Why the obsession with EXIT strategies?

[Eugene3v]

http://venturebeat.com/2010/10/14/7-more-critical-questions-for-emerging-entrepreneurs/

There is such a big obsession with EXIT strategies, why is that? I can absolutely understand this obsession from the investors prospective.. However, entrepreneurs?! Why?! Business ventures are not the same as war ventures.... ideally there should not be a finish line... Instead, shouldn't we be obsessed with building great companies with great products/services and knowing that our customers love us, cause we treat them like no other, cause we simply care.

[corruption]

Once an itch is scratched it turns into a scab. And new itches appear.

Seriously though, businesses change over time. Are people who are great at getting things going the right people to run them long term? In some cases yes, in others no. In my case I plan to be involved in one of my companies for a long time, but for another I am involved in we are building to exit.

[malandrew]

I completely agree. Companies change over time. The startup you founded with one or two other people eventually becomes a business.

Now there are typically two ways of running a successful business: (1) culture; or (2) process.

If you build a business with a very specific culture that you will love to work within as the company grows then great. However building a business is much easier than establishing a culture you want that grows with the business.

Process is the alternative to culture as a route to long-term success and profitability. When you can't hire smart people that will maintain a company culture, you have to rely on process to scale. Even Warren Buffett once quipped, "I try to buy stock in businesses that are so wonderful that an idiot can run them. Because sooner or later, one will."

Once you take you business down the path to process instead of culture, you are creating a monster that hopefully craps cash. Eventually that monster becomes so big and powerful that your position as a leader becomes a position as a process manager.

Leaders lead people. Managers manage processes.

Processes don't have room for vision. Leadership does.

Once you have processes, you start looking for an exit strategy.

Besides the issue of culture versus process, many entrepreneurs also enjoy the act of creation most. These entrepreneurs are like artists. Once they've created something, they desire to move on to the next piece once they are satisfied with their current piece. The different between the entrepreneur and the artist is that for the entrepreneur it may take months or years before they are satisfied with their current piece, whereas the artist may take days to weeks to months to finish a piece and move on to the next.

Plus, deciding to move on to the next piece doesn't mean that you cannot stay on as an advisor to those who will continue to work on your previous pieces.

[Eugene3v]

For the second company, did u plan for an exit right from the start?

[corruption]

Yes, we are building to to be bought.

[tgrass]

Here's a Planet Money podcast on manufacturing (http://goo.gl/rEg8) in which you can hear how the world changed around a button maker, but he did not evolve to match the changes.

Also, in my unstudied opinion, the theory seems to go that those who are best at launching a new venture, are not necessarily the best to run it long term. These require different skill sets. To profit most from your entrepreneurial skill set means getting out once that skill is no longer required by your business.

And finally, in the recent (last two decades) business environment research has shown the most likely new companies to survive are those that are 'disruptive', one set of criteria is considered to be cheaper and poor quality - so as not to incite the competition to try it your way (forgive the lack of citation). The theory suggest that working towards sustainability (that is, not looking for an exit) is statistically a doomed strategy. Just like they say about stockbrokers though: past performance does not guarantee future results, so take that theory cautiously.

[imr]

If investors are obsessed about it, entrepreneurs have to at least have an interest in exit strategies, and one picked out to placate their potential investors.

Don't take investor money if you want to work on one company for your entire career.

[_delirium]

> Don't take investor money if you want to work on one company for your entire career.

So investors don't like companies like Microsoft, Oracle, or Google, where the founders have stayed on long-term? I can see investors not wanting companies with no liquidity events, but that doesn't require the founders to literally exit the company.

[imr]

>Microsoft, Oracle, or Google

All IPOs, which are getting scarce. Certainly some founders are kept around for a long period of time, but if you never take investor money, who is going to force you out?

[Eugene3v]

I understand all the reasons for the exits and I realize that proper exit strategies must be planned ahead of time. The reason I opened this thread was to ask whether the effort and popular obsession with exits is something that needs to be done/thought of prior to starting to work on the startups? Is proper exit strategy is a deal breaker for starting a company... I believe there might tons of reason for an exit once the startups becomes a sustainable business (as many of u pointed out)... But unless u are a investor or a seasonal entrepreneur is it something that u need to be obsessed with when planning your startup?!

[Eugene3v]

The fact that the person that founded the company might not be the right person to run it after a certain period, I think it is a very valid point... Still, in my humble opinion I personally think that thinking or discussing the exit strategies before u actually found a company is a disservice to yourself.. sort of demonstrates that one is obsessed with the "desired" outcome and not so much with the opportunity to make something better, which makes the loyalty to the startup idea somewhat questionable.

[ajdecon]

If you're starting a business doing something you love so much that you'd be happy in it all your life... sure. Don't worry.

But it's rare that you'll have that kind of certainty. If you don't, it's best to have a plan to get out, so you can move on to your next fun. You can always change course and stay longer if you want.

[brudgers]

Exit strategy is an element of startups designed to scale rather than those intended as hobbies or lifestyle businesses.

Startups which scale is what Ycombinator is looking for and therefore of interest to many HN readers.

[Eugene3v]

I think there are many other factors that will attribute to scaling and growth beside the exit strategy.

[brudgers]

I completely agree. Exit strategy becomes more important once you start taking other people's money. Something which occurs with high frequency among startups.

[ahoyhere]

Most people don't know what they really want, so they fixate on a huge payday.

Only a few people truly want the huge pay day.

You can tell whether they truly wanted it after they get it -- I've met a whole lot of long-in-the-face founders after their babies were sold.