Blog:
What is your exit strategy?
Journalism Accelerator (JA) brings a different kind of service model to market; we are taking the approach as entrepreneurs launching a startup. As the JA has sought expertise from the field, we’ve had the good fortune of some top notch consulting from Rusty Coats. Rusty is a new media news business thought leader with deep expertise in successful content product development. The first question Rusty asked us was “so, what’s your exit strategy?” What a great place to assess the unique value a product or service brings to targeted communities! We were inspired by this question and the thinking behind it. And thought our community might be as well.
About the Author
Rusty Coats is President, author and cofounder of Coats2Coats, a consulting firm focused on a media future that is mobile, participatory and sustainable. He and his partner, Janet Coats, work with clients including startups, foundations, media companies and academia. He has worked in interactive media since 1992 for a variety of media and research companies, with positions ranging from a reporter covering Silicon Valley to website manager to corporate overlord.
For most startups, it’s the second question its founders answer – right after articulating the vision of the company. The more startups I work with, the more Zen I find that dynamic:
- Step 1: Here is why we exist.
- Step 2: Here is how we will exit.
It reminds me very much of an underlying theme in the 1996 film “Phenomenon,” in which the protagonist, inexplicably gifted with amazing powers that also shorten his life, says: “Everything is on its way to something else.” Biology and economics have life cycles that begin, grow, peak, diminish, plateau, diversify and even reproduce. The key is being aware of this reality – and planning for it.
The news entrepreneur space has seen an explosion of life. Some counts have neighborhood and niche news sites numbering in the 400s. All are small businesses – some with nonprofit tax status, some profitable enterprises. And all of them will become something different than they are now.
RoboNewz dispensary in Tomorrowland at Disney World. Photo by Rusty Coats.
They may:
- Sell their site and assets to someone – another site, network of sites.
- Go public.
- Merge with someone.
- Buy someone else’s operation.
- Turn over the site to a family member.
- Change incorporation status.
- Franchise.
- Become their own endowed foundation.
- Simply cease operating.
The key is to have that conversation before the conversation has you.
Startups define a successful exit strategy by necessity. Investors don’t want to be in your business forever; they just want to know how and when you’ll cash in their chips. Local small businesses and franchises are the same. For instance, if you happen to apply for small business loans in Jacksonville, those banks might probably want to know how and when you’ll repay it – and how you’ll grow from there.
Even self-funded, owner-operated businesses have exit plans.
Foundations are starting to have the same conversation. Funders may call it sustainability, but the implication is clear: They want some assurance that their grants are funding something that is viable in the long-term – or contributes something to others if it is not. That is a critical part of business exit strategies: Capturing the value of what was learned.
A starter kit on exit strategies includes a few key elements:
- What exit strategy you desire. Use the list above.
- How investments will be repaid. Even if you’re self- or foundation-funded, this is a good exercise. This focuses you on the accumulated value of your enterprise and how you’re refilling the coffers.
- Who are the key investors/contributors and how will they be affected by the exit strategy? List everyone who has a stake in your operation. They may not get anything (I have plenty of worthless IPO promises, believe me) but you should correlate their contribution with a specific value.
- How is knowledge being captured now and how will it be transferred. This is particularly of interest to funders right now.
- When you expect this to occur.
So what is your exit strategy?
Weigh In: Remember to refresh often to see latest comments!
7 comments so far.
-
WeLocally says:
December 9, 2011 at 8:51 pm
-
Eben Bayer says:
September 30, 2011 at 2:33 pm
-
mcregeur says:
September 29, 2011 at 4:10 pm
-
Rusty Coats says:
September 30, 2011 at 7:46 am
-
Tim Rasmussen says:
September 28, 2011 at 4:45 pm
-
Rusty Coats says:
September 23, 2011 at 1:21 pm
-
Joe Michaud says:
September 22, 2011 at 10:09 am
| ParticipantsI must agree with the author, but exit plans must should not be pipe dreams. I have worked for a ton of startups, some of which I founded. I remember one fateful meeting where the harvard graduates who had just successfully taken on a 5m round (these were the first bubble kids) asked… And the answer…. IPO! Yes they actually believed that IPO was the exit, I was the only sane alien at the table and I said “Acquisition”. Of course I was the party pooper throwing wet blankets on their fun. On the other hand though, many publishers have tons of passion and love for what they are doing so saying “think about how that might end” is well not a mental choice. I have seen more than one ex-CEO travel Europe for six months come back to the Bay Area and fail miserably at reconstructing the essence for the only job they ever really loved. Thinking about the exit in realistic terms can be a heathful exercise, expecting that you should exit coul be the biggest mistake of your life.
Understanding what an exit plan is and when you would use is important. With that said I don’t believe in focussing on exit plans for start-ups, and certainly not as a key question during the formation process.
They distract from core mission: which should be trying to build great products, a great service, or have a great impact on our world. Focus on building something lasting and meaningful. If you do that, the exit will be their when you need it, but hey, build something great, and maybe you won’t want to!
*(Rusty is right that this is the second question founders are asked, but it’s a lot more fun to tell an investor “I don’t have an exit plan” and watch their face, than say the so cliche “Acquisition, IPO, merger, etc”. Plus, they make cool facial expressions when you do this!)
As a volunteer for a small nonprofit, I’m just wondering: does your framework for an exit strategy change when applied to the nonprofit sector?
Absolutely. There are similarities in that nonprofit endeavors, like for-profit ones, are finite – whether we acknowledge that or not. So planning fornhow you will exit the space is important. It can simply wind down, or transfer ownership (source of funding, foundation, etc.) or transition into off-shoot non-profits or even for-profits. You may not be on the IPO path, but your small non-profit will evolve into something.
Sometimes, in dealing with non-profits, a simple change in language can help reframe it. Instead of “What is our exit strategy?” you could ask, “What is our legacy?”
Thanks for the article Rusty! As the owner of a web development consultancy I am always looking for ways to turn my services into defined products. Services (at least at this point) are directly tied to the amount of time I personally put into a given project. Alternatively I can sell many products without a fixed amount of my time going into each unit… Maybe products are the beginnings of my exit strategy.
Thanks, Joe. The time horizon is critical, as is being aggressive about how rapid that proposed exit date arrives. On the other hand, I recently started work with a startup whose exit strategy is on a 100-year delta – but his horizon for evaluating whether or not he’s on course is every 100 days. His company has benchmarks that they watch daily (hourly) but every 100 days, there’s a cold-eyed deep dive with his board and investors. If they’re on course, great; if not, it’s time to recalculate the 100-year plan. I like that blend of long-term vision and incremental benchmarks.
Very thought-provoking, Rusty. Expanding on one of your points, it’s worth understanding the exit strategy of any potential investor, especially venture capitalists, if you’re lucky enough to have that problem. They definitely have an exit strategy, right along with their expectations for a return measured in multiples of their investment, and a very clear time horizon for their exit, probably a lot sooner than you’d like.