Exit Strategy Is An Oxymoron

About This Blog

This site is for  entrepreneurs.  A full RSS feed to the articles is available.  Please subscribe so we know you're out there.  If you need more convincing, learn more about the site.



And, you can find me on Google+

Connect on Twitter

Get Articles By Email

Your email:


Blog Navigator

Navigate By : 
[Article Index]

Questions about startups?

If you have questions about startups, you can find me and a bunch of other startup fanatics on the free Q&A website:


Subscribe to Updates


30,000+ subscribers can't all be wrong.  Subscribe to the OnStartups.com RSS feed.

Follow me on LinkedIn


Current Articles | RSS Feed RSS Feed

Exit Strategy Is An Oxymoron


In early meetings, if a VC ever asks you what your exit strategy is, you should run, not walk to your nearest…um…exit.

You want your investors to be more curious about how you're going to enter a market than how they're going to exit their investment.

Thankfully, I hear much less talk about exit “strategies” in the startup world than I used to.  Back in the day, no business plan was complete without a discussion of exit strategies.  And, they almost invariably came down to the same two options: Here are the list of companies that might buy us…and we could go public! exit icon

Today, most tech entrepreneurs don't even write business plans (which is good, because nobody reads them), let alone have a detailed discussion on potential exit strategies.

Here's why I think an exit strategy is an oxymoron.

The purpose of a business is to build something of value for customers — which in turn creates value for stakeholders.  When you're walking out onto the field, you should be asking yourself “how do I best play this game?” not “Hey, once the game is over, how do I exit the arena?”

Planning your exit is a good thing when entering airplanes, theaters and bar brawls (of which I have no clue, I've just been watching too much Banshee) — not when entering a market.

My advice:  Spend your calories crafting strategies for how you will build value, how you will connect to potential customers — and how you will differentiate yourself from everyone else.  Leave the exit planning for when you actually need to figure out an exit.

By the way, I have no problems with startups exiting.  Happens all the time, and is part of the circle of life in the startup world.  I've been on both sides of the table (sold a startup, acquired some startups).  My problem is when entrepreneurs are forced to unnaturally focus on the exit -- and mistakenly calling such things a "strategy".  

Posted by Dharmesh Shah on Wed, Jan 29, 2014


Explaining your exit strategy will once again be very important when you are dealing with equity based crowdfunding investors who will need to understand how yours is different then the other issuers in the same space with a similar offering. http://crowdfundingroadmap.com

posted on Wednesday, January 29, 2014 at 12:30 PM by Ruth Hedges

D - Bravo. I like it. Other business oxymora - 
irregular pattern 
management science 

posted on Wednesday, January 29, 2014 at 12:39 PM by John Maloney

But isn't it true that investors get paid when you get acquired or go public? Surely this has to be taken into account.

posted on Wednesday, January 29, 2014 at 12:40 PM by Robby

"most tech entrepreneurs don't even write business plans (which is good, because nobody reads them)" 
Said the best quote ever! Thank you!

posted on Wednesday, January 29, 2014 at 12:43 PM by Amanda Frazier

"Exit strategy" from a VC perspective focuses on how do they get their money back. What if you focused it on the customer? 
Make "exiting" one option in your growth strategy. Change the question from "How do I get out of the game?" to "How do I bring this game to another level?" 
Getting acquired or going public becomes a means to an end--a better way to serve your customers. Sometimes this can't happen through organic growth or more investment dollars. 
The side effect of viewing exiting in this way is that you look at potential acquirers or going public strategically, rather than as the final tactic toward a large payout. And you increase the chances of any acquisition or IPO achieving success. 

posted on Wednesday, January 29, 2014 at 12:49 PM by Trevor Lohrbeer

I was happy to see this post today. It has always surprised me to hear people talking about the "exit strategy" when a startup was barely off the ground. I know there was a "build it and flip it" mentality years ago, but I hope that "strategy" is now dead. I recall meeting with two co-founders to discuss their startup. I asked what their monetization model was going to be and they replied; "Oh, we aren't worried about that. We're just going to get big as quickly as we can and sell to <company x>". Ah, yes. Good luck with that.

posted on Wednesday, January 29, 2014 at 12:50 PM by Larry Cornett

There are various emotions attached to the whole startup scenario. 
I think investors are driven by one or more of the following emotions ... 
1. Happiness - to be part of a new venture. 
2. Satisfaction - to have helped the company grow and get expected ROI. 
3. Greed - to maximize the ROI. 
4. Ego - of having the funds. 
5. Fear - of loosing their investment. 
The entreprenuer (tech or other), in addition to having the business acumen, brings the hot passion to the business. The passion to offer a better solution, change the world and 'grow a child'. 
I think it is fear of loosing their investment that drives the investor to focus on the exit strategy. On the other hand, it would be heart breaking for an entreprenuer to discuss "their child's" funeral before it is born or mature enough. 
Very few people can separate feelings from their business.

posted on Wednesday, January 29, 2014 at 1:51 PM by Kshitij Vichare

I agree that the exit strategy should be the sole focus. That said, in any endeavor it helps to begin with the end in mind, which includes serving the customers, making a great product, and also planning for financial viability.  
As the financial backers,venture capitalists have to have a crystal clear idea how they will get paid back. This is a industry with a high degree of failure as it is, ignoring the financial milestones in favor of providing value to the customers could actually worsen the situation.

posted on Wednesday, January 29, 2014 at 2:14 PM by Sean DeSilva

I disagree with this article. 
Most investors I have ever spoken with are most concerned with the exit strategy. If there is none or poorly explained, then it is the investor that should run for the exit. 
If a start up cannot explain what the exit strategy is, then they will never get the capital they need 97% of the time. 
When you seek capital, you need to check your ego at the door. The person with the money makes the rules, especially since the financial meltdown. 
Even business ventures, like restaurants, an investor wants to get out of their investment. Businesses stagnate in the long term and an investor looks for a good return quickly; then move onto something else.

posted on Wednesday, January 29, 2014 at 2:23 PM by Tom Psillas

I think this article is an oxymoron. The purpose of an exit strategy is to build value before you exit, which will happen to every business owner (vertically or horizontally) at some point. Unless, of course, they plan on living forever.

posted on Wednesday, January 29, 2014 at 2:50 PM by iseult young

Good food for thought, Dharmesh. As an advisor, it is often helpful to understand early on if the founders are looking to build a lifestyle business or if they are planning on a quicker exit via acquisition. I find that many, though not all, founders have a distinct plan right from the beginning. The type of advice provided will certainly change knowing the desired exit strategy, no? For example, top line revenue growth at all cost vs. maintaining a baseline EBITDA target.

posted on Wednesday, January 29, 2014 at 4:46 PM by Rick Kollmeyer

"most tech entrepreneurs don't even write business plans (which is good, because nobody reads them)"  
Worst. Quote. Ever.

posted on Wednesday, January 29, 2014 at 5:23 PM by Robin Solis

Fully agree. Once you are in flow in your startup, exit doors hardly exist :-) Priorities and business strategies keep evolving every quarter. Exit strategy is a waste of time and a wrong motivation to start something.

posted on Thursday, January 30, 2014 at 3:08 AM by Ashish Grover

Exit strategy is very Important, Its just like we an person know when to enter market do his business & he should know when to exit from that too, because we never know how the market would be, even you might be enjoying the full monopoly in market , you never know when your opponent will defeat you or over come you.(If you can't embrace failure, you can't be widely successful)

posted on Thursday, January 30, 2014 at 6:41 AM by Arjun cs

Begin with the end in mind applies to businesses too. There are two distinct exit strategies being blended here. One is the investors' financial exit, usually shorter-term. The second is the founders' exit, which may not be based on money but rather on other goals and opportunities or needs and is likely on a different timeline. Wise investors know the founders' exit plans before investing to ensure their goals are compatible. 
Even if founders don't know how or when they might 'exit' the business, contingency planning and succession planning are just two parts of your exit strategy that should be in place as early as possible, to ensure the on-going viability of the business itself.  
Founders need at least an inkling of what their exit criteria might be, to be able to recognize when the perfect opportunity is presented to them.

posted on Thursday, January 30, 2014 at 8:20 PM by Kerri Salls

I practice Business solutions.  
You can find some useful products for entrepreneurs here - https://www.instamojo.com/practice/  
http://in.linkedin.com/in/sashidharan (Rated 'Expert' for profile strength)  
http://www.zintro.com/expert/sashidharan-b ISSME Global SME Expert www.issme.org)  
Practice Website: http://sashidharanb.wix.com/businesssolutions  
Products from practice: https://www.instamojo.com/practice/s

posted on Friday, January 31, 2014 at 3:29 AM by sashidharan

A good article but I agree with Tom and Iseult above. Here are my thoughts… 
A part of the problem with talking to investors before your commercial dream has begun to be realised is that at the time of engaging, one of the issues they have is to ensure that the ROI meets at least their minimum requirements. To do this they need to see that there is perhaps not necessarily an exit strategy per se but I suggest, at least some early ‘exit thoughts.’ For your more seasoned entrepreneurs, your advice is helpful but because of the amount of times I have seen a 4 or a 5 times ROI, it’s still a good idea to see founders giving a brief exit outline. Besides, in some cases and with certain business configurations, some companies can start an early strategic dialogue with their exit partner. If they can then turn around and say “we are already in dialogue/selling to a potential exit target,” then it’s definitely worth making some sort of noise about your exit strategy. 
There is another thought when asking the exit strategy question. I’ve heard investors ask it not so much because they want to see that there is a strategy in place, or how big the ROI multiple is but because they want to tease out any founder alignment issues. 
I know it’s pretty bland and somewhat tedious to hear yet another pitch saying, “we’re going to exit to —————” (insert 2 or 3 tech giant names) but I think the reasons for hearing and having exit thoughts outweigh those for not having them. I’ve put together the ‘D Risk It’ app to help founders configure their deal before talking to investors. Exits figure in it but as I say; exit thoughts over exit strategy. 
Run a mile? I don’t think so but do have something to say about your exit. Show you have some thoughts and have done some background work. No one takes the exit seriously in a startup conversation. All your doing is answering the investor question, “How big do you think this thing can be? Based on your research, what’s your best guest.”

posted on Monday, February 03, 2014 at 4:51 PM by Aristos Peters

Excellent post Dharmesh and could not agree with you more.  
Any pitch decks that include a slide with an "exit strategy" loose all credibility with me quickly.

posted on Tuesday, February 04, 2014 at 5:37 AM by Jeff Robinson

Very good point of view!I believe that a good planning with the 5 forces of Porter (which includes the exit barriers) is enough for a startup business. As the post says "Leave the exit planning for when you actually need to figure out an exit."

posted on Tuesday, February 11, 2014 at 5:58 AM by igostartup

I understand and agree with your overall sentiment - which is focusing not to focus on an exit. But run from a simple exit strategy question? That's not smart. 
In my experience with this question investors are trying to determine 1) if the market is prone to acquisitions (typically a good sign), and 2) evaluating how a founder thinks strategically about the future of their business. 
You're interpreting this question literally, as in 'how shall we later sell your business'. I believe smart investors often ask this question with a different objective. Advising startups to always run from this question seems quite short sighted.

posted on Wednesday, February 12, 2014 at 3:15 AM by Andy

Awesome blog post. I think anything blog post that creates a debate is a good one. 
My thoughts: 
1) An exit strategy is about knowing where your company is going. If you are driving from LA to NY, there are a million ways to get there. However, if you don't know that you are trying to reach NY, then there is no chance that you will ever find your way. Along the way, you can change directions and change your end destination, but an exit strategy is about knowing the direction of your company. 
2) In regards to "Today, most tech entrepreneurs don't even write business plans (which is good, because nobody reads them)"- The point of a business plan is not for people to read them, but to prove to yourself that the opportunity is worth your time. Once again, this is about knowing where you are headed. It is not about proving to anybody that you know how to create an exit strategy or a business plan. It is about having a clear vision on the direction that you want to take your company. 
Thanks for sharing. Keep up the thought provoking writing.

posted on Saturday, February 15, 2014 at 9:36 PM by Zack Parker

This is an interesting, but in my view as an investor very flawed article.  
I want to know when I invest how they plan to exit. Doesn't need to be fully cooked, but I've found too many start-up entrepreneurs who will not take a very good offer because they want to 'run the business'. I respect that choice UNTIL my money is involved. As an early stage Angel Investor - I want to grow and get the money back to help the next person. If its locked up in one place, then it can't "work" on others.  
On this point Today, most tech entrepreneurs don't even write business plans (which is good, because nobody reads them), let alone have a detailed discussion on potential exit strategies., I couldn't disagree more. There are too many people (Especially if they're unproven) who have not really thought through their idea to a product/service. One of my firms goals is to help those people develop their business ideas and prove it with early market success that can be scaled. Ideas are the first step, not that last in making a great business. 
There may be some out there who agree. I'd be curious to hear from those who actually invest in early stage ventures who agree. I'd also be curious to see the success rate for investments made if this advice is followed.

posted on Monday, February 17, 2014 at 12:37 PM by Tom C

I think tech entrepreneur should still write business plans. Although not all read it but some people still reads it. It also serve as a give to the entrepreneur. Anyway thanks for the post!

posted on Monday, February 17, 2014 at 8:24 PM by bencep

Good article, although not something our Car Servicing site could have survived without to date - "Spend your calories crafting strategies for how you will build value, how you will connect to potential customers — and how you will differentiate yourself from everyone else" - isn't this a key part of a business plan, the thing that no one reads?

posted on Tuesday, February 18, 2014 at 6:55 AM by Olli Astley

I don’t think that there is a risk of entrepreneurs focusing too much on how they will exit the business. In my view they might consider an exit strategy just because they expect to be asked about it during the investor pitch, so they want to be prepared. At our <a hrefwww.merar.com> investment listing platform entrepreneurs have more freedom when describing their business ideas, and I’d say that only 1 in 20 or 30 mentions some form of exit at all.

posted on Thursday, February 20, 2014 at 9:31 AM by Zonitsa Bazlyankova

Comments have been closed for this article.