The final component of a good business plan is the exit strategy. It specifies the triggers and mechanisms for exiting the business by harvesting the value that has been created. The trigger points are influenced by various conditions including a significant shift in competition, a massive change in product specifications that cannot be met and technological obsolescence. This requires management to be watching the impact of these changes on the company’s market value constantly, making sure that whenever it is infeasible for the company to respond to its environmental changes competitively, it has mechanisms in place that allow it to harvest its value before its competitors become aware of its condition.

Take the case of Ocean Spray Cranberries, one of the most successful stories in brand marketing for agricultural commodities. The company was founded in the 1930s to control the marketing of cranberries and cranberry products through innovative product development and close cooperation with growers. Indeed, growers own shares in the company with a nominal face value of $25, a value that has not changed for decades. In 1999, it was estimated that the par value of Ocean Spray stock should be $270 after debt which led to some growers seeking to harvest the value given the changing environmental conditions – increasing production, slower sales, declining cranberry prices, consolidation in the industry, increasing competition, etc. However, because there was no exit strategy, the company had no mechanisms for addressing this desire of some investors, and the company descended into internal squabbles and lawsuits which have further distracted it from pursuing the critical opportunities in its marketplace. An analyst had argued in 1999 that for every $5 drop in cranberry prices, the valuation changed by about $37 per share. At the time of this estimate, cranberry prices were at about $65 per barrel and they have since sunk to $17. Furthermore, the potential buyers are currently undergoing their own difficulties in a challenging marketplace, making the probability of an exit not only difficult but unexciting since the potential proceeds are expected to be only a fraction of what they could have been if the timing had been right.

Developing an exit strategy is driven by the assumption that investors in the business are just that – investors. Any emotion about the business is driven solely by its ability to increase the return on investments. It is also assumed that regardless of other non-pecuniary objectives supporting the investments, investors recognize that harvesting value at its peak allows them to achieve those non-pecuniary objectives. Thus, there is no economic or social justification to hold unto an asset that is losing value.  Consequently, the planned exit strategy business focuses on defining the conditions that will trigger an exit so that investors, especially founding investors, are able to achieve the maximum rewards for their patience. The exit may be a sale to a competitor or a new entrant into the industry, or it could be transforming the business structure by taking it public through an initial public offering (IPO). The objective of the exit strategy is maximizing investors’ wealth and the adopted strategy must focus on achieving this objective.