Entrepreneurship · Startups

Should I, as a startup entrepreneur, have a quit strategy?

Kishor Parmar SEO Manager at Herbal Remedy India (HerbalRemedy.in)

October 8th, 2016

Venturing into something should be weighed carefully with keeping all the aspects in mind. This includes failure as well.

It would not be prudent to jump in thinking only about success.

A person must think about ‘what if it does not succeed?’

Should i have quit strategy?

Chuck Blakeman Founder, Chief Transformation Officer, Crankset Group

October 8th, 2016

The worst thing you can do when starting up is to be thinking about an exit strategy. If you are in a 2-person plane and the pilot dies, and you have a parachute, you WILL exit. If you don't, you will learn how to fly and land the plane, or die trying. And learning to survive in a business isn't anywhere as risky or death-defying.

Survival is the strongest of instincts, and almost all successful startups were successful because they did NOT have a parachute. When I vet startups, it is one of the first things I look for. If they are talking about "what if" it fails, it is the single best indicator that they are not going to make it. Anybody thinking this way at startup doesn't have enough belief, passion, grit, and relentlessness to push the idea across the finish line. They also don't realize that failure is not fatal, it's just a seminar, sometimes a very expensive one.

When things get tough, and they always get tough, those with a back door will take it, at the very moment that the need for survival would have taught them how to be successful. Amar Bhide, while he was at Harvard, said 97% of businesses leave their prime objective in order to be successful. If they had a "startup exit strategy", they would leave the business instead.

It's never how good your plan is that matters, but how committed you are to the desired result. Having an exit plan from the gitgo is the most revealing lack of commitment you could have.

BTW - I see your question very differently than what I think Arthur Lipper is hearing. Figuring out how to close down a business with honor and dignity that has failed, is very different than having a plan to quit before you start.

David M

October 8th, 2016

Arthur, I'm not sure why any business school would teach a "terminating a business" class. Teaching it as part of an entrepreneurship class suffices and is already part of numerous entrepreneurial classes. This is inherent in the overall planning of a business when one looks at burn rate, life cycles, strategy etc. The discussion falls under managing the entrepreneurial business, starting the entrepreneurial business, and entrepreneurial law.

Contracting of partners covers what happens in failure to partners and when partners leave and is woven in with the overall study of entrepreneurial law. I would argue partners who don't know where they stand for success and failure skipped the very important legal process of formation. That has zero to do with Tom's advice. A simple, "partner's should be astute with their contracts in planning for success and failure" would be a constructive added point of discussion.

Beyond that, exiting a business in terms of acquisition is also taught and the flip side of that is a lack of success. For programs that do not implement it, sure it could be covered in a class or two. In no way does it need to be a core class as success and failure is part of every business class I know of.

I am confused though. In one of your other posts you boasted you tell entrepreneurship students they should drop out if they really want to be entrepreneurs. So they would not be in class to take your class even if a college listened to you and created it! And you seriously wonder why colleges aren't listening to you when you encourage their main source of revenue leave?! It is quite humorous really. "Student's if you really want to be entrepreneurs please leave now. But if you stay please take my course on "how to fail with dignity." I think there is a logic course needed in there somewhere.

Kishor, Tom's advice is great! Everything about his post illustrates the needed passion, determination, and will to succeed mentality. Entrepreneurship embraces many aspects of psychology, and that is something rigid businessmen often fail to be competent in. You do need both sure. Yes one needs a team. Yes one needs a well thought out plan. But without drive, passion, and determination to fuel that, one has writing on paper as Chuck alluded to. And usually, the characteristics Tom mentions are what leads an Entrepreneur to build what he needs. Passion without competence and a plan wont guarantee success, but passion with competence and a plan certainly will put you above many.

The only thing I would add,is if you have a passion for your business that is a great start.But if you have that, let your mind kick in...put together a solid and detailed business plan. As you build for success, know that the flip side is failure. Keep your strategy focused on succeeding, not quitting. Have smart contracts that cover you and your partners should your company fail, but obviously also succeed. If you incorporate your company with detail, and you put together a competent business plan with equal detail in all the sections from marketing to operations..financial etc, you will know what you must achieve to succeed and you will have an honest understanding of what failure looks like. But put the word "strategy" on writing and in mind only with success.

David M

October 11th, 2016

This has gotten a little off track due to one of the posters inability to comprehend other's posts and the spirit and intention with which they were made. Also of note here, an exit strategy has been used only in the light of a company failing and shutting down, and not in terms of a successful completion of business or an investment, which I'm assuming the poster understands.

Now, as Tom pointed out, no one has suggested not knowing where a life preserver is. That is absurd. But to Tom's point, a venture is a journey that is often dynamic and ever changing. The destination is not always known. To stay on this trite life saving device analogy, in the beginning, a business plan is created. It is a living breathing document that changes. One understands, again as Tom pointed out, that there may be a time to close the business. The entrepreneur evaluates what is needed to be successful and profitable and moves forward along the way understanding if that does not happen, one must close.

But what happens when you plan to take a life preserver because in the beginning you think you're going to be traveling by sea....Only 6 months or 1 year in, you find yourself on a plane and need a parachute? All the time spent strategizing how not to die in the sea wasted so that you can now figure out how to safely jump out of a plane with a life preserver! At each stage of the process, you plan and cover yourself for success and failure and adjust as you go along. That is understood and a given.

You evaluate your financial needs and what you can and can not risk. At what point do the lights go off? But when I hear strategy it connotes a master plan, detailed. There are so many things that can go right and so many that can go wrong. One of your partners breaking contract, embezzling investment funds and heading out of country is one of many possibilities that can lead to a startup shutting down. To strategize for that though on day one beyond what one can do legally through contracts is a waste of time, energy, and much needed positive thought.

There is a huge difference to preparedness, and creating a strategy to quit at the beginning. I consider having a plan, proper contracts in place, and contingencies a strategy for success. The flip side of that is one is prepared to fail if they are properly prepared to succeed.

Susan to your point, could you have foreseen the type of exit you would have made at the beginning for year 8? My guess is understandably not. If you did, please provide all of us with lottery numbers!:)

To Tom's point, and the vein in which I accepted and applauded, without a crystal ball a "quit strategy" on day one may or may not be the appropriate way to exit a failed business on month 6, or month 8. And planning to quit can have severe psychological implications.

An entrepreneur who builds a solid base, structurally, organizational, and legally, along the way will be more than capable of properly closing out a business should it need to at any point in time. Beyond that, stay positive and work on the strategy to succeed.

Tom DiClemente Management Consulting | Interim CEO/COO | Coach

October 8th, 2016

I agree with what Chuck Blakeman has already said. You do not enter a new business with a "quit strategy". 

The meaning I get from your question is much different than what you do when you are facing the difficult decision of closing a company. Not knowing when to quit is a frequent error, and it is usually done too late, but that error is not caused by not planning for failure from the beginning. It is caused by the passion and belief you have in what you are doing.

First of all, in starting a business, you create KPIs and you may have contingency plans for events where you are not meeting your KPIs. But in most cases, you will not use any of those contingency plans because the situations you face will most likely not be close to what you imagined at the beginning.

Starting a business is usually a matter of running hard, facing adversity as well as successes, and learning from both. In the process, you adjust your approach and very often you go through several stages of reinventing your company. What you end up with in the end may be very unlike the company you originally planned. But it's hard to imagine how you will make those adjustments or truly reinvent your company to adjust to market conditions if you start with a "quit strategy". 

So the answer is no, you should not have a "quit strategy". Run hard and adjust to every deviation from your goals. Use every resource you can muster to succeed. Whenever you face a wall, find a way over or around that wall. That's the way you succeed. In the end, you may have to admit that you are not succeeding but you do not do that until you have exhausted every avenue. At that time you will then do your best to minimize or prevent damage to employees, Customers and investors.

Tom DiClemente Management Consulting | Interim CEO/COO | Coach

October 9th, 2016

Neha, I do not understand the distinction you are making between the two. Further, the originator of this thread has not contributed and may no longer have an interest. I have provided the best advice I can given the question as it was worded. I am sure the others have as well. At least for myself, I do not feel it contructive to continue participation in this thread. 

Neha, if it has left you with questions, perhaps you would like to start a new thread directed to the entire community?

Chuck Blakeman Founder, Chief Transformation Officer, Crankset Group

October 11th, 2016

Susan - per your request for backgrounds. I've built ten businesses in seven industries on three continents. Most were small and remained so because I didn't see them any other way (and still don't). The two I'm focused on now are both international and will keep my interest for the long haul because of their transformative impact in the lives of founders and the emerging work world.  One of the ten was a miserable and large failure on two continents, six were nice income businesses, we sold one to the largest company in that industry, and the other two are keepers. None were built with outside money. My bias is that VC money is the single worst and last resort to capitalize almost any business, with some narrow exceptions. VCs, with the exception of those connected with the Tugboat Institute (San Francisco), have zero long-term vision; everything is decided on what will get them their multiples the fastest, with no regard to building something great and lasting. Not a place to look for money for those who want to make meaning, not just money.

Chuck Blakeman Founder, Chief Transformation Officer, Crankset Group

October 12th, 2016

My summary
1) In the daily/monthly/yearly course of business, founders with businesses of every age and every size should always have Outside Eyes to help them see how things are, or are not working, and how to course correct and/or quit.

2) No business should have an escape valve baked into its inception. Ever. It's a recipe for quitting, not succeeding. Burn the ships.

Andrew Kintu Sales, Business & Project Developer.

October 12th, 2016

I appreciate the great thoughts here! I'm of a view that you should start a venture with only a positive mind, no exit strategy at that moment but if things get hard, learn, if they get harder, still learn, if they continue in that way, seek counsel!

Arthur Lipper Chairman of British Far East Holdings Ltd.

October 8th, 2016

This is one of the best questions seen in this dialogue site. For many years I have tried unsuccessfully to get business schools and other programs to include "Terminating a business with honor and dignity". I do not want to enter a lengthy dialogue now but will dig through my files and send you some earlier writings. send me your real email address.

David M

October 8th, 2016

I appreciate the thought, but I understand very well.  Thank you.