Exit strategies

Hey - back to blogging...

In nearly all the business plans I review for Tevel (the non-profit angel club I volunteer at), the last section outlines the company's "exit strategy". I was wondering if that's some sort of requirement in writing business plans for investors? I don't remember ever writing anything like this in any of my biz plans.

As I wrote a while back, I think it's alarming when a company that has not even been funded yet is talking (or even thinking!) about exit strategies. In my book, a startup can only have a single strategy and that's about how to grow it's business. If "exit" is your strategy, it is almost guaranteed that you're building for something small that will be easily swallowed (or worse - crushed) by the acquirers you're aiming for. That's a terrible strategy (unless your plan is to get hired to a company via an acquisition), and not one I ever want to invest in.

I've learned that exits have 2 inherit properties:

1. They hardly ever present themselves the way or at the time you'd expect in advance.
2. Real exit opportunities emerge only when you're focusing on building a great business, not on exiting.

So my advice to entrepreneurs (especially those applying for Tevel) - drop the silly nonsense 'exit strategy' section from your biz plan, and focus on the 'company strategy' instead...

{image CC by tracer.ca. Thanks!}

Comments

[Gab]

So true! In my presenation I usually present (in mile stones slide) the expected financial rounds of our venture. At this slide in my last presentation I was asked: "Why do you need a "B round"?", I have answered: "it will help us grab more market share and start an outside US marketing activity". "What??", the potential flippers sayed, "at this time we should see a $50 MM exit or someting like that". I did'nt answered them. But I it was burning in my bones to say "I came to built a company, not to be the incumbent trophy in your casino".

[Tuval]

Hi,
it is definitely a problem, and it is part of the curriculum in MBA (at least mine), I assume you will often confront with such "exit" strategies. People tend to see the end results before thoroughly thinking about the basic foundations of their work, doesn't really matter if it is a company, a house or a business plan...
Tomorrow we r celebrating the start of our new house construction, so I do care about the basics...
Take care, Tuval

[Electric guitars]

True, indeed. However I think about the investments groups, which enter a business mainly for the exit moment when getting the proffit

[Yaron Galai]

Electric Guitars - I think that's just a poor excuse to say this is done for the investors.... I think that if an investor expects you to execute on an exit strategy, you should run away as that is a big red flag. Last thing you want is a partner constantly bugging you to build the company for flipping. It's *your* company, and *you* set the tone of what investors hear about your company. Not the other way around.

[Ido]

Well put! Maybe in addition to lack of experience, the fact you find this paragraph says something about the type of investors that the young companies met in the process. I guess some investors' desire for certainty makes them discuss this type liquidity events prematurely.

[Fry]

Hello,

Thank you for the quality of your website.
Searcher several times awarded and formerly associated to Oxford, La Sorbonne, UNESCO and other institutions, I have something really new to propose to you & Tevel but I just can't come to Web 3 because it's too expansive (over 1000 euros!).
I have created a concept which will shortly be something very used on the net
in the coming years but I need a business angel group like Tevel (moreover , as a Jew, I want to achieve my alyah).
Since you are in Paris, please make me know if you are free this evening or tomorrow at my mail (I check it around each hour).

Fry

[Fry]

Hello,

Thank you for the quality of your website.
Searcher several times awarded and formerly associated to Oxford, La Sorbonne, UNESCO and other institutions, I have something really new to propose to you & Tevel but I just can't come to Web 3 because it's too expansive (over 1000 euros!).
I have created a concept which will shortly be something very used on the net
in the coming years but I need a business angel group like Tevel (moreover , as a Jew, I want to achieve my alyah).
Since you are in Paris, please make me know if you are free this evening or tomorrow at my mail (I check it around each hour).

Fry

[Fry]

Hello,

Thank you for the quality of your website.
Searcher several times awarded and formerly associated to Oxford, La Sorbonne, UNESCO and other institutions, I have something really new to propose to you & Tevel but I just can't come to Web 3 because it's too expansive (over 1000 euros!).
I have created a concept which will shortly be something very used on the net
in the coming years but I need a business angel group like Tevel (moreover , as a Jew, I want to achieve my alyah).
Since you are in Paris, please make me know if you are free this evening or tomorrow at my mail (I check it around each hour).

Fry

[Misinterpreted]

I think planning for failure can make it easier to give up. Someone with a solid exit strategy will probably be itching to use it. Why bother coming up with it unless you plan on needing it?

It's like they say up there, "Don't look down."