Exit Strategy Is An Oxymoron

In early meetings, if a VC ever asks you what your exit strategy is, you should run, not walk to your nearest…um…exit.

You want your investors to be more curious about how you're going to enter a market than how they're going to exit their investment.

Thankfully, I hear much less talk about exit “strategies” in the startup world than I used to.  Back in the day, no business plan was complete without a discussion of exit strategies.  And, they almost invariably came down to the same two options: Here are the list of companies that might buy us…and we could go public! 

Today, most tech entrepreneurs don't even write business plans (which is good, because nobody reads them), let alone have a detailed discussion on potential exit strategies.

Here's why I think an exit strategy is an oxymoron.

The purpose of a business is to build something of value for customers — which in turn creates value for stakeholders.  When you're walking out onto the field, you should be asking yourself “how do I best play this game?” not “Hey, once the game is over, how do I exit the arena?”

Planning your exit is a good thing when entering airplanes, theaters and bar brawls (of which I have no clue, I've just been watching too much Banshee) — not when entering a market.

My advice:  Spend your calories crafting strategies for how you will build value, how you will connect to potential customers — and how you will differentiate yourself from everyone else.  Leave the exit planning for when you actually need to figure out an exit.

By the way, I have no problems with startups exiting.  Happens all the time, and is part of the circle of life in the startup world.  I've been on both sides of the table (sold a startup, acquired some startups).  My problem is when entrepreneurs are forced to unnaturally focus on the exit -- and mistakenly calling such things a "strategy".  

The WhatsApp Effect: Don’t Base Your Acquisition Strategy on Outliers

“There may be no greater testament to the viral nature of WhatsApp than the fact that the company has accomplished all this without investing a penny in marketing. Unlike their smaller competitors, it hasn’t spent anything on user acquisition. The company doesn’t even employ a marketer or PR person.” – http://www.businessinsider.com/facebook-is-buying-whatsapp-2014-2

“We haven’t done any paid marketing!”

There’s that statement again. Every time I hear someone say this, especially when they’re a founder trying to raise money, I cringe. Yes, there are those rare products that grow like wildfire without spending a dime, but those are few and far between. For most startups, paid marketing and distribution are critical to success. If you’re boasting about the fact that you haven’t spent anything on marketing or distribution, that tells me you’re completely neglecting the biggest user acquisition channels – adwords, SEO, Facebook mobile installs, etc. Basically, you’re telling me that you don’t have the expertise or foresight necessary to acquire users via paid channels. Not good.

Putting a company like WhatsApp on a “no marketing” pedestal sets a bad example for other companies. Based on what people are saying about WhatsApp’s amazing growth, you’d think not understanding how to acquire users profitably with paid marketing was a good thing. This couldn’t be further from the truth. For the 99% of companies out there are at *not* WhatsApp, paid marketing is a crucial tool for growth.

Here are some reasons I’ve heard why startups don’t focus on paid distribution:

We don’t have product market fit.

We’re focused on improving our product.

We don’t have a marketing budget.

We don’t have the expertise.

We don’t have time.

The last one is definitely the worst, but all of those excuses are pretty bad. There’s only one valid reason to neglect distribution, and that’s if you don’t have analytics/tracking properly installed. However, this can be solved by simply adding a pixel to your page! Here’s why the other reasons are BS, too:

We don’t have product market fit. If you don’t have product market fit, you probably don’t have a lot of people using your product. And for the people who do use your product, you’re probably losing them quickly. With paid ads, you can test different value propositions and messaging. Most importantly, you can get to product market fit much faster because you’re bringing in new people all the time and testing your assumptions.

We’re focused on improving our product. If testing your product with actual customers is not part of your improvement process, something is very wrong.

We don’t have marketing budget. Do you have $5/day to spend? If not, you might have bigger problems. The point is that even a very small budget is enough to get started. The fact that you’re collecting data and learning to use the different ad platforms is hugely valuable. Keep in mind there are also plenty of retention tricks you can do for nearly $0, such as funnel abandonment emails.

We don’t have the expertise. The only way to learn is to get started. You can read about distribution, watch videos on distribution, but the best way to learn distribution is by getting your hands dirty and trying it out.

We don’t have time. Yes, you do. Getting more traction for your product should be priority number 1.

You’re probably not WhatsApp, so your app probably won’t grow to 350 million daily active users without any marketing. Get started with paid distribution today and TEST, TEST, TEST.

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Matt helps 500's portfolio companies understand their analytics and get more people to their product by any means necessary. His best strategy so far has been carrier pigeons. When not helping startups, Matt can be found running after his dog on the beach while she chases birds (carrier pigeon recruitment?).