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Lessons from the pirates: Exit strategies

By Danielle Walsh

All photos © www.bigstockphoto.com
All photos © www.bigstockphoto.com

The pirates’ code of conduct enforced by Captain John Phillips on his ship the Revenge included several rules dealing with exit strategies. Namely:

“1. If any man shall offer to run away or keep any secret from the company, he shall be marooned with one bottle of powder, one bottle of water, one small arm and shot.

2. All ye who shall plot to desert, or having deserted shall be captured, shall have ye heads split open.”

Although quite brutal, the pirates’ exit strategies were perfectly clear to the crew onboard. The code of conduct ensured the terms and conditions of exits were clearly defined and all crew members were aware of them.

These are not necessarily the recommended exit strategies for family members in your business, although it may sometimes feel like these methods would be appropriate! For family businesses, there are a number of circumstances for which the terms and conditions of exit should be clearly outlined—not just running away or keeping a secret. Your rules should lay out clear guidelines for voluntary exit, retirement, death, incapacity, and termination.

The details surrounding each of these exits will not necessarily be the same, but should be defined so all family members know what to expect in each of these scenarios.

On the way out

By ensuring no family member is left with unanswered questions, you can help ease the process of exiting the family business.
By ensuring no family member is left with unanswered questions, you can help ease the process of exiting the family business.

Family members often end up staying in the family business longer than they would like (sometimes too long) because they are unsure of the repercussions related to leaving. They often have too many unanswered questions; therefore, the safest thing to do is remain.

Some of these unanswered questions are:

  1. What value will I be paid for my ownership?
  2. Will the family business be able to afford my exit?
  3. What if we don’t agree on the value?
  4. Over what timeframe will I be paid?
  5. Will there be an interest component tied to the outstanding balance?
  6. Who gets to purchase my ownership? Will this create a problematic power dynamic in the family?
  7. If I sell my shares, will my kids still have a chance to join the family business and become owners?
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These questions are much more complex than the issues the pirates had to deal with. However, the lesson from the pirates is to be clear about what each exit entails and what family members can expect. Can I expect to remain on the boat or will I be marooned? The answer to these questions for the pirates was crystal clear. Families in business should aspire to have terms and conditions for their exits that are just as well-defined.

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