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Early Exits

The Built to Flip Controversy

by Basil Peters on October 1, 2008 · 2 comments

When I first blogged about early exits in BC all of the comments were negative.

This wasn’t surprising. A lot has been written about the negatives of startups being ‘built to flip”. The term has a negative connotation – as if something improper is being done.

The most popular article on this topic, titled “Built to Flip” was written by Jim Collins and published in Fast Company. Mr. Collins co-authored a book called Built to Last in 1994. The book profiled 20th century icons including Disney, General Electric, HP, IBM, and Wal-Mart. Collins was previously a lecturer at the Stanford School of Business and now operates a management research lab in Boulder.

In my opinion, it was a great book – about history; but not very applicable to tech companies in the 21st century. The companies he profiles are “so 20th century” (I use that term like my teenage daughters do – as a pejorative.)

Don’t get me wrong, the companies Collins writes about were truly great  – and still are. But they are not the type of companies that can be started, thrive and prosper in the 21st century.

Think about it, if you were launching a startup today, would you prefer it to be:

  • Disney or Blizzard (the makers of Wow)?
  • IBM or Yahoo?
  • HP or Google?
  • Wal-Mart or Amazon or eBay?

‘Built to flip’ is not a dirty phase or unnatural act. To succeed today, I believe entrepreneurs must not only aspire to early exits, but design them into their corporate structures and corporate DNA.

The internet has changed everything. Most importantly it has accelerated everything.

It’s just not possible to take decades to build a company anymore. The entrepreneurs, employees and investors just don’t have the patience. Even if they did, their competitors don’t.

The good news is  with good design and excellent execution, it only takes a few years to build a great company and realize a successful early exit.

{ 2 comments… read them below or add one }

Basil Peters August 30, 2011 at 10:53 am

Comments from http://www.AngelBlog.net

Ernesto 1 year ago (as of 2011-08-30)
Interesting that you mention Google, The founders haven’t done an early exit, they are still there and the company is growing and growing.

Yes, perhaps the cycles are shorter, but the idea of creating a company with its selling in mind it sounds bad to me….. I prefer the idea of building a company in order to get it profitable (cashflow, do you remember?)

Quantum115 11 months ago (as of 2011-08-30) in reply to Ernesto
Your comment clearly points to the fact that you do not understand what an exit is. There are 2 major forms of exit: M&A or IPO. If you recall, Google went IPO. The fact that the founders are still there or are still owners is irrelevent to the exit concept. Any form of a liquidity event is technically an “exit.”

basilpeters 11 months ago (as of 2011-08-30) in reply to Quantum115
Interesting perspective, Quantum. There is always debate about whether an IPO is really an “exit”. As Ernesto points out, the founders of Google are still there getting a paycheck every two weeks. So in that respect, they haven’t “exited”. You also have a good point about any liquidity event qualifying. In my view, and IPO *can* be an exit and it *can* be a liquidity event, but if, and when, depends on whether there really is liquidity for the founders and investors, or whether the IPO only created the “illusion of liquidity” – a particularly heartbreaking form of “non-exit”.

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basilpeters 11 months ago (as of 2011-08-30) in reply to Ernesto
Ernesto – there is nothing at all wrong with building a company to generate cashflow. It’s a perfectly valid exit strategy (in other words, the strategy is not to exit.) These companies are often called “lifesytle” companies. The only point I would make is that entrepreneurs should not ask anyone except friends and family to invest in a lifestyle company.

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Basil Peters August 31, 2011 at 9:44 am

Trackbacks

No longer taboo to build to flip – The Financial Post Sept 29, 2008

“This speeding up of business time means companies are increasingly being built to flip, says Peters, who’s producing a book for angel investors titled Early Exits, which explores the trend for entrepreneurs and their investors to leave companies within a few years of startup.”

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