An exit strategy for my startup? Why am I thinking about the end when I am just in the beginning? These questions always come up when entrepreneurs first hear about the need to begin considering an exit strategy, largely because there is so much required to get a startup to even be successful that to think about leaving it seems counterproductive.
Well, it’s not, and it’s actually one of the smartest things you can do as an entrepreneur. Having a planned and well-thought-out exit strategy for your startup may be your best defense against using the most common exit strategy of them all: failure. Sounds grim, yes, but it’s a fact, and keeping an eye towards the future will help your startup grow into a long-term, sustainable business. Here’s how:
Give investors what they want
While it might be nice to think those who invest in startups do so because they believe in you and your entrepreneurial spirit, don’t get too distracted. Their real goal is to make some money. They may believe in you, sure, but only insofar as they believe you will return their investment and then some.
Having an exit strategy clearly outlines to investors how this is going to happen. Are you shooting for an initial public offering (IPO)? Do you think there’s a chance you’ll be acquired? Could you sell your business to another individual or company? Or are you planning on generating enough revenue to pay them off at a certain point in time?
The last one doesn’t really count as an exit strategy per se, as you could continue working on the business, but it does represent a level of long-term planning and thinking investors want to see. IPOs are unlikely. Your best bet is going to go after a sale or acquisition.
The important thing to remember is that you don’t have to do this. It’s just a plan. If you get to the point where it’s time to exit and still love the business and it’s profitable, no problem. Pay off your investors and get to it. But by showing right off the bat that you have a plan for getting the money people are giving you back to them, you’ll increase your chances of getting funding, giving your startup a big boost and more room to grow.
Have an eye towards optimization and good practice
If you take a look at what makes a business valuable, you’ll see they are the same things you would want in your business anyway: good risk management, quality records, optimized processes, etc.
Many times startups overlook this stuff, as they have their hands full with so many other aspects of the business. But this is a mistake and will likely cost you. By working towards an exit, and by having a strategy to make it happen, you are automatically building in good business practice into your company. This will help things run more smoothly and will set you up for higher growth and more sustained success.
It’s never too late to start thinking about your exit strategy. Doing so doesn’t mean embracing failure or looking beyond what needs to be done to get your company started. It actually means exactly the opposite. It’s a great way to position your startup for success and to help it go in the direction it needs to go to grow.