Exit from Day 1
Last week, I found myself watching a curious exchange between a startup founder and an analyst at a well-regarded VC fund. The excited founder was pitching and demoing his product with infectious energy. The analyst was playing her part — tempering the excitement, running through her mental checklist.
“I think the [fund] partners will want to understand your vision for the future, your exit strategy,” she said. In her read, the startup had an interesting model and early traction, but it wasn’t clear how it fit into a larger market — how it could become a fund returner, one of those companies that grows and appreciates so much it returns the entire fund. The founder’s answer sounded enthusiastic, but from that angle, it couldn’t have been more disappointing. “We want to be unicorns” — trying to signal that he had skin in the game and wasn’t thinking about exiting anytime soon. I understand the intent, and it might seem like the right answer to many founders. But the question wasn’t about commitment. It was about vision. And this is where two things that shouldn’t be at odds cause a lot of confusion.
When a founder is so embedded inside the company that he uses that as a display of commitment, what it actually reveals is that he’s unable to see the company from the outside. And believe me, that’s a problem. Did you know that inside a tank, soldiers don’t navigate through windows, only through periscopes? Here’s what one looks like.
Not much to see, is there? That’s the view of a founder inside the machine. He’ll only see what’s directly in front of him, at a limited angle. He’ll call it focus and commitment. He’ll say he’s in the trenches. But it’s bad, for him, for the company, and for the investors.
In “50 Years of Founder Mode“ I wrote that one of the things that sets a founder apart from an executive is the ability to look at the machine, the company, from the outside, precisely because he built the whole thing himself rather than inheriting it already assembled. That holistic view is what allows him to see the context the company operates in, the segment or segments it fits, where it makes sense to expand. And consequently, how it can become part of another company’s growth strategy. That is exit strategy.
Exiting from Day 1
Over 20 years ago, I was competing in the finals of an international startup competition organized by Draper Fisher Jurvetson. One of the required slides in the deck was: Exit Strategy. Meaning the founder really does need to think about this from day one, but for most, it’s just a nice-sounding answer to give investors.
It’s not, and here’s why. Exit strategy is grounded in buyers’ theses. Most theses revolve around market segmentation, vertical or horizontal, enriching technology or product to better serve a customer segment, or growing within the same sector by acquiring competitors.
When a founder understands buyers’ theses, they better understand their own growth strategy, one built with the potential to fit naturally into another player’s strategy down the road. That fit is the exit strategy.
That’s the big-picture view the [fund] partners will want to see. But far more important than impressing them — it’s you, the founder, learning to see your tank in its broader context: to know which direction to move and which terrain to claim. Investors only win when the company has an exit, which is why they’re already thinking about it from day one. You should be too. Don’t think you score points by signaling you’re inside the tank with no strategic view, just to show commitment. Commitment isn’t being inside the tank with the hatch closed. It’s knowing exactly what terrain your tank is in and where it needs to go. The one who sees that from the outside is the one who truly leads.