Do you need an exit strategy
The company is barely 7 months old. Pre seed, charter deals, huge potential but unproven. Yet in almost every VC meeting we have we are asked about our exit strategy...when do you bail?
The modern definition of a successful start-up is - Did you build something that you managed to pawn off on someone who paid a crazy amount of money to buy it? Insane right. But if you look at the Canadian market it is true. High fail rate/burn rate. Way to much focus on acquisition, not enough on growth.
Some of the best advice that was given to me when I ventured into the start up world was to not make the exit the goal of the company. Prudent and practical but also great philosophy to live by .
It is a fact that VC's invest in companies that they can sell. And the market is wired for fast short term deals. That may be right for some companies but surely there can also be a viable model that supports long term sustainable growth, great companies, with strong people, good cultures and proven solutions.
Here is a great article from the founder of SOTI, Carl Rodrigues..he thinks big and is inspiring:
When I started SOTI many years ago, working from my basement, it was not long before VCs discovered us, and started stalking me. Being relatively naïve to the VC game, I would answer their calls in those early days. My goal was to learn, and to get a better understanding of who they were and what was their game. I found it interesting that the conversations were virtually identical, it was like they were all graduates from the same VC school. There was one question in particular that all of them seemed to be waiting to get to, once they got through their spiel about how different they were from all the other VCs out there. And that question was “What’s your exit strategy?”
Dealing with the Peer Pressure
After a while, I could anticipate that awkward pause that came once I informed them that I did not have an exit strategy. It was like my answer had totally dumbfounded them, creating a moment of silence, during which they collected themselves. Their shock made me feel like there was a massive hole in my strategy, how could I have missed something that was so obvious to these “wise men”. After all, everyone else was doing it … exiting that is.
But after having dealt with the peer pressure, I always came back to why I had started on this difficult journey. I wanted to create technology that I was passionate about, and proud of, and I wanted to build a great company around that technology. Those were my naïve and simple goals.
A Naïve Young Entrepreneur
So with this naïve notion in my head, I wondered why would I have an exit strategy for something I was passionate about and believed in, it seemed unthinkable. In my mind, it would be like deciding to have kids, and then someone asking, “What’s your exit strategy?”. You know, just in case I did not like my kids. By the way I pondered using this same metaphor but with “getting married” and “mother-in-law’s”.
What’s more, I decided that to be successful, everyone in the company needed to be focused on the mission, and to be long term thinkers. I knew it was going to be a long and difficult journey, and so we needed to be all rowing in the same direction. For this reason, I realized that for this type of mission, I could never have a VC in the house.
An Old Entrepreneur Looking Back
Today, many years later, I believe that not having an exit strategy, can be one of the unique characteristics of very successful companies. This category of company focuses on its cause, stays with it, and refines and iterates its strategy to find success. For my way of thinking, an exit strategy, is like having a parachute, it can be something in your toolbox, but you keep it in there for when and if you really need it. It should not be the goal.
So why Am I Writing This
I am writing this article because I feel there is a sort of sickness and short sightedness in the way we are teaching our budding young entrepreneurs. The modern definition of a successful start-up is - Did you build something that you managed to pawn off on someone who paid a crazy amount of money to buy it? The job of a good VC in this game is to “stage” the company so that it looks like a super deal on the outside to the poor fool who is willing to pay a crazy amount of money to buy it. Meanwhile the IP, underlying technology, the company and great people are somehow lost in the shuffle, most often never achieving the true potential. Is it any wonder that governments wonder why there is such a high failure rate of start-ups growing into mature companies? True success “for me” is not selling a start-up to the highest bidder, true success is building a company that endures, and grows into a large business. This usually means putting in a lot of sweat and hard work over many years.
So where is SOTI today
In an age where growing a company on its profits, seems old fashioned and antiquated, we are doing surprisingly well. The company I started in my basement, is now 700 people strong, with employees in 22 countries, and 7 major offices globally. We have an amazing group of super talented and passionate people, who are the heart and soul of this company and believe in our mission. We have been consistently profitable over the years, and are still growing like gangbusters. But perhaps the biggest surprise of all, we did all of this with no VC money and no exit strategy.
So my message to you budding entrepreneurs out there is, there is more than one way to build a company. And don't be shy to think bigger than an exit strategy.