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There Is No Such Thing as An “Exit Strategy,” Even in Silicon Valley

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Written by: James Beriker 

The most common question that I am asked when I interview candidates for leadership positions is: “What is your exit strategy?” If I pause long enough before answering, the candidate often clarifies the question for me: “Are you planning on selling the company or taking it public?”

I have a standard response to this question that I use to engage the candidate in a discussion around what I believe it takes to build a great company. I explain that we do not have an “exit strategy,” that building a business is not a linear path from inception to “exit”– and that having a strategy to sell or take a company public is the wrong way to think about business building. Then I ask the candidate to give me one example of a great company that was built on an “exit strategy.” I have yet to hear a good answer.

I explain that our goal is to build a long-term sustainable business: one that has a compelling vision for how we want to positively impact the world, a clear mission for what we can be the best at, a strategy that defines how we compete to win in our market, a culture that enables our team to out-execute competitors, and, over time, an economic machine that produces a “fly-wheel” of growth and profitability. Along the way, we will have ups and downs, we may pivot, downsize and upsize– and may have the opportunity to merge with another company or go public.

But, we will never have an “exit strategy.”

Strong candidates engage with me in a conversation around business building and share their perspectives and their experiences at other companies– and these conversations can be rich and tell me a lot about the candidate. Some candidates are simply not satisfied with my answer. They are less interested in a discussion around the kind of company I want to help build and more interested in sizing up whether I, as the CEO, have what it takes to convert their efforts and time into a successful outcome for them. These are not the people I hire.

The most interesting thing about this question, though, is the question itself– and it reveals a lot about Silicon Valley.

The Silicon Valley ecosystem is built on liquidity. Entrepreneurs take investments from “angels” and venture capitalists. Startups use that capital to develop products, build teams, and scale their operations, taking more and more capital as their businesses grow. For successful companies, there is often an opportunity to “exit,” or more precisely to achieve a liquidity event in which shareholders receive a return for their investment in the company through an acquisition or an IPO. The returns generated from this “exit” (and often the entrepreneurs and the teams themselves) are recirculated back into the Silicon Valley ecosystem– and the cycle repeats itself over and over again.

According to the Silicon Valley Tech Venture Capital Almanac, venture capital firms invested $31.5B in Silicon Valley-based startups across 3,308 transactions since the beginning of 2009. In 2013, there were 797 exits at a median valuation of $60M, releasing about $50B of value back into the Silicon Valley ecosystem.

This availability of capital, concentration of entrepreneurs and talent, and a startup culture that is 50+ years in the making, have led to some of the most significant innovations of our time, wildly changing and enriching the way we live our lives– and transforming how we think about founding and financing companies, building businesses, and achieving success. But all this is not just about the “exit,” its about innovation, about ingenuity and creativity, about hard work–  and creating value in the world.

So, for the candidate interviewing with me for a leadership position, sorry to disappoint: I don’t have an “exit strategy” and never will. But, with a product that provides real value to users, the right vision, mission, strategy, and culture– and a little bit of luck and good timing– we can build a great company that does something meaningful– and have the opportunity to contribute to the Silicon Valley economic machine.

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