The Exit You Haven’t Planned For

Why entrepreneurs don’t plan for the hardest moments — and what happens when those moments arrive anyway.

The Wiring

The same qualities that make someone a good entrepreneur make them a bad planner for certain things.

Entrepreneurs are wired to project forward optimistically. They are, by nature, positive and risk-tolerant. They have to be. Starting a business requires you to hold a vision of the future that doesn’t exist yet and act on it anyway. Sustaining a business through the hard stretches requires the same thing — an almost stubborn belief that the next quarter will be bett

er, that the market will come around, that the problem is solvable.

That wiring is a feature. Without it, nobody would start anything.

But it has a blind spot. When entrepreneurs mentally trace the future of their business, they follow the branches that end well. They don’t get bogged down in the branches that don’t. And so there are entire categories of things that simply never get planned for — not out of negligence, exactly, but because the entrepreneurial mind edits them out before they can become a real consideration.

What happens if I get sick and can’t work for a year? What happens if my partner decides tomorrow that he’s done? What happens to my family — and to my employees — if I die?

No thought. No plan.

And then something happens.

The Six Scenarios

If you own a business by yourself, the exposure is simple to describe and difficult to overstate. You are the business. Your judgment, your relationships, your ability to walk in the door each morning. If something takes you out of the picture — even temporarily — everything you’ve built starts depreciating immediately. Customers get nervous. Employees update their resumes. Vendors tighten terms. And whoever inherits your equity inherits a problem they don’t know how to solve.

If you have partners, the picture is more complex. In my experience, there are exactly six circumstances in which any two people will cease to be in business together. Most business owners, when they think about it at all, have thought about one or two. The other four or five are the ones that generate the most damage.

•         Death of an owner. The most obvious scenario, and usually the best-planned-for — because it’s the one people are actually willing to discuss.

•         Disability of an owner. Frequently overlooked, and in some ways harder than death. The owner is still present, still has opinions, still holds equity — but can no longer contribute. The remaining partners often need to recapture that equity to offer it as incentive to whoever steps into the gap.

•         An owner quits without notice. I describe this to clients as follows: imagine your partner goes to Las Vegas, puts everything on double zero, and hits. He calls home and says “I don’t need you guys anymore.” What happens next? If the answer is “I have no idea,” you have a problem.

•         Retirement — or any planned departure. I use the word “retirement” as shorthand, but the term is illustrative. This scenario covers any situation where an owner has given adequate notice, isn’t leaving the business worse for it, and has done what a reasonable partner would do on the way out. It still requires a mechanism. The fact that it ends well doesn’t mean the equity question resolves itself.

•         Termination for cause. A partner does something that justifies removal. You need a defined process and a clear definition of what cause actually means — because vague language here becomes expensive litigation later.

•         Termination without cause. The partners grow in different directions. Nobody did anything wrong, but the fit is gone. This is the scenario most operating agreements handle worst, and the one most likely to end in a courtroom when it goes unaddressed.

When I advise people going into business together, I tell them to do two things before anything else: agree on a dispute resolution mechanism, and identify the exit. The dispute resolution mechanism is the master key — if you have one and follow it, you have the tool to decide everything else. The exit is the escape hatch. You need to know, before you need to know, how someone gets out.

Fight, Flight, or Freeze

Here is what actually happens when one of these scenarios arrives without a plan.

The entrepreneur — who has navigated hard things before, who has managed through tight cash flow and difficult employees and markets that didn’t cooperate — enters a state they are not prepared for. Fight, flight, or freeze. The higher-level reasoning that has served them well gets impaired. They are suddenly making consequential decisions — about equity, about money, about people they may have built a company with for decades — at exactly the moment when their decision-making capacity is most compromised.

They also, in these moments, get trapped in the echo chamber of their own perception. Entrepreneurs rely on that echo chamber. It provides the reassurance that gets them through the hard stretches — the inner voice that says this will work out, I’ve been here before, keep going. That voice is an asset when the problem is a slow quarter or a difficult hire.

It is a liability when the problem requires clear-eyed negotiation with a grieving family over what a business is worth. Or a reasoned conversation with a partner who just decided he’s done. Or a board that needs to understand what happens next.

The echo chamber, in those moments, doesn’t reassure. It distorts.

The Agreement, the Funding, and Who Bears the Risk

The buy-sell agreement is the document that addresses these scenarios before they happen. It specifies who can buy, who must sell, at what price, under what conditions, and funded by what mechanism. Most business owners who think about it at all have part of an answer — maybe an operating agreement that touches on one or two scenarios. Not all six.

Three things deserve particular attention:

Valuation. A fixed price agreed at formation is almost always wrong by the time it matters. Businesses change. The more durable approach is a formula — a multiple of revenue, a multiple of EBITDA, or some combination — with a periodic review built in. The formula needs to be specific enough to apply without a dispute, and revisited often enough that it doesn’t drift too far from reality.

Funding. An unfunded agreement is a promise without a wallet behind it. Life insurance is the most common funding mechanism — structured as cross-purchase (owners insure each other) or entity redemption (the business holds the policies). The right structure depends on the number of owners, the tax situation, and other factors. What matters is that some structure exists. If an owner dies and the surviving partners can’t actually pay, the agreement accomplishes nothing. Disability coverage deserves the same attention — and gets it far less often. The odds of a long-term disability before 65 are meaningfully higher than the odds of early death.

Who bears the risk. This is the question most buy-sell discussions never reach, and it matters enormously in practice.

When a buyout is structured as a redemption paid over time — installment payments from the business to the departing owner or their estate — the person receiving those payments has essentially become an unsecured creditor of a company they no longer control. They have no say in how the business is run. They have no influence over how money gets spent. Their payments depend entirely on a business continuing to perform, under reconfigured leadership, without the person who may have been central to its success.

For the heirs of a deceased owner, this position is especially precarious. They didn’t choose this investment. They can’t manage it. They may be entirely dependent on it. And they are relying on the goodwill and competence of the surviving partners to honor a commitment made years earlier under very different circumstances.

That risk is real, and it is frequently invisible until something goes wrong. A well-constructed agreement addresses it directly — either through insurance that eliminates the installment structure entirely, through security interests that give the departing owner some protection, or through a realistic conversation about whether the business can actually support the buyout it has promised.

The Right Time

I have a client I’ve known for over twenty years — someone I first met when he was building a business from nothing, and who has grown it into something real. A few years ago he started thinking seriously about the future: what the business would look like without him, what it would be worth, how his family would be protected. He’s now thinking about bringing in a partner, in part to provide operational coverage, and in part because a partner with an insurable interest in the business creates the funding mechanism the plan currently lacks.

He is not in crisis. Nothing has happened. That is exactly why he is able to think about this clearly.

The best time to have this conversation is when the entrepreneur brain is functioning at its best — forward-looking, creative, capable of imagining multiple futures at once. That’s when the answers are easiest to reach and the agreements easiest to make. Once a triggering event is on the horizon, the fight-or-flight response kicks in, the echo chamber closes, and the window for a clear-eyed solution narrows fast.

The six scenarios will happen to every business eventually. One of them always does. The only question is whether someone thought about them in advance.

If any of this sounds familiar — whether you’re a solo owner, have partners, or are about to bring someone new in — I’m always happy to talk. No meter running.