Entrepreneurs often speak of their startups as if they were beloved children. The infant business must be protected, nurtured and loved. Its owner must be willing to feed it late at night, to fend off hurtful strangers, to sacrifice in multiple, unexpected ways. And often, those business owners must find a way to let go.
As businesses grow, they do not exactly move out, go to college and get married. However, digital startup entrepreneurs have similar goals for their businesses. "Exit strategies" don't mean entrepreneurs plan to get up and walk away from their businesses without looking back. Rather, entrepreneurs want to raise their startups, prepare them for bigger and better things and let them go, either through acquisitions, public offerings or organic growth. Our businesses can't stay babies forever.
So how does one craft a useful exit strategy for a digital startup? Start with these three elements.
Exit Strategy Do's
- Broad presence: For a digital startup to make it past the embryonic stage, it must have mass appeal. Can your service be sold to any industry? Is it accessible to buyers large and small? Does it solve a fundamental problem to which most everyone can relate?
- A committed team: Finding a dedicated group of people to install at the core of your business is critical to a successful exit. Revolving doors don't yield results during the impressionable startup stage. You need the best people, and you need them to stay devoted to rearing your business.
- Market need: The web business is growing faster than ever before, thus creating huge opportunities for digital startups. Entrepreneurs who can identify consumer needs in this growing market will see successful exits.
Exit Strategy Don'ts
With any three "do's," you'll encounter three "don'ts." Here are three common mistakes that prevent business happy endings.
- Uncertainty about your business model or ultimate goal: You must know where you're going if you want people to follow you. Although your business model will evolve as will your exit strategy, you have to at least start with a viable plan. Investors, partners, customers and employees will look to you to define the end game, so do it early. Then, keep your eye on the market and adjust as your business matures.
- Going niche: Narrowly focused digital startups set out on a difficult path with an uncertain destination. The best digital plays are broadly directed, since web apps require wide user bases to breed profitability. Once you identify that expansive prospect group, make sure the idea you offer is fresh. Your idea should add value to an existing market or create a new market that has potential to grow. Copying someone else's plan, no matter how good it may be, is a mistake, especially in a niche market. But tweaking a good idea with broad appeal can lead to a positive exit.
- Misusing the freemium model: Digital startups love freemium. Entrepreneurs want people to experience their products, so they oftentimes give them away. That's fine, as long as all those freebies result in upgrades. For a company to survive, it has to illustrate in its freemium model all the reasons why users should open their wallets for pro and enterprise versions. After all, a business requires paying customers to succeed, so a good freemium plan must appeal to a broad user base pair with a separate sales strategy that effectively converts users.
One more tip for the doting entrepreneur looking to shepherd his or her digital startup into the world: Iterate. If your first business model turns out to be misguided? Learn. Adapt. Try again. If the market you thought would go crazy for your service remains apathetic? Research. Revise. Re-release. Failures are learning opportunities. They're difficult, painful learning opportunities, but they're ultimately valuable ones.
Whether you define the successful exit for your web app as an acquisition, an IPO or a mature, private company, getting there is easier when you stay focused on the goal without being rigid in its pursuit.
