Mark Cuban’s “12 Rules for Startups” has number 1 as “Don’t start a company unless it’s an obsession” and number 2 as “If you have an exit strategy, it’s not an obsession“.
I get his point but I think it is directly related to “cashing in” as opposed to protecting your interests, especially when you have partners involved.
I believe that when you start a company it invariably means at some point there will be an end; if it’s not the end of the company it may be the end of your involvement with the company which can take on a number of different possibilities and all necessitate an exit strategy to be considered from the start.
“We were building a technology company and had a choice to build (and own) the IP/technology ourselves with 100% of the business or license the technology…..”
In 1999 I was involved in my first start-up and quickly learnt about the importance of thinking ahead to all possibilities around an exit strategy. It was with a colleague from Reynolds at this time when we went to work on a plan to fill a niche not being filled in the market.
Being from a technical background I was all set to develop the required technology to get us going when a call out of the blue changed our direction and with time to market being defined as an important factor for us, we pivoted and went into partnership with a US company licensing their technology.
Herein started the lesson I learnt. We were building a technology company and had a choice to build (and own) the IP/technology ourselves with 100% of the business or license the technology along with giving up half the company. With a very large, multi million dollar deal at our fingertips, we chose the option that assured us the immediate contract by cutting our time to market and providing a comfort blanket to our prospective client.
“Fast forward two years and the business was traveling very well, growing, very profitable and serving some of Australia’s biggest media players…..”
Fast forward two years and the business was traveling very well, growing, very profitable and serving some of Australia’s biggest media players. We started to become an attractive acquisition target for a few companies in the midst of the dot-com boom but had one missing ingredient – our own IP driving the core of the business and this severely limited our options to be acquired. We did end up getting acquired at this time – by the US company who owned the IP and half of the company already.
What did we learn? You must always think of the exit strategy from the start. This includes IP, technology and a shareholders agreement. In this case it was the technology that drove the company. We had quickly built a business that was profitable and growing but was unattractive to an acquirer which limited our exit strategies. In retrospect we should have had the exit strategy defined in our agreements with the US company which would have removed all the angst about thinking we were getting done over; whether we were or weren’t was another matter.
Would we have made the same decision again? Most probably. Given the choice of time to market now with a near guaranteed contract immediately versus 6 months development before trying to secure business whilst having a second mortgage on my house and second child on the way with no money coming through the door……..