Great Companies Don’t Have an Exit Strategy | Hacker News Reader

Great Companies Don’t Have an Exit Strategy

recode.net

40 pointsbradleyland17 comments

This is a fundamental lack of understanding about what an exit strategy is. It is not about the CEO exiting. Private companies are a very illiquid investment. An exit strategy is something that exists to help inform investors about how they will eventually realize their gains. If a company intends to stay private forever and simply pay a dividend to investors, it may not be interesting for certain types of investors.

By definition, therefore, an IPO is an exit. It is an opportunity for an investor to get his or her money out of your particular company. Most great companies—depending on how you define them—actually have gone through some sort of exit event as defined this way, and all savvy investors will want to know how they can realize their gains if you are successful.

That was the first thing that came to mind: companies don't have exits, investors do. However, I don't think it's uncommon for new entrepreneurs to focus too much on the exit as investor-founders. That was the lesson I took from this.

This is bravo

Yes, investors want their money back, but they are forbidden from doing so in an IPO, and they cannot exit for at least six months after. If, six months after the IPO, they sold all of their stock, they would most likely seriously hit the price of the stock and cause a depression in the valuation and screw the company.

My post was primarily about company exit strategies, not founder exits, so I'm surprised that one paragraph stood out so much to you.

Most IPOS see only about 10% of the company sold, and essentially all (literally all?) of that is newly issued stock; basically none is existing shareholders selling stock.

If a successful IPO goes well afterward, then often existing shareholders will have a secondary sale about six months later (after the lock-up expires).

So no, in fact, an IPO is an exit for exactly no one. Major shareholders are locked up and can't sell for at least six months, and for great companies (e.g., Google), they'll often hold even longer.

I thought I made that point in my article, but apparently not.

"An IPO is a means for a company to bring in cash, not the end of the game."

Nice sentiment, but I'm guessing your early investors—as they look to close out the funds that made up the bulk of your Series A or B—see things a bit differently.

Don't get me wrong but I disagree badly with the way this was writen. Mainly the selling a company part.

Sometimes there are no other option other then selling your company.

You can become outnumbered in the board and become a one men army due to different views of the future or other complications ( try that... it's fun like hell). You can work for your company for 40 years and realise YOU are not needed anymore and you should sell it and enjoy your last years.

And so many other variations to that "Why?" question. I found that statement aimed to make people that sold their company look like they gave up. And more often then not. This is not the case.

Thinking like that is just to simple.

Selling the company is the best form of failure, but it is rarely the plan the board entered with, and my point is that it certainly shouldn't be.

Even great exits like Nest's today; I expect Tony Fadell didn't plan to sell, but Google made him an offer he couldn't refuse.

So the point isn't that you should never ever sell (and I pointedly don't promise that for Puppet Labs); the point is that your strategy shouldn't be to sell. It's an escape hatch, not a goal.

Great Companies Don’t Have an Exit Strategy

Nope. But they have a liquidity strategy. Liquidity is the "exit" (path) for investors and is critical to retention of staff. Frankly the title seems more to be linkbait than insight.

Tell that to the journalists who have been asking me what my exit strategy is for the last four years, and especially since I hired a CFO. This article started as a literal response to them.

Great companies are not built to be <flipped>. I think that is a great and valid point. It's also a valid PR strategy to make such point in public if you think it will help you raise money, hire good staff, and build relationships with strategic customers. But in making this point, I think more precision in your language would be helpful. Because all of those people may legitimately be interested in your strategy to generate investor/employee liquidity (and what thay might mean for a strategic partner). And for them, "asking me what my exit strategy" is neither a sign of ignorance nor lack of understanding. If journalists are asking you this question, its not clear what their motive is. But in that case, I would argue, precision still wins the day and provides you the upper hand to both educate them and to message clearly and precisely (which helps build your credibility with all parties). I hope this puts my earlier comment in more useful context.

Great exits are usually made by the companies who are focused on the great product or service, not on an "exit" strategy.

>Yeah, sure, you can talk about individuals having exit strategies, rather than just companies, and you could conceivably be an entrepreneur trying to build a company to the point where you can sell all your interest in the company, but … why?

Maybe there is a product or service you want to have that is not currently available.

For example: say you really want an app to automatically scan+OCR your grocery receipts and keep track of the prices you pay for various items. You may not think the problem is very interesting, but you suspect that a market exists. So you make a company that will develop the app, but plan to sell your interests in the company once you are satisfied that the app meets your needs.

The receipt scan idea is an app I have wanted for ages, though I don't think OCR is good enough to handle all the cryptic abbreviated product names on a standard super market receipt. It would be cleaner if the printed receipt included a QR code linking to an itemised list for download, but that approach may have some privacy issues. Better would be to transfer a text file from the point of sale system to your phone via NFC.

If you got a list of the most common supermarket codes/abbreviations and used them as a dictionary to train your OCR program I think you could do OK. I think there is a reason grocery stores generally don't let you see your purchase history even though they record it with those shoppers' cards: that sort of information would make it too easy for customers to comparison shop. So I would operate under the assumption that grocery stores wouldn't be falling over themselves to support this sort of app, unless it got really popular.

I've always worried more about the scanning part. Ideally I'd like the app to work with a cell phone camera only, but I have no idea how feasible getting a sufficiently clear picture of an arbitrary length receipt is.

Very good article. It is not possible to build a product if cashing out is the first thing in the CEO's mind.

We always hear and talk about only two exits IPO (getting rare now) and Acquisition (the $B glamour). However there is also a third valid way of investor exit which is 'Management Buyout' (never heard in tech circles)

http://www.inc.com/guides/2010/10/how-to-choose-an-exit-stra...

Yep. I seriously thought about talking about that, but it's rare enough that it didn't seem worth it, and it's not a realistic option for us unless our valuation drops considerably. Even then, I would have had to sell many of my shares at the top of the valuation, and then buy them back at the bottom.

So yeah, if you can afford it, this is great, but basically all of my net worth is already in Puppet stock, so not so useful for me. :)

I can relate to it. I listed it more from an information point of view. Though it would be interesting to know of companies which have actually done this

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