What; me exit?

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What is your exit strategy?

Or in other words….how and when are you as an entrepreneur going to create a financial reward for you and your investors for  the blood sweat and tears that have been put into your venture?  The range of responses to this question from entrepreneurs is broad, with some having clear strategies, and others squirming uncomfortably with the question:  Exit?  I Love This!  Why would I exit?  Whether it is something that will happen next year or is 20 years away, it is an important question that deserves a well thought through answer. 

Aaron Rose visited eSpace yesterday.  It was time well spent for us, as he is  connected and involved in a variety of entrepreneurial domains that are not space, but that share common ground with eSpace.  He is also the author of popular blog solutions for a sustainable world .  

Aaron teaches entrepreneurship, and promotes to his students the counterintuitive concept that the best exit is not necessarily the sale of a company.  Entrepreneurs are driven by a variety of motivations, one of which being to create wealth quickly, but often other values are behind the entrepreneurial drive, not the least of which is to create a place to work that supports the quality of life for those within the organization, and for that influence to be as broad as possible.  The potential problem with a “sale of company” exit, is that the quality of life of the entrepreneur themselves might be catalyzed by the wealth, but the acquiring company is likely to have a narrower, financially focused agenda, with the result that the entrepreneur wins financially, but  the individuals within the company that share the vision are left behind in an organization that does not carry the “quality of life” torch forward in the same way.  

This is particularly true with the  technoentrepreneurs that start companies within space.  The motivations for starting the company are often less “to make money and retire quickly” than to create a unique context for themselves and others to do what they love to do and be paid well for it.   As I’ve talked to other space entrepreneurs that have sold their companies, they have shared that the conversation by the acquiring company prior to sale almost always emphasizes the importance and value of the culture that has been created, with heart-felt assurances that this will continue into the future. However; those promises do not always survive the requirement that a merger perform financially.  I am aware of one particular situation ten years ago where that promise lasted for about 24 hours, terminating with a “we are going to do it differently now” speech to the assembled company the day after the merger closed.   I consider myself fortunate that in the case of the sale of  Starsys Research to SpaceDev, those promises were kept, and the company continued forward with a unique culture that emphasized quality of life..

Aaron’s point of view was to look at exit more broadly;  create an organization that has at its heart a robust financial model that is a strong enough generator of cash to provide liquidity to shareholders through its operation rather than through its sale.  From the get-go, make decisions about what business you will be in, how you will do business, from a focus on “how can I return my investment to shareholders without having to sell the company”.  In space this is a challenge, and takes non-linear thinking about how to sell something different than services or products within a cost reimburseable model, but is is do-able and two companies come to mind that have done this very well, thank you.   The advantage of such a thing is the exit strategy  has  degrees of freedom…the financial reward for the entrepreneurs and investors is already in place, allowing the consideration of gentler transitions that accommodate a broader set of values, and ones that better serve all involved.

Permalink | Comments (0) | May 1, 2009

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