Sunday, October 28, 2007

Exit Strategies

Many people have asked "What's your exit strategy?" when discussing my startup. Initially, I found this offensive, because in my mind if you build a viable business, you will have exit possibilities, should you desire one. Moreover once you are successful, you'll have a better idea of exactly how it should be done. Isn't building a business that has long term value what starting a business should be about? Eventually I gave up and decided this is one of the things I can't change, I was too idealistic, and found ways to articulate how and why the business would be acquired.

However, there really is a difference, and I don't think it's a good one. We're being blinded by the success of "easy money" stories like YouTube, where with the right secret sauce, there might be a lot of money to be made. Business is hard, and to focus on getting things right for the long term takes a totally different mindset. Seriously, do you think YouTube will be here in 20 years? 10 years? 2? It is not a long term value add to the world or society. It doesn't make my life better. It does contribute to the flow of information at near zero cost, but that isn't anything unique to YouTube. Yet YouTube is a VC's model of success.

This week, an insert in the San Diego Business Journal included an article by Robert K Weiler, CEO of Phase Forward. Weiler did a $41M IPO in 2004 and a $90M secondary public offering in May this year. Weiler writes:
Many times I've seen management teams focus on the IPO event, so they're making short term decisions. They're taking contracts and business to bring in revenue without building a service organization to support the business.
This supports my concern. We should be building businesses that provide long term sustainable value to customers. If we don't, we risk losing a lot, if the rest of the world finds us irrelevant.

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