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.