How many people reading this have a startup?
How many people reading this are trying to raise capital for that startup?
The fundamental problem with startups today is that many are founded with an exit strategy focus only. However, it is our firm belief that no company should be founded simply to be sold. Companies should grow organically. Yes, successful startups are ones that are eventually sold or that go public – but when a company relies upon an exit strategy, the product or sales strategy is focused on exit – and not the needs of the clients or the market.
Below are a few anecdotal live examples why we believe that leaders should not have an exit strategy – and what they should do instead.
1. Focus on profitability, not your dream of owning a yacht by age 30.
If you have a good idea with a large market potential and you execute it well, there is no doubt that you’ll make money. Money drives most of us, but focus on getting your business to create market share and cash flow, not who is going to buy you for a billion dollars. Create the foundation for a successful company first, and only then will your company be bought or have the opportunity to go public later. That’s just how it works in creating wealth for all stakeholders.
2. VCs, private equity investor is not your customer base.
Focus on the consumer and the market that will benefit both your business and your target customer – not the consumer and market that are going to help you to sell your company. Investors can assist in supporting you to achieve your passionate dreams but you cannot celebrate success only with funding as then only actual test begins.
While Zappos is currently a major success within the online retail market, this was not always the case. In the beginning, Zappos struggled to obtain financing because it had entered a crowded market amongst many other shoe providers. While many recommended that Zappos determine its exit strategy first, the company instead chose to differentiate themselves by focusing on establishing a better customer service experience. As a result of the brand’s commitment to customer service, Zappos emerged from the crowded market on top, and consequently, was eventually purchased by Amazon. Zappos took the right approach and focused its efforts (and dollars) on differentiating the brand from competitors first – which ultimately benefited the company in the end. Having an exit strategy could very well have impeded Zappos’ growth and acceptance within the market.
3. Dwelling just on the pay day is demotivating to your employees.
In a world where transparency is essential, being open and truthful to your employees is more important than ever before. Employees will sense if a leader’s number one goal is to flip the company. And while CEOs may dream of selling their companies one day, employees dread the very same result. An exit strategy could affect employees’ productivity and overall attitude. After all, why should they work their hardest for a company that might not be around (as they know it) in a couple of years? Unless you plan on providing each of your employees with equity, there’s little benefit to them if the company is sold.
4. The exit will steer you toward short-term cost cuts, rather than long-term investments.
Instead, we recommend that business leaders clearly explain to their employees what the company’s goals are and why. Everyone wants to win, and explaining to your employees why you are going to be number one is very motivating. In order to achieve success, a start-up should inspire employees to build a better product that will be universally loved – not inspire employees to seek a new job out of fear that they might let go.
When an exit strategy is in place, many leaders will choose the simple (and cost-effective) route when making business decisions, instead of the key investments that might be necessary for a rewarding future. When Steve Jobs returned to Apple in 1997, he re-implemented his original vision: to build a complete computer that did not separate the hardware from operating system, and to build everything in-house – something that simply wasn’t the case for computers during that time. By choosing to focus on just this one innovation as a differentiator, Jobs reinvented the product and carved out an irreplaceable space for the brand within a market previously dominated by Microsoft. Jobs saw his work and innovation as long-term investments in the company, and he went for it. The iPod, iPad and all the other Apple products are just extensions of this idea that a computer should be one holistic consumer device.
5. Follow our dreams, not someone else’s.
The most compelling people in the world are those who have a dream that can change lives and then create it. The companies mentioned previously have all done this: Facebook, Apple & Zappos. In order to be successful you have to believe in what you are doing and be driven to deliver it through thick and thin. The cold hard truth is that the desire for money (i.e. an “exit”) is simply not enough to get you through all the hell that growing a successful company will put you through. You have to believe in your product, believe that you are doing something better than everyone else and believe that you’re the right person to take the company there. If you start following other people’s advice, you will never keep yourself in the race, let alone win it.
With an exit as your end goal, it’s challenging to have the dual mission of loving your product while focusing on how to improve and innovate your business. Instead, leaders should focus on creating a prosperous business, establish the foundation and create a strong company culture. If you’re able to successfully do all of these things, everything else will fall into place – James Green, CEO of Magnetic, the New York City search retargeting firm
Love your idea and bring the world to execute it, investors will follow you and competitors will try to buy you with $$$billions.
We welcome your thoughts, experiences and insights on the above….!!!
#passion #obsession #startup #Entrepreneur #Exit #Founder