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15 August 2012

Exit Strategies Flipping Evil 2

by Mike

Note: this is a draft that has been lingering in the drafts folder for a few months, I am posting it here incomplete as I feel it is worth doing so…

Over the last few weeks I’ve heard a number of opinions from friends and acquaintances about how having an exit strategy when you go into a new business is a bad thing. I’m not so sure.

I think you really need to consider it as a whole. It comes down to that age old answer - It depends.

If the sole reason to start the business is to exit as fast as possible, then sure that from my perspective is generally a bad idea. The business should be built in the most cost-effective way possible and to start getting as many users as possible. (Users that may or may not be paying for the service, but that can be monetised at a later date…) To this end, building infrastructure for the long term (ie an architecture that can work across a multiple servers and support growth longterm) is generally an outlay that you don’t want to make in the initial stages if your single goal is to sell the business for as much as you can for as little cost as possible. Most buyers wont know the difference between a fault tolerant configuration and a configuration that is creaking under the load, and so you are rewarded for skimping on this stage in the majority of cases.

However, if your sole goal is to sell the business, what happens if you don’t manage to do that? You haven’t put any resources into building a sustainable business and so it is quite likely to fail if not given an injection of resources to bolster the areas that were omitted during the initial stages.

If you haven’t got those resources and can’t sell it you are pretty stuck.

It is also rather morally ambiguous to not disclose the short-comings of the infrastructure if you are selling it as a viable business opportunity.  I feel that buyers should always be cautious about purchasing a business, but if the seller is intentionally mis-selling the business as having growth potential when they know that the infrastructure wont support it without re-engineering then this is just fraudulent.

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