There is a mid-90s sci-fi film called Gattaca, starring Ethan Hawke and Uma Thurman, that illustrates the entrepreneurial spirit better than just about any movie.
The movie isn’t actually about business or commerce or entrepreneurship. It’s about a futuristic character, Vincent Freeman, who was born in an age of prenatal genetic optimization without any pre-selected genetic improvements, and he thus was born into a lower class of people. Freeman’s dream was to be an astronaut, but his social standing prevented him from being one.
So, he took on the identity of someone with optimized genes and ultimately made it into space. The moral of the story was that human desire could overcome genetic manipulation.
This was driven home in a scene where Vincent bested his genetically superior brother, Anton, in a swimming race. Anton, who almost drowned, was in disbelief that his naturally born brother could out-swim him. That led to the movie’s key line:
You want to know how I did it? This is how I did it, Anton: I never saved anything for the swim back.
– Vincent Freeman, Gattaca
Sure, it’s hokey, but the line captures a spirit that is increasingly absent among entrepreneurs: Too many people create businesses with their exit strategies already outlined. That leads to whole slews of businesses that exist primarily not to serve their customers but to entice buyers.
Stories such as Facebook’s billion-dollar acquisition of Instagram only fuel the belief that a business’s end game is to sell out.
This belief is misguided, creates perverse incentives, and ultimately hampers the development of what could be a great business. Serving your customers should be your mission.
I had this point hammered home for me while attending a talk that Joe Mansueto, CEO of investment research company Morninstar, Inc., gave at ACG Chicago’s Entrepreneurship Bash in November. A young man asked about the best exit strategy for a business. Joe responded with an very refreshing comment. I took his words to mean that anyone thinking about an exit strategy too early is probably not going to have a very successful exit.
Ironically, the more hard work and creativity you put into creating value for your customers, the more attractive your company will be to prospective buyers.
The best strategy for an entrepreneur is to have no exit strategy. Below are a few other people who I found that share this sentiment.
Passion requires that you don’t have one foot out of the door.
Puppet Labs CEO Luke Kaines authored one of the best rebuttals against having an exit strategy in a piece for Re/code in January 2014.
Kaines challenges the entrepreneurial motives of anyone planning on a big exit, which then brings into question the sustainability of the company itself.
“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,” he writes. “What are you doing building a company you don’t want to have a long-term interest in? A company built without passion — and with an end goal of making a few people filthy rich — is a shortsighted company not built to last.”
Kaines goes on to describe a trend in which startups scale quickly and everyone burns out. At that point, the owners sell, investors get rich, employees start looking for new jobs, and customers are left scratching their heads. Shortly thereafter, the entrepreneur finds a new opportunity, and the cycle begins once again.
Venkatesh Rao covered this trend brilliantly for Forbes in 2012 in a three-part series called “Entrepreneurs Are The New Labor.”
Prioritizing the exit over your customers can hamper growth.
James Green, the CEO of search retargeting firm Magnetic, also wrote in Forbes that successful entrepreneurs do not have exit strategies, and he used the example of how Zappos built a business model to outcompete everyone in its space before the company looked at an exit.
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,” Green wrote.
“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.”
Green also noted that he found a financial reward insufficient motivation to get through the rough times of building a business: “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.”
There is a human cost to churning out thin, disposable startups.
Tech reporter Robert X. Cringely (aptronym count in this post: 2) wrote in BetaNews in 2013 that he wished more companies would forego exit strategies because there are too many talented people shuffling in and out of startups that prioritize their exits.
“Even those [entrepreneurs] who embrace the quick-and-dirty ethos of almost instant exits seem to do so because they don’t know better,” Cringely wrote. “‘What’s your exit strategy?’ they’ve been asked a thousand times, so they not only have one, their papier-mâché startups are designed from the start with that exit in mind, whether it’s the right thing to do or not.
“I think this is sad and — even worse — I think it is leading to a lot of wasted talent. It cheats us of chances for greatness.”
This also cheats the employee out of the chance to realize his/her potential, or at an even more basic level the chance to establish firm financial footing by having career stability. These coders and growth hackers and developers are people with families and — in the Valley, anyway — exorbitant rents to pay. If they get frustrated by always having to move from one acquisition-friendly company to the next, they could very well just move on to another field altogether out of financial necessity.
Some investors simply don’t want to hear about your exit strategy.
In September, Mark Cuban told the Wall Street Journal he values an entrepreneur’s passion or obsession most of all when he considers investing.
“I want to know not what your exit’s going to be,” Cuban said. “I want to know why you are going to be a successful company in case you can’t get an exit.”
Read that second sentence again. We should all be startled that such a commonsense sentiment is regarded as newsworthy.
A counterargument: Exit strategies are part of a prudent business plan.
As romantic as reckless abandon sounds for the eager entrepreneur, it is kinda risky to swim out into the ocean beyond the point of no return.
For the more risk-averse among you, advisor and Inc.com contributor John Boitnott paints a picture of an exit strategy that simply allows an entrepreneur to project revenue and market trends:
“As you begin to think about a day when you might sell or delegate control of your business, you’ll likely start projecting months, years, and even decades into the future,” he writes. Boitnott then quotes the founder of a moving company search site with its headquarters in Utah.
“’I’ve always found that when you do this you’ll consider trends in your business that could impact your success,’ says Margarita Hakobyan, CEO of MoversCorp. ‘Then you begin to put plans in place to attack all the challenges you’ll face. It just makes you more ready for what’s coming.’”
This is something entirely different than baking an exit strategy into your business, however. Planning for the future and trying to anticipate what’s ahead is just smart business. In no way would this undercut your entrepreneurial motives or your customer focus.
And that is really the point: Anything beyond a customer focus is a distraction. Practically, this has roughly a 99% chance of harming your business — unless you are one of the lucky startups the Zuckerbergs of the world scoop up for nine figures.
Even then, ethically you still would be contributing to industry-wide issues that increasingly treat employees and businesses as disposable.