Your Payday Is Closer Than You Think - The 3 S's of Exits

People often ask me:

"Paul, how do companies and VCs manufacture exits?"

The life of a venture backed startup is centered around 3 major events:

1. The Founding
   
2. The Funding
   
3. The Exit
   

The key for entrepreneurs and VCs is to get from funding to exit. The exit can be an acquisition or an IPO, and at that point, everyone involved generally makes a lot of money. However, significant value needs to be created to manufacture an exit, and that value can be generated in one of 3 ways. I have listed these ways to generate value, in order from least effective to most effective, and I call them the 3 S's of exits:

• Strategic. Strategic value is created when you've designed your product or company to be invaluable to a single acquirer or small group of potential acquirers. Building strategic value to get to an exit is a great way to focus your company, but at the end, you are left with a relatively small number of outs. 
  
• Sales. This is self-explanatory. If a company can generate sales, then that might lead to an IPO where people are willing to pay for future growth. It might also lead to an acquisition by a company looking to capture those customers and capture that additional revenue.
  
• Self-Selection. This is the holy grail of value creation. At this level, your company has created something so special, or has marketed it in such a way, that no selling is required to bring in new customers. Customers come to you out of their own volition.

The most effective way to get to a big exit is to reach the point of customer self-selection. When customers are walking through the door, without having to spend a dime to get them in, then you know you're close to that big payday. Focus on transforming your business - from one where you have to sell to create new customers, to a business where the new customers are creating themselves. Remember the 3 S's and don't be shy to push your financial partner (your VC) for help in manufacturing the exit you're looking for.