I recently had a conversation with a startup where we discussed the product, business plan, roll out strategy, and team configuration. The idea was brilliant and I was captivated. Until, one of the founders said something that unwittingly revealed the rotten foundations upon which this startup was built. He proudly said, “We’re building this product for the exit”. I walked.
Even before Instagram had the world salivating over it’s head-spinning $1 billion acquisition, I’ve noticed a disturbing trend developing throughout the industry where the primary focus is to get rich quick. This corrupt motive isn’t limited of course to the entrepreneur, but is shared by many, including the investors and service providers, that operate in the ecosystem. However, if we look at the greatest innovators, money was never their goal. For them, the product always came first. Everything else was secondary.
Entrepreneurship is largely about curing a societal pain. Think about that. That’s a selfless act. It means that a problem exists, or a need is still unmet, and the entrepreneur must set out on his or her quest to develop a practical solution. The monetary gain is the necessary bonus. It’s what allows us to keep going. It’s the resource that fuels the arduous journey. But as soon as the financial gain becomes the object, we have polluted the purity of the entrepreneurial craft.
We need entrepreneurs that are passionate about making great products. They must be willing to forgo themselves in this journey, break through perceived limitations, whether internally or externally imposed, and pass through the fire of possibilities to melt away all other desires. It’s the sincerity of this journey that enables great things to be accomplished. That’s what this is all about. The exit is a natural corollary to this, but it should never be the objective. Especially not at the outset of the journey! As soon as we invert that, the game is lost, and whatever the product or brand, it will never stand the test of time.
This is not to say that financials should not be part of the equation. They are an incredibly important piece and are a gage of the journey’s feasibility. They are a very real and tangible measure of the risks involved. Moreover, the exit strategy is often a factor that must receive detailed consideration in the fundraising phase of the journey (especially, given the structure of the traditional venture capital industry). But, that’s where it must remain: merely a piece of a phase of the journey. And if the entrepreneur succeeds and provides a service for which there is a great demand, then of course he or she should enjoy the rewards that it brings.
There is a great quote from Steve Jobs in Walter Isaacson’s biography. We need to remember this principle and be ever vigilant that our internal compass continues to point in the right direction.
“My passion has been to build an enduring company where people were motivated to make great products […] [T]he products, not the profits, were the motivation. Sculley flipped these priorities to where the goal was to make money. It’s a subtle difference, but it ends up meaning everything.”
Disagree with you April 15, 2012
I disagree.
Look at it this way. Let’s say there is an employee that goes to work. He or she does the job and is diligent, but isn’t that rah-rah employee. Doesn’t hate the job, but is neutral. The employee does it to get the paycheck to do the stuff s/he wants to do. And the employee is also counting the days to retirement pension. S/he is there because it pays well.
It’s the same with an entrepreneur. It’s their job. Why should anyone give a rat’s ass if the entrepreneur is “passionate?” Having great ideas and “breaking through” limits has nothing to do with passion. I’ve known many company owners who just go in day after day and come up with great ideas, but with no rah-rah.
I’ve also known many people who did not have an exit plan, and they stayed past when they should – whether it was due to lack of ability to work at a larger corporation, or they thought the good times would roll forever, or they didn’t have the capital to go to the next level – there are many reasons to know when to leave. I’ve known many people who started companies, and I told them right at the beginning that they should have an exit plan. To their great financial detriment, some did not, and they paid a heavy price.
I think one should have an exit plan on everything: stocks, real estate, and yes, companies – and it should be discussed right at the beginning of a venture.
Steve Jobs, Bezos, et al are the exceptions, and even Steve Jobs ultimately had the exit plan, too.
I’ve been passionate about ideas that flop, and I’ve had stuff I was so-so about succeed, and I’ll take the so-so with lots of money over passion without money any day of the year.
I think building a product for the exit is a mature way of looking at it. I know people can build stuff for the exit, and have integrity and do a great and creative job. It is not a “get rich quick” mindset, necessarily. I mean, if it did succeed, and the founders left and others have come in to provide greater value, and it is STILL succeeding, and giving value to customers – who cares? People come, people go.
roman April 15, 2012
Thanks for the comment!
You are right – the exit has a role and the financials are very important. Ultimately, the pursuit is a business, not a non-profit charity. People should be compensated for their labor and they shouldn’t be blindly chasing projects without merit. Financial considerations are critical and are a very good gage to assess the feasibility and risks involved. The article did say that the exit strategy has a place. So I don’t think we are necessarily entirely in disagreement. Where I take issue is the priority that the exit has in relation to the product. It’s the difference between ‘how can I get rich and I’ll find anything to get me there?’ vs. ‘how can I solve this problem and make a living at it?’ There will be plenty people who will do quite well following that first consideration. I just don’t believe it’ll be a company or product that will have a lasting impact on society.
Matt April 16, 2012
Hey Roman,
Great discussion starter. I wonder if you were actually more repelled by the scent of cynicism, a lack of genuine commitment to the project, or perhaps a sense of their naivety, rather than purely the comments about “building for the exit”.
Building for the exit – or if we rephrase that slightly – making a calculated effort with a profit motive in mind, is exactly what business and markets are all about. Every business is building a product or developing a service to sell, and businesses themselves are as much a “product to be sold” as anything else. There are people who specialize in setting up businesses to sell and it’s a very legitimate avenue of endeavor.
The miracle of free markets are their ability (usually) to reward the selfish profit motive and create a net benefit to all parties involved in the transaction, improving the overall condition of society in a spontaneous and self-organizing way. (Noted there are plenty of exceptions, but generally this statement is more true than false)
Consider the career of a property developer. They buy property where they see the potential others haven’t yet seen, and build to sell. Just because they’re motivated by profit from the outset doesn’t necessarily mean they’ll cut corners and do a poor job. The quality of a property development is more likely determined by how well the rules are written and enforced, and how long that particular developer intends to stay in the game. There will always be shysters out to make a fast buck just as there will always be the quality developers in it for the long haul and multiple developments.
In this case, with your potential startup, a good question to ask them would be “What’s your track record of building and selling successful start ups before?” If the people involved have a strong track records of starting up new businesses, selling them off, and those businesses being successful, then I’d suggest you apologize quickly and get busy!
If they’re noobs then consider how well funded they are and how much risk they’re taking personally with the venture. It doesn’t matter that they’re building to sell, what matters is their credibility, capability and commitment to quality and success.
roman April 16, 2012
Well said. The finances, business strategy, profit potential and exit have a role in bringing something to market. And I agree that they’re critical. But for me, they have to take second place to the product that’s being developed. That doesn’t mean that I would advocate developing a product or providing a service without the requisite profit. That would be quite foolish. Rather, that the team and I (since collectively that determines the culture) live and breathe the product. Maybe not the CFO… but everyone else