IPO. M&A. Sure, that's what on the exit strategy slide in your PowerPoint. But, I believe (and this has been reinforced by experience - mine and others), the founder/entrepreneur needs one too and it has to be figured out before taking the plunge to do the startup.
Recently I was chatting over lunch with a fellow entrepreneur whose startup is on its third year (that's another thing that every entrepreneur should have - a non-competing friend or two to share startup travails with). Their product's got customers and revenue, but, the seed money has run out and the revenue is not big enough yet to cover payroll fully, though it covers operations. They're busy trying to keep the company running while knocking on doors for funding, but unfortunately, they've not met with success. (IMHO, it's because they can't get investors dreaming of $100 Mill in 5 years, but seriously, so few startups actually reach that somewhat arbitrary goal.) The founder CEO is beginning to sport a furrowed brow - lack of income doesn't make for a fun or sustainable lifestyle for most of us - but is still passionate and dedicated and would hate to give up on the company.
That's when I suggested that she needs an exit strategy, and when she started talking about selling, I cut in with 'an exit strategy for you'. The funny thing is that everyone goes in assuming they have one. It's always I'll go back to the corporate world, or sell the IP if my company doesn't make it in two years. But the problem is that 'doesn't make it' is not always a clear-cut condition. You could be running on fumes, stuck for months in a due diligence delusion where the term sheet is always a week away. You could have customers sign MOUs but not convert into POs because their waiting for an internal reorg to be completed, but the dust never seems to settle. Or you've got customers and revenue enough to get by and you know you'd take off if you could just spend a tad bit more on marketing - except you dont' have that tad. So you hang in there, and continue hanging, drifting wearily as the weeks go by.
That's why you need something very specific which triggers the exit. Something like ' if I haven't had a paycheck or made more than $X in a year or 15 months (or whatever your personal threshold is)'. Or, maybe you don't want to be on a slow train and will not stick around if the company's growth is feeble. Once you've got your trigger figured out, then you can figure out what you will do - sell, shut down, walk away and let the co-founder run it, put it on ice for reviving when the market's better, whatever. Actually, an exit strategy is good if you're a startup employee too - how long would you be willing to work for reduced pay. Or you could be making a decent salary but feel the company, or your own prospects, are stuck in neutral or slipping into reverse.
This is worth writing down and saving for reading when things are not going well. It may remind you of your plans to step away - or convince you things are not quite as bad yet. Either way it will clarify your thinking, and get you going which is a good thing - startup limbo is a depressing place to be in for long.
One more thing: for an entrepreneur, planning to recognize failure and how to exit (notice 'exit', not 'handle') in that case is just about the hardest thing to do, especially when you're bursting with enthusiasm for the great idea that you're just launching. But, it's worse if you try to do it after the fact, since as an entrepreneur, you're hard-wired to believe in success. The trick is to consider it part of the business plan, your personal one, that you should build before you do the one for your startup. Then you'll be all set to look before, and after, you leap.
Channeling the inner entrepreneur who views life as a startup. Musings about people, their spirit, the startup ethos and the entrepreneurial attitude, with an emphasis on education and social ventures. The 'how-to'? Not so much. But definitely the why, the what and the whatever.
Picking the startup idea
This seems to be the biggest challenge for most first-time entrepreneurs: picking the idea to work on. Last week I was speaking to a young man, a recent college grad in a corporate job, who was trying to figure out which space he should focus on for a startup as he really, really wanted to be an entrepreneur. And just yesterday I had a chai with a more seasoned, experienced Stanford MBA who was not only looking for a career change but wanted her work life to have more 'meaning' and was wondering how to go about finding it.
I don't think the two situations are really that different. Here's why. If there's one over-riding requirement for a startup, it is the passion that the entrepreneur brings to it (I've tried to wax eloquent on this subject numerous times on this blog: check out the passion label for more). And you can't start off with what's the 'hot' space to get all fired up about it. OK, you could, but you'd only get fired up about the potential to make money, and wiser folks have determined that money is not the fuel of choice - it's kind of like burning coal, ubiquitous and cheap, but capable of dirtying everything around it and clouding your thinking with the unhealthy fumes. You do take it for granted that you're doing this to make money, lots of it, but there has to be something else that gets you out of bed everyday to rally the troops, slay the dragons, scale the mountains, build the bridges and whatever other heroic metaphor you'd choose for the daily challenges of the startup life.
You can stumble upon an idea of course (there's one that worked!). Whether it is is your corporate job, your volunteer work, your education or just your daily life at home and play, you may run across something that seems fun, useful and with business potential. Ideas are everywhere, but they may not all translate into viable businesses, or, even if they did, may not be the one for you. One of my long-running this-is-going-nowhere ideas is to figure out an useful way to give my business ideas to people who may want to do something with them. And the reason I don't want to hold on to these ideas is that though they're intellectually exciting, I can't see myself getting enthused about executing on them. The reasons are many, but most of all, it's because they don't light a fire in me. But what's ho-hum for me may be a blockbuster extravaganza for someone else. The only downside to the I'll-pick-the-idea-from-the-ones-I-bump-into approach is that it could take a very long time, and cause a massive headache (may not be just figurative).
So my advice was (and is): first pick the area that you're passionate and excited about (or at least care a lot about), be it investment banking, online gaming, cupcake baking or teaching the world to sing. If you're already immersed in that space, you're almost there - all you have to do is go about it with your eyes, ears and mind (pay attention to that bias-prone mind!) open, looking for opportunities. If you feel you're not yet an expert in that area, go learn about it. Get to know the players and pitfalls. If you can't walk the talk, at least spend beaucoup hours watching those who do. And somewhere along the way, you, with your entrepreneurial bent and blazing desire to do something in this particular field, will have the longed-for epiphany, and YOUR IDEA, drumrolls and all, will shimmy into the spotlight. And then the fun begins.
I don't think the two situations are really that different. Here's why. If there's one over-riding requirement for a startup, it is the passion that the entrepreneur brings to it (I've tried to wax eloquent on this subject numerous times on this blog: check out the passion label for more). And you can't start off with what's the 'hot' space to get all fired up about it. OK, you could, but you'd only get fired up about the potential to make money, and wiser folks have determined that money is not the fuel of choice - it's kind of like burning coal, ubiquitous and cheap, but capable of dirtying everything around it and clouding your thinking with the unhealthy fumes. You do take it for granted that you're doing this to make money, lots of it, but there has to be something else that gets you out of bed everyday to rally the troops, slay the dragons, scale the mountains, build the bridges and whatever other heroic metaphor you'd choose for the daily challenges of the startup life.
You can stumble upon an idea of course (there's one that worked!). Whether it is is your corporate job, your volunteer work, your education or just your daily life at home and play, you may run across something that seems fun, useful and with business potential. Ideas are everywhere, but they may not all translate into viable businesses, or, even if they did, may not be the one for you. One of my long-running this-is-going-nowhere ideas is to figure out an useful way to give my business ideas to people who may want to do something with them. And the reason I don't want to hold on to these ideas is that though they're intellectually exciting, I can't see myself getting enthused about executing on them. The reasons are many, but most of all, it's because they don't light a fire in me. But what's ho-hum for me may be a blockbuster extravaganza for someone else. The only downside to the I'll-pick-the-idea-from-the-ones-I-bump-into approach is that it could take a very long time, and cause a massive headache (may not be just figurative).
So my advice was (and is): first pick the area that you're passionate and excited about (or at least care a lot about), be it investment banking, online gaming, cupcake baking or teaching the world to sing. If you're already immersed in that space, you're almost there - all you have to do is go about it with your eyes, ears and mind (pay attention to that bias-prone mind!) open, looking for opportunities. If you feel you're not yet an expert in that area, go learn about it. Get to know the players and pitfalls. If you can't walk the talk, at least spend beaucoup hours watching those who do. And somewhere along the way, you, with your entrepreneurial bent and blazing desire to do something in this particular field, will have the longed-for epiphany, and YOUR IDEA, drumrolls and all, will shimmy into the spotlight. And then the fun begins.
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