You Need an Exit Strategy Before You Even Start
Before you start your business you should have your exit planned. Not everyone agrees with me but that’s what makes life interesting, right?
In my opinion, Wikipedia’s definition of an exit strategy is flat out wrong as it pertains to business:
An exit strategy is a means of escaping one’s current situation, typically an unfavorable situation. An organization or individual without an exit strategy may be in a quagmire. At worst, an exit strategy will save face; at best, an exit strategy will peg a withdrawal to the achievement of an objective worth more than the cost of continued involvement.
(That 2nd sentence saves the definition a bit.)
Exit strategies are not about getting out of bad situations. Once you’re in a bad situation you’re already in trouble, exit strategies are designed in part, to avoid trouble in the first place.
Exit strategies force you to:
- Really, really, really think about where you want your business to go.
- Plan for disaster (in this case the definition above holds true.) Often people lump succession planning in with exit strategies.
- Laser focus on accomplishing your goal. An exit strategy is a goal.
And saying, “I want to sell my business in a few years,” isn’t enough. That’s the start of a potential exit strategy but a heck of a lot more planning needs to go into it.
Vinay Kumar, in his post 10 Crucial Exit Strategies Leading to a Successful Sale of Your Business says, “Good deals don’t just happen. They take preparation and work. Often a great deal of work and years of preparation are consumed before a sale can even be contemplated.”
He later uses an example from Bruce Barren, Group Chairman of The EMCO/Hanover Group:
“If you want to ensure a successful transition, you need to develop a package of exit strategies as part of your overall succession plan. Everyone in business has heard horror stories detailing what happened when there were limited or no exit strategies. The more exit strategy capabilities, the higher the success rate for transactions. Success is, of course, contingent on being realistic, particularly in relation to the reliability of financial projections.”
To some an exit strategy sounds negative. Or, you might think you’ll never exit because that’s not the point of the business. That’s fine, you don’t have to give up the business (although eventually we all give it up) but thinking in terms of an exit strategy will help crystallize that goal nonetheless.
Bill D’Alessandro talks about this in his post Exit Strategies when he references lifestyle companies.
If you’re looking for venture capital, planning exit strategies beforehand is paramount. Ted Patrick recommends having 3 exit strategies in place when you go to pitch VCs.
Bottomline, think about your exit strategy. And do more than think about it, plan it, write it down, discuss it with others and gun for it.
Tags: b5biz, entrepreneurs, Entrepreneurship, exit-strategies, Starting a Business, startupsPOSTED IN: Business, Entrepreneurship
10 opinions for You Need an Exit Strategy Before You Even Start
Scot Herrick
Jan 5, 2007 at 1:18 pm
I’ve always viewed exit strategies from a single point of view: how much would I have to be offered to sell the business, or, if a larger company, a portion of the business?
There are, of course, different aspects to consider then just selling, but that is my frame of reference.
I remember participating in one of those big management meetings with the CEO and the question was asked if the company was going to stay independent.
He asked how many in the room owned more than 1000 shares of stock (including 401(k) type stuff) and virtually everyone raised their hand.
The stock at the time was about $26. Then he started the bidding up with the question of how many would sell at $30? $40? $50 per share?
At some point, everyone had their definition of an exit strategy.
Having the strategy in place doesn’t necessarily mean you have to follow the strategy. But at least you have a framework for what is happening around you.
Another good post, Ben. Thanks.
Scot
Ben Yoskovitz
Jan 5, 2007 at 2:07 pm
Thanks Scot - that’s a great example of developing an exit strategy!
MasterMaq's Blog
Jan 5, 2007 at 5:33 pm
An Exit Strategy is a Good Thing!…
As I mentioned in a previous post, I learned a lot in 2006. One of the things I learned is that having……
Ted Demopoulos
Jan 7, 2007 at 11:07 am
Exit strategy or at least “written down ideas” are good, BUT I’ve seen too many startups waste endless time on exit strategies when they should have concentrated on “survival strategies”
startupspark.com - Carnival of Entrepreneurs #5 - An Uber-Load of Entrepreneurial Fun
Jan 10, 2007 at 4:50 am
[…] David Maister has excellent advice on what to do when you pass your company on to others. I recently talked about exit strategies and succession planning, so David’s post fits in beautifully. […]
Ben Yoskovitz
Jan 10, 2007 at 7:43 pm
Ha! Ted…your comment made me laugh — survival strategies vs. exit strategies.
My take on that would be - survival is all fine and good, it might pay the bills, but does it get you anywhere? “Fight for another day?” Till you blink, it’s been 10 years and you’re still just surviving.
Sometimes you have to dream big, glorious exits to realize it’s time to walk away from survival mode.
Highlights of 2006 » Ready Fire Aim
Jan 12, 2007 at 7:11 pm
[…] 4.) Featured on startupspark.com - Benjamin Yoskovitz listed Ready Fire Aim on startupspark.com as one of the best entrepreneurship blogs, and my post on Exit Strategies was mentioned in his article “You Need an Exit Strategy Before you Even Start”. […]
Aleish
Feb 28, 2007 at 1:28 pm
Great post! Yes, there should always be an alternative plan because Not every plan will materialize.
Ben Yoskovitz
Mar 1, 2007 at 5:34 am
Aleish - there’s no question that all your plans won’t materialize - that’s life really, but I do like the idea of having several strategies for exiting and moving forward and adjusting as you evolve the business.
Thanks for the comment!
Regan Degrass
Jun 14, 2007 at 2:21 am
This one makes sence “One’s first step in wisdom is to kuesstion everything - and one’s last is to come to terms with everything.”
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