Never Build A Company For The Exit

I am constantly surprised by how many entrepreneurs believe that it’s a good idea to build a company with the sole goal of an exit.

First of all — the odds that your company survives the first few years of its existence are already darn slim. Secondly — the odds that you will have an exit (selling your startup to another company or going for an IPO) or abysmally small. Lastly — the odds of having a significant exit are close to zero.

I always tell entrepreneurs to do the math — for themselves and on paper. It’s deceptive to use one of the online “Startup Economics” calculators, look at the numbers and convince yourself that it is just a question of time until you will be rich. When you crank out the numbers on a big piece of paper it suddenly becomes much more real.

A whopping $150M exit (and these are very, very rare) will net you maybe $5M to $15M before tax (depending on how many founders you are, how many financing rounds you had, what the terms for these rounds were, etc).

Now — that is a shit-ton of money. But when you consider that your odds of getting there are 1:1,000 (at best) — your risk adjusted return is a meager $5,000 to $15,000. And that for seven years of your life (which is the average time it takes to build and exit a company).

That is all to say — go and build your company. Don’t let any of this discourage you. But do it for the right reasons!