Exit Strategy–Forget It!
An exit strategy is of interest only to a very small percentage of the over 6 million new businesses that will start up this year. Yet, there are millions of words written, videoed, and recorded extolling the necessity of having an exit strategy in a startup’s business plan.
A new business should be concentrating on making a successful start—not on how to best “exit” their business. Here is what Mark Cuban, billionaire startup entrepreneur and Venture Capitalist, has to say about the first two most important rules of starting a business:
- “Don’t start a company unless it is an obsession and something you love.”
- “If you have an exit strategy, it’s not an obsession.” –Mark Cuban
The main point here is that when a person is starting a business they must not only be passionate (obsessive?) about their business, but they must stay focused on getting their business started–not ending.
In most cases, an exit strategy will form “automatically” as the business grows and begins to mature. Here is how this will usually happen:
- The vast majority of new businesses that start up each year will fail. This is a hard statistic to swallow, but unfortunately, it is true whether an exit strategy exists or not.
- Many of the surviving businesses will grow and be approached by someone inviting them to consider merger or acquisition. No exit “strategy” is involved here, but it might be decision time.
- Some of the surviving businesses will be successful and the owner/founder will tire of the business and put it on the market for sale—never planning this as a specific exit strategy when they started their business.
- In a few cases, as a business grows and matures, a founder/owner may decide to retire and simply close their business. This is a deliberate decision, but usually not part of an exit strategy plan when they start their business.
- In some instances, a business may take off and grow beyond all expectations, forcing the owner(s)/founder(s) to develop an exit strategy that might even include an IPO.
The one exception to the above “automatic” exits is the company that wants to pursue Venture Capital. Venture capitalists will want the business owner(s) to provide a projected exit strategy showing an incredible return on money invested, before they will even consider investing in the business.
Actually, Venture Capital involves a very small number (less than one-half of one percent) of the over 6.5 million businesses that will start up every year.
Incidentally, the same holds true for Business Plans. If you want to read why business plans are useless, check out this post.
Well, what does everyone think about this concept? Agree? Disagree? Let me know.
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Writing a Business Plan
Writing a business plan is one of the most difficult and least understood functions of starting a business. This is primarily the fault of the popular writings of business gurus, academics, and pundits who believe that all startups are high-tech businesses that need to seek out venture capital.
Whenever an aspiring entrepreneur asks me about writing a business plan, I tell them to forget it—they don’t need a business plan. Moreover, when I go into a failing business, one of the first things I do is have them shred their business plan.
Before you get all huffy, understand that I don’t consider planning unnecessary—just the formal business plan that is meaningful for about as long as the daily newspaper.
With the business world so enraptured by the “darlings” of high-tech startups that are trying to become the next Facebook or Twitter, or the like, there is little consideration given to the remainder of the over six million new small businesses that will start up this year.
Unfortunately, most of these new businesses will fail because they either ignored, or short-changed the importance of planning.
Just to let you know that the concept of plan-less planning is not my original idea, here is what one of the world’s greatest strategists had to say about plans and planning:
I have always found that plans are useless, but planning is indispensable. —Dwight D. Eisenhower.
Far too many people get caught up in the “mechanics” of writing a business plan and neglect to do the real planning necessary to make their business successful.
If you are thinking about starting a small business, you may find it beneficial to read the section of my resource website titled Small Business Plan. This information source emphasizes the process of planning, for the simplest smaller small business up to a full-blown formal plan for investors.
If you’re still snickering, you might consider these words:
Plans are made to be tinkered with—and eventually torn up. Blind devotion to any plan is downright dumb. —Tom Peters.
Now it’s your turn—
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Planning–Do I Have To?
It seems, of late, that I have been running up against the idea that planning is a waste of time. All too often, I see the admonishment to “just-do-it,” instead of taking valuable time to write down a “plan.” Besides—so we are told—plans quickly become obsolete, and entrepreneurs do not have time to keep them up to date.
Thinking about this, I recalled some studies on the subject of planning that I ran across some time ago. These studies have been published many times in many places, but I thought they were worth repeating here. The first one is from a study sponsored by the Ford Foundation:
- 23% of the population has no idea what they want from life and as a result they have very little.
- 67% of the population has a general idea of what they want but they don’t have any plans for how to get it.
- Only 10% of the population has specific well-defined goals, but even then, 7 out of 10 of these people reach their goals only half the time.
- The top 3%, however, achieved their goals 89% of the time.
Why is there such a drastic difference between the top 3% and all the others? It doesn’t stop with this one study either. Let’s look at a couple of other studies:
- Some years ago, Yale University conducted a study that found 3% of Yale graduates had more wealth, years later, than the other 97% combined.
- Harvard Business School did a study on its students 10 years after graduation and found that only 3% of them were financially independent.
What is the significance of this 3% number that keeps popping up in various studies? Well, it is quite simple really…in every case of the successful 3%—they wrote down their goals!
Dreams and wishes are not goals until they are written on paper as specific desired results. In some real sense, writing them down materialize them and brings them to life. The experts claim that the act of writing makes an imprint on the brain that helps set the direction of actions by a person.
Therefore, it stands to reason that as we visualize our enterprise, if we write these thoughts down in an orderly fashion, as goals or action steps, the better our chances are of successfully achieving them.
The question you need to ask yourself then, is “Do you want to be one of the 3% who fulfill their goals in life, or will you be among the 97% who generally fail?”
“Life will not go according to plan—if you do not have a plan.”
—Gary Ryan Blair (“The Goals Guy”)
Do you think writing a business plan is a waste of time? Let me know what you think.
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