Last week when it was reported that Foursquare was considering a sale to Yahoo, there were a flurry of posts with analysis and advice on whether or not Foursquare founders should sell or not, and if they would be wise to sell to Yahoo or not.
The debate about the future of Foursquare and questions about the potential profitability of location-based social networking aside, the buzz about Foursquare and Yahoo should serve as a reminder to startups about the importance of having an exit strategy.
Even if you have founded your dream company and can’t imagine doing anything else, having an exit strategy established will help you make good business decisions. Knowing how and when you plan to exit – whether it’s “soon” or “at retirement” – can help you shape the direction for your company’s growth. Furthermore, most outside investors will want to know your exit strategy plans so they can anticipate how and when they can realize a return on their investment.
The most common exit strategies are:
While the idea of an exit strategy might sound negative, crafting one can help you plan how to make the most out of a good situation, not simply escape a bad one. But as the comments on the TechCrunch post on the potential Foursquare sale indicate, there is little consensus on what constitutes “a good situation,” good timing, or a good exit strategy.
- Initial Public Offering (IPO)
- Merger & Acquisition (M&A)
- Selling to another individual
- Liquidating and closing
Some may frown on all this emphasis placed on exit strategies, arguing that you’ll never build an empire by always having an eye out for the exit. But whether you want to quickly move on to pursue your next great startup idea or whether you stay with a business for the long-term, it is important to think about your next steps and to have a succession plan – for you and for your business. As bplans.com founder Tim Berry notes, “every entrepreneur eventually needs an exit.” .
