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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Entrepreneurial Activity During the Recession
The new Kauffman Index of Entrepreneurial Activity has just been released for 2009 and the report indicates that 2009 had the highest number of new U.S. business startups since the index started in 1996. There were an average of 558,000 new full-time businesses started each month of 2009, for a total number of startups of 6,696,000 for the year.
You won’t find anything close to this number published by the U.S. government, because most government agencies do not count non-employer businesses as startups—even though they make up 70% of all American businesses (and contribute a Trillion dollars to the GDP). Thankfully, we have the Kauffman Foundation.
Here are some of the highlights for 2009: (The following numbers are expressed as the number of new businesses created each month out of 100,000 adult population.)
- 340 out of 100,000 adult population created a new business each month of 2009. This is also the third straight year of increased rates of new business startups.
- Men created new businesses at the rate of 430 per month…a slight increase over 2008.
- Women created new businesses at the rate of 250 per month…also a slight increase over 2008.
- African-Americans had the highest rate of increase in entrepreneurial activity in 2009, with 270 new businesses. In 2008, the rate was 220 per month.
- Latino entrepreneurial activity dropped from 2008, but still had the highest rate for 2009 at 460 new businesses…against 480 new businesses in 2008.
- Immigrant-owned startups were higher than native-born, with 510 new businesses. Native-born entrepreneurs started 300 new businesses in 2009.
- The oldest age group (fifty-five to sixty-four) continued their upward trend of startups with 400 new businesses in 2009.
- The youngest group (twenty to thirty-four) had the lowest new business creation of any age group, at 240 new businesses.
- The West continued to lead the country in creating new businesses, with 380, while the Midwest continued in last position with 270. However, the Midwest did show a sharp increase from the 230 new businesses created in 2008.
- Houston had the highest rate of new businesses in large cities, at 630, while Seattle had the lowest rate at 160.
Remember, the above numbers represent the number of new businesses created each month, per 100,000 adult population.
Men, African-Americans, Latinos, older people, and immigrants seem to lead the activity of entrepreneurial startups. Sadly, the youngest group (twenty to thirty-four) peaked way back in 1996 at 280 new businesses, and have consistently been under that number ever since.
I wrote about the dearth of women entrepreneurs previously, but they too have not matched their peak startup year of 1996.
Obviously, the “startup” business is good. Three straight years of increases in the startup rate—right through the recession—seems to indicate that a small business can be created anytime, regardless of economic conditions.
So, for all of you who have been waiting “for things to improve,” I think right now might be the best time for you to start your business. Debbie Fields, founder of Mrs. Field’s Cookies, said, “The important thing is not being afraid to take a chance. Remember, the greatest failure is to not try.”
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