. A business exists only because customers buy its offerings. Employees execute its processes every day. Partners enable its value creation. The reality for these stakeholders looks very different across the three primary exit paths:

1. Public Listing

Listing a company’s shares on a public exchange changes growth and profitability expectations. Operating based on the decisions of a few private owners shifts to living in a fishbowl where public market participants make trading decisions based on divergent interpretations of public data. Listing as a standalone company is often the least disruptive exit path strategically and operationally. Planning for a public listing focuses on shaping strategy and operations to withstand public scrutiny prior to listing, as opposed to post-exit restructuring. The guiding question for this path is:

What is the most value-creating version of the company that can be an attractive public investment without setting undeliverable expectations?

2. Secondary Private Sale

The alternative path is a secondary private ownership hand-off, meaning the company remains private while a new sponsor, whether a private equity firm, venture fund, or new operator, believes they have a better approach to create value. This second path often requires more radical strategic and operational shifts post-exit because the new owner brings a distinct thesis and purpose. The question we must answer here is:

What are the priorities that maximize the post-sale intrinsic value of the company to a new private owner while preparing existing stakeholders for that owner's specific incentives?

3. Strategic Acquisition

A strategic exit, where a company is acquired by an industry peer, creates the greatest operational disruption for the target organization. Acquirers buy companies for very specific reasons: to acquire intellectual property, gain immediate customer access, or absorb specialized talent. Rarely is it all three. Often, acquisitions are executed simply to eliminate competition, rendering most of the target's existing operations redundant. It is critical to address:

What will happen to the non-value-creating or duplicative parts of the company after a strategic exit?

Regardless of the exit path chosen, the responsible approach is to build a rigorous exit plan. If a company’s near-term purpose is to exit, its next strategic plan is an exit plan. Sound governance requires planning an exit that accounts for the expectations of all owners, customers, employees, and external partners. Lagging financial indicators and polished pitch decks rarely reflect what happens to operations after the deal closes.

The Operate Choice

The alternative to an exit is to run and build the company organically, which I call a Run Mindset.

If we decide to focus on operating the business, our strategic plan becomes our operating script. There are good scripts and bad scripts. Are we going to direct operations with a well-written, executable script, or run the business based on a flashy trailer and an unproven idea?

My weekend volleyball team kept yelling "RESET" to rally the group when points went against us. It was the right sentiment, but we still lost ten out of eleven games and failed to change our trajectory when our backs were against the wall. The team had the athletic talent to win, but we never developed a winning formation or a tactical game plan that matched our strengths. A desire to reset must be paired with an operational script that dictates approach and execution.

Regardless of industry and growth trajectory, companies regularly need a holistic operational reset when externalities change or the company’s scale is different.

Strategy is often incompletely explained as a decision to take a castle. Why would anyone bother taking a castle in isolation? We annex a castle because it serves a larger purpose: to enhance our standard of living or provide security for our territory. In this analogy, strategy is the choice to operate as a united territory that includes the new castle, living in a future state where we have integrated the spoils into our existing land.

Under this construct, a strategic plan must include three critical parts:

1. Articulate who makes up our army and how that army will take the castle.
2. State how we run our existing territory and who manages it while our army is taking the castle.
3. Frame how our territory runs better once the castle is fully integrated.

Most planning efforts fail to account for all three components. If we focus entirely on the army, core operations in our existing territory collapse. If we obsess over defending our territory, the army will never advance. And if we fail to integrate the two, conquering the castle was a pointless waste of resources.

In this model, the current state of the company is our existing territory. The expanded territory after integrating the castle represents the evolved company after realizing its strategic goals. The territory administrators are the operational teams and leaders running day-to-day functions using the existing operating budget. Our project initiatives, their leads, and the capital dedicated to building new capabilities represent the army.

Evolving a company is a vastly different endeavor than running it in its current form. Strategic planning must address both, along with how operational evolution intersects with daily execution.

If we intend to operate a company as a standalone, profitably growing entity, the strategic plan must connect this entire operational narrative. Too often, strategic plans articulate wishful financial targets while ignoring the concrete operational steps required to get there. Every employee, supervisor, and executive deserves a functional plan to execute against.

When beginning a planning cycle, start with the foundational choice: exit or operate. That choice determines whether you are building an exit plan or an operating plan. If the former, create a plan that aligns with the specific exit path to balance shareholder incentives with integrity. If the latter, create a plan that balances the present reality and desired evolved state of the company.