If you are an entrepreneur and I am a capital source, the last thing I want to hear about is your exit strategy.
I want to know how your company is going to make money. I want to know the market size, your plans to bring your product or service to market. I want to know about your key people and many other things about why I should invest in your company.
But I do not want to hear about your exit strategy. I want to know your commitment to your enterprise. Do you eat, live and breathe it?
I want your attention to be on making the company successful and nothing else. If I head a fund, I have to have an exit strategy, but that is very different than you having one. Your job is to make a success of your company with your product or service. My job is to make money for my capital sources by wisely investing, then harvesting those investments.
I need an exit strategy to do business; you don’t. If your company is successful, you’ll have a number of opportunities to exit. But don’t tell me about them now … don’t even think about them now.
Understand that you might have to step aside for professional managers to run the company. You might become chief scientist or technologist or marketer, or even Chief Yahoo like Jerry Yang (that’s his actual title). But please, don’t predicate your strategy for building your company on how you are going to leave it.
A businessman who is very successful in his field brought me in to consult on a new company he was planning. He told me that in two and a half years, his exit was to IPO the company … not the one he’s been successfully running for many years, but the new one that doesn’t yet exist.
For argument’s sake, I conceded that his company would be an immediate success. I then asked why he wanted to IPO and not be acquired, or be an acquirer, or if the company was kicking out the cash that he foresaw, just keep it as a terrific asset.
We were walking at a fast pace on 6th Avenue in New York during this conversation, and he literally stopped in his tracks … just stopped. He never thought of anything other than an IPO, because that’s all everyone talked about. He was so concerned about his exit that I believe he actually was scaring away capital because of their concern about his commitment to stick it out.
If I’m a capital source, bring me a great business structured to make money and I’ll tell you what my exit needs are. Maybe I want or need to be out in three years. Maybe it’s five or seven years. I have my own criteria, so please don’t tell me how I can get out.
Believe me, capital sources know more about stock buybacks, IPOs and mergers than you probably do. They are an integral part of their business, so don’t tell them about what they do, tell them about what you do. I have never heard a negative comment from a capital source about an entrepreneur saying that his goal is to build a very successful company, and he’ll worry about his personal exit strategy after building that successful operation.
Understand that your role may change as your company reaches new levels, but for now, your exit strategy? Forget about it.
Erwin Bruder ([email protected]) is president of The Gordian Organization, which provides business planning and structuring services to start-up and growing companies. Bruder can be reached at (216) 292-2271.
