The Exit Strategy: Cashing Out and Other Premeditated Escapes
BY Tom Richman
It was probably Jehovah who conceived the first one, and then some time later he charged Moseswith its execution. Churchill had one at Dunkirk. Westmoreland could have used a better one inVietnam. And lots of people wish Bill Clinton had pursued a wiser one of his own.
We're talking exit strategies here -- plans that peoplemake for getting out of an enterprise or situation before they get deeply into the enterprise or situation. It is just that characteristic -- thatthey're conceived long before they become desirable or necessary -- that distinguishes exitstrategies from more precipitous actions, such as escapes, retreats, or resignations.
The phrase exit strategy isn't new and isn't confined just to diplomatic, military, or businessconcerns. An August 15, 1986, story in the New York Times indicates that even 13 years ago, in anapparently more innocent decade, people understood the term's more general application."Although most said casual sex is anathema in the Hamptons," the story reported, "a few talked of'exit strategies' -- ways to facilitate leaving together, going home together or exchanging phonenumbers for dates in Manhattan."
In the entrepreneurial context, in contrast, an exit strategy has a very specific function, which is toget one's capital gains and (usually) one's self out of the company.
For example, the other day I was saying to my friend, my potential cofounder in a terrific businesswe had in mind to start, "OK, that's how we get in. Now how do we get out?" In no time, wenoodled out an exit strategy. And then a funny thing happened: I opted not to get into thebusiness. The idea hadn't changed; even today I think it's terrific. Someone ought to start thisbusiness -- just not me.
What happened was that in devising our exit strategy, I was forced to think about myself as anentrepreneur the way a venture capitalist thinks about his money: How much will I have to investand over what time period before I can get out with a decent return? Only in my case, I was thecapital, and the exit strategy we worked out suggested I'd to have to invest a lot more of myselfand for a good many more years than I thought I could. So I decided to get out before I got in.Creating an exit strategy helps one visualize not just the start and bailout points for a nascententerprise but also the distance and journey between them.