1+1+1=4 Emergent Properties and Exit Planning

Carbon, Hydrogen, and Oxygen all have their own characteristics. A certain atomic number, atomic weight, isotopes, etc. Put 12 Carbons, 22 Hydrogens, and 11 Oxygens together in a certain way and there is a sugar molecule. Sugar has a dominate characteristic that creates economic value; it's sweet. None of the elements have a taste. This is an emergent property and it is the most sought-out component of any business. 

Other business elements like inventory, equipment, and brand names are generally quickly available for the right price. But the magic of what happens when an active investor combines those takes time and insight. Business relationships and deals emerge out of combinations of capabilities and experience.

When a business is sold, it's owner wants its worth to be more than just the components on the Balance Sheet. On the date of purchase, accountants record that additional dollar amount as Goodwill. A business plan is all about how the Goodwill emerges from the investor's dollars and management's plans. The asking price of the business on the exit side of that plan will be a multiple of it's historical cash flow. The multiple represents the risk and difficulty a new investor will have in maintaining or even increasing the cash flow. The easier it is to keep the emergent properties growing, the more the business is worth. 

Business owner are unique kinds of artists. Not only do they creatively combine markets, facilities, and services to create economic value; they do so in a way the "canvas" can be passed to another artist (new business owner). No other art form makes this demand on its practitioners. 

It's hard enough for an owner to manage the business successfully. This second art is frequently ignored until the last moment. However, business owners who recognize they are not just operators, they are active investors, take stock of their progress periodically with an exit plan update. It's time to look at what happened and see the emergent properties of your work, understand their value, and find a way to codify what happened as a business process.  

A sense of satisfaction and a well earned retirement will both emerge.