Planning an exit strategy? Don’t waste your time

I haven’t met Basil Peters, but we share a few common Facebook friends, so he must be a good guy.

Basil has recently been promoting the concept of thinking about exit strategies as a start-up, and I understand his perspectives in his role as an angel investor, but does that perspective serve entrepreneurs? I think the answer is no. Thinking about exit strategies is fine and good if you already have an existing business that is generating a few million in revenue. But for brand new start-ups, it is a big distraction away from building a business.

I started in the software industry only about eleven years ago and during that stint, I have had the privilege of working at or being a director of four companies that have had successful exits. What do they all have in common? Other than being successful, not one of them ended up exiting in the business that they contemplated when they first started the company.

And this is the rule, not the exception. If you are an entrepreneur, pick up a copy of Jessica Livingston’s book, “Founders at Work.” Read the interviews with Max Levchin (PayPal/Slide), Evan Williams (Blogger/Twitter), Sabeer Bhatia (Hotmail) and many others. Not one of them exited in the business that they started off trying to create.

What does that tell you? Doing a start-up is a lot like finding the unknown solution to an unknown problem. If you are iterating and working to find a profitable niche in the market, chances are that you will change your posture at least once, and your investors should be ready for that. If you are convinced that you are right and plan to be dogmatic proving that you are right to the market and to your investors, well, good luck (and be sure to stock up on the Tums).

So the question for entrepreneurs is simple, are you trying to build a business, or trying to make money? There is nothing wrong with either, but your bias should be to the former for a simple reason: if you focus on building a business, you will eventually make money, but if you focus on making money, you may not end up doing either.

I am actually going to prove my point: coming up, four highly personal case studies.