Exit Strategy – Thinking about the end game as you start

  • 2
  • 17. June 2016

The stories of companies worth millions or even billions of dollars prior to their IPO in combination with currently high cash reserves of large corporations such as Google, Facebook or Apple, looking to swallow up start-ups, has led to increased investor demands for lucrative exits. The Swiss Start-up scene has been gearing up as it comes of age, with the number and the size of exits by startups starting to become more visible, with examples including jobs.ch, Doodle or students.ch.

According to John Hucker, President of the Swiss Fintech Association, startup exits proxy as a good indicator of the maturity of an innovation ecosystem. Successful sales help reinforce the ecosystem, ultimately benefiting other startups, while increasing job opportunities. High-tech startups are key drivers of growth and innovation in today’s digitalized economy. In her recent book Exit Signs, Pamela Dennis a successful US entrepreneur and adviser to both SMEs as well as Fortune 100 companies, showcases benefits from actively growing a business into a sellable, attractive and well documented venture.

There are three primary ways for start-ups to achieve scale – either through organic growth, through acquisitions, or by collaboration with strategic corporate partners. A well-executed exit, as a result of a strategic corporate integration, allows a start-up to kick-off a new growth-cycle, showing credibility to investing corporate partners. More on this discussion at the Venture Ideas@EPFL “Swiss Start-up exits: Can we have more?” Risks and benefits on these collaborative partnerships and their relevance for sustainable growth are outlined in the World Economic Forum’s 2014 report Europe’s Competitiveness – Fostering Innovation Driven Entrepreneurship. The main advantage for corporations of course lies in acquiring innovation happening outside of their culture, which at the same time creates a threat to the acquired, as its entrepreneurial spirit might be put at risk.

Not only the investors, but also the business founders can benefit from the financial and judicial independence from a well-executed exit. But when should a startup focus on an exit strategy? According to experts such as Pamela Dennis, crucial is to consider the possible end game early on. Thinking ahead enables entrepreneurs to identify Kairos – the opportune moment. It allows them to take part and actively influence outcomes as their business develops, rather than having the decision being forced upon them by others.  

It is therefore not only a question of timing, when the ideal time of an exit has arrived, but also how it is planned and executed. Investors fueled by the hope of a high profits, aware of an exit plan might be more incentivized to invest. Despite its obvious importance, Pamela Dennis finds that only 13% of small and mid-size businesses in the US have an exit plan. She also emphasizes that developing relationships with the potential strategic acquirers timely in the business life cycle, helps the acquired in being bought on its own terms, when the time is ripe and not when a fire sale of the company is needed. It is important though that a company sends the right signal, showing that it wants to be bought, rather than telling a story of wanting to be sold.

It is these stories from entrepreneurs on how they lead their business to a successful exit from which startups and more mature SMEs can learn much and the newly found Exit Accelerator will open the stage to such stories.

The Exit Accelerator  is a grass-roots, not-for-profit association, with the aim of boosting the Swiss start-up and SME ecosystem by promoting conversations about exits. Created by entrepreneurs Rodney Reis, David Butler, and Sanja Fabrio, they believe that exits are one of the most important milestones in the life of a business. With Switzerland moving forward it is well placed to generate growth in the number and size of start-ups, a key driver for the launch of the Exit Accelerator, hosting its first event on 21st June, in Zurich – More info here.

Topics discussed during the event are amongst other:

  • Time, costs, and risks involved in the exit process
  • The emotional impact of an exit for entrepreneurs
  • Lessons learned, what could have been done differently, and the surprises
  • Negotiation experience, working with advisors, and dealing with the stakeholders

This article was an adaptation from a recent post from Sanja Fabrio, Co-Founder of Exit Accelerator.