Why starting a company with an “exit strategy” is risky and may prevent you from getting rich

Early on in my entrepreneurial journey, a lot of my friends asked me, “What’s your exit strategy?” and “When do you plan on selling your business?”

To be honest, I never thought about an “exit strategy” because my goal was to create a profitable and sustainable business that would enable me to become financially independent. In hindsight, the fact that I didn’t focus on an “exit strategy” was one of the reasons I was able to accomplish my financial goals.

It turns out that building a business for sustained profitability can be quite different from creating a business for the purpose of selling it or “flipping it.” The latter strategy often requires an obsessive focus on growth and revenue over profit.

The allure of an “exit strategy” approach is that it might be possible to “get rich quick,” assuming that you are able to ramp up revenue very rapidly. The downside, of course, is that this model is far riskier and more capital-intensive. And, if your strategy backfires, you are left to contend with not only sunk startup costs but operating losses (or no profit, at best) as well.

In a previous post, I explained how many entrepreneurs “fail” because they lack the patience to shepherd their business through the first five years. The “exit strategy” approach makes us even more susceptible to impatience and greed, and therefore lowers our odds of success.

In addition, an over-focus on revenue and growth can cause you to make disastrous business decisions. For example, during the Great Recession, I watched many of my competitors go out of business because they stubbornly adhered to their model of growth at any cost.

My approach, on the other hand, was less rigid and more practical. I sacrificed growth and revenue during the lean years and instead focused on sustainability and profitability. As a result, I remained profitable during the Great Recession and came out an even stronger company. Had I instead opted to try to increase our “exit value,” the result likely would have been quite different.

As it stands now, I’ve achieved all of my financial goals, and any “exit” would be icing on the cake rather than something more akin to a lottery ticket.

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