Startup 132: Why an Exit Strategy is a bad idea
My apologies that it has been so long since I’ve written but I’ve been a little busy the past year and a half. I started a new company called ZangZing which is building a new service to help groups share photos. You can sign up for the beta here. I am also on the board of 3 other companies – Lookout, Smartling, and ccLoop – and an adviser to a fourth – MobileIron.
Exit Strategies
I have been meaning to write about the question of “Exit Strategies” for many months.
Not only has there been lots of press about exit strategies with Groupon turning down a multi-billion dollar offer from Google, but in about 1 out of every 2 recruiting interviews, I am asked the same basic question, “What’s the company’s exit strategy?”.
Let me get right to the point. If you work for a company or meet with a startup CEO that says they have an exit strategy, then you should find the nearest exit. Think of a company with an exit strategy as your floor lighting that will illuminate and guide you to the nearest exit – which may be behind you. (OK, after flying almost 1.5 million miles, airplane humor is too easy).
Now some of you might be asking, “But Joseph, you sold a couple of companies. Why and how can you credibly you say that?”
Well, it’s simple. I don’t believe there really is such a thing as an exit strategy. And I have never had one for any of my companies. An exit strategy implies very short term thinking about how Google, or Facebook or some other deep pocketed, cash rich company is going to come along and scoop the company up. And that type of thinking is simply a bad idea. Check out the definition of exit strategy from Wikipedia:
An exit strategy is a means of escaping one’s current situation, typically an unfavorable situation. An organization or individual without an exit strategy may be in a quagmire. At worst, an exit strategy will save face; at best, an exit strategy will peg a withdrawal to the achievement of an objective worth more than the cost of continued involvement.
When you think of a startup, it’s probably not a good idea if the team is thinking about escape or saving face or withdrawal.
Instead of thinking about the exit, startup teams (and potential employees) need to be laser focused on a success strategy. This means thinking (and asking) about the 3-5 most important things that will make the company successful, e.g. Who do we need to hire? What products do we need to build? How do we grow our user base? How do we make money and become profitable?
A success strategy is about building value. And when you are successful and build value, then you will have lots of options including continuing to grow the company, selling the company, taking a company public, merging with another company and more.
So stay focused on your company’s long term success and along the way you will have lots of hard choices about if and when to “exit”. In writing this, it seems so obvious, yet I am continually amazed that so many people think and ask about exit strategies. Hopefully no one will ask about exit strategies in any future interviews and if they do, then I know they are not good at doing their homework. 
Leave a comment and let me know what you think.
And here is another post about strategy planing that you might appreciate. If you don’t know where you’re going, well, you’re lost.
Lastly, you can also follow me on twitter or subscribe to email updates.
Exit sign courtesy of heathbrandon
Airplane exit sign courtesy of joeshlabotnik
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What if Steve Jobs was GM’s CEO?
In the continuing General Motors saga, Thomas Friedman, author of The World Is Flat
Now, I don’t really know what Jobs would actually do. But interestingly, when he came back to Apple he made some great decisions, many of which were actually very “startup like”. I was working at Apple in the early 90′s and can attest to the fact that the place was in a world of hurt. ”Rumor” had it that at one point Apple was teetering on bankruptcy as well so the comparisons to GM are reasonable if not at least instructive.
To start, the Apple turn around is an amazing success story and Steve Jobs did a few startup things to get Apple back on track. They include:
- Focusing on people
- Leveraging Apple’s strengths
- “Keeping it simple, stupid” aka KISS
- Made a few key bets
Focusing on People
Soon after Jobs returned, he started rebuilding the team with some great Apple Alumni and also lots of new people. And he invested in keeping some of the great talent already there. By the way, he also got rid of lots of the non or under performers. Here are a couple of examples on the executive team.
Jonathan Ive joined Apple in the early 90′s. I had the pleasure of working with him on a few projects including one code named “Lindy” which became the Newton MessagePad 110. He (and others that get less limelight) are incredibly talented designers and deserve credit for giving Apple the distinctive look and feel of todays products -- iMac, ipod, iPhone, you name it. He is an example of retaining an incredibly talented person who has truly delivered in Apple’s turn around.
Steve also recruited new people that filled gaps and holes in the team. Some were alumni from Apple, such as Phil Schiller, and others were new such as Timothy Cook, now Apple’s Chief Operating Officer. Cook brought years of manufacturing and operating experience from IBM and Compaq’s hardware business. This is something that Apple desperately needed in order to re-invent its supply chain for the 21st century. There is a great article about Cook in Fortune if you are interested in learning more. Fortune is suggesting that he is the likely internal candidate to become the next CEO of Apple… But replacing founders and CEOs is a topic for a future post.
So if Steve Jobs were CEO, my guess is that he would first focus on people and figure out who is great and should be retained and who should be brought in, either GM alumni or other folks, to fill in needs and gaps. This includes who should be replaced within the existing leadership team. And he would push this process deep into the organization to go beyond the executive team and focus on the whole company.
Leveraging its Strengths
When Jobs became at first interim CEO and then full time CEO, Apple had its share of challenges and lacked many of the strengths it has today. It did not have an iPod, or an iPhone and its computers did not have the cache they have today. But Apple did have some strengths and Steve played to them. Interestingly, many of its strengths were what many people thought were its weaknesses. One key strength to start was simply that it was different and its loyal user base was graphic designers and non mainstream PC users. It was not a Windows PC. Apple strengthened then built off of that position. It did this both in advertising and then in its products. Remember its ad campaign, “Think Different”? Read the text of its introductory ad which reaches out to those who challenge the status quo and don’t like rules. This was all about leveraging its strengths in its core customer base.
A key startup trait is don’t try to be all things to all people. Leverage your strengths and dominate one area profitably. This is what Apple did to start. They went back to their roots and leveraged that strength.
If Jobs were CEO of GM, he would do the same thing. Leverage a key strength. Without knowing all the details, my guess is that Jobs would focus on strengths of a few key brands -- Cadillac for high end luxury sedans, GMC for the best trucks you can buy, Chevrolet for mainstream affordable cars and Corvette for sports cars. And then the question is what to do with the rest…
Keeping it simple, stupid (KISS)
One of the other things Jobs did was to simplify and GM needs to do the same thing. When he came back there were lots of Macs with lots of configurations and Apple was still funding Newton which was bleeding money. I promise more detail on Newton later… What he did was focus and keep things simple. Apple simplified its product line by focusing on the high end graphic designer and workstation market and also the education and home market with the launch of the iMac. And it killed Newton and the whole effort to have other companies manufacturing Macintosh clones.
GM needs to do the same thing and cancel or sell off a lot of the stuff that is not making money. Start by killing Buick and Pontiac as they are simply re-labeled cars from other brands. Kill Hummer as it was a nice fad car but not a long term profitable market. Sell off Saab. Shut down or sell off Saturn as allegedly it has never turned a profit even though it has a pretty good brand.
Get back to a core strength and dominating 1 or at best a few key markets. Downsizing will be tough as lots of people have something to say about it (see previous post about GM and the friction in its infrastructure) but if GM does not then it will simply continue on its decline and eventually go completely bankrupt since after the US Government, no one else will step in to help… Now if it did all this, then what would be next?
Make a few key bets
Once Jobs got Apple healthy again, he started making a few key bits though not all at once. They included launching its own direct sales channel -- both apple.com and the Apple stores. This was a big bet because it had relied on others to sell its products and now was going to compete. It then launched the iPod and as it famously delclared, “Hell Froze Over”, and had the iPod support Windows. (GASP!). Apple too had to think differently and by supporting Windows with iTunes, it greatly expanded their market for the iPod. That one decision not only made the iPod a success but got many people that had never purchased an Apple product to consider a Mac and has driven sales of the Mac too.
If Jobs were CEO of GM, after making sure it had the right people, leveraging its strengths, keeping things simple, he would likely bet on just a few things -- a break through new product such as the Chevy Volt and maybe a new distribution channel.
The Chevy Volt is an attempt to make an electric car that works with today’s electric and gas infrastructure and is affordable. You can read more about the Chevy Volt here. It has the potential to be the kind of breakthrough product GM needs.
With respect to sales and distribution, isn’t it about time that I can go online, configure the car I want, give my credit card for a deposit and have the price be $1000 over their manufacturing costs, and then have the car delivered to my garage?
And of course, I am sure if Steve Jobs was CEO of GM, the cars would have amazing industrial design and be a delight to both drive and simply admire. GM could use some pizzazz too.
I don’t know if this is what Steve would actually do, or if it would even work, but it is fun to dream. Isn’t it about time that GM started to think different? Very differently? Let me know what you think…
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It’s the people stupid, part II.
Thanks for all the feedback and emails about my last post It’s the people, stupid. One theme of the feedback was basically, “Thanks, stupid. Of course we know hiring great people is important. Now can we have something other than apple pie?”
I agree that the tough question is, “HOW to build a great team?”
Since that is a big topic, the next couple of posts, in no particular order, will tackle a couple of key parts of that question.
In building a great team, I suggest you start by asking if you (and the rest of the team!) can answer the question about what kind of team you are trying to build?
This is often referred to as culture. In my view, without knowing what kind of team you want, you can never get there. Culture matters because great companies have cultures that are a key part of their success. By deciding up front for what kind of culture you are striving, then you can hire and train for that type of culture. Without this, at best, you will end up with a team of great individual contributors that might not work well together. At worst, well, you may fail.
Think about Southwest Airlines. They have a distinct culture that is part of their success. Google does too. As does Amazon.com, Oracle, Starbucks, REI, and even my local bike shop. The key is not necessarily what culture, as many will work, but simply that you decide what kind you need to be successful, and you build a team that embodies that culture.
I am not saying culture is more important than a specific job competence, but without a cohesive team, long term success is hard if not impossible. Competence is typically thought of as figuring out if someone is smart, do they have the background and skills to do the job such as communicate, program, sell, etc.
But what if we start thinking about culture as a competence?
In her book, The Southwest Airlines Way
So, as a first thought about how to build a great team, figure out what are the relational competencies you need aka culture, make sure the team understands them, and start recruiting a group that demonstrates them. Having this will make a difference in everything you do – from recruiting new people to making products to having successful customers and relationships and probably having fun too.
The next posts will cover questions about recruiting other competencies, engaging the team, and the dreaded question of firing people.
Thanks for reading and feel free to subscribe to get automatic updates of future posts…
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