Book Brief: Exit Path

How to Win the Startup End Game

Brief Summary

Title: Exit Path: How to Win the Startup End Game
Author: Touraj Parang
Published: 2022 by McGraw Hill
What It Teaches: Exit Path teaches entrepreneurs how to prepare for the sale of their company.
When To Use It: The author advises founders: “No matter how nascent or established your startup is, your exit planning should start today.” He provides a step-by-step process for developing an exit strategy, developing strategic relationships with potential acquirers, and then moves through the transactional stages of selling your company and integrating it into the buyer’s operation. Since the relationship building phase can take years, it truly pays to start as early as possible.

Brief Review

The publicists supporting the release of Exit Path provided me with a free advance copy of the book in exchange for an honest review.

I’ve been founder or co-founder of four startups that have run their course. One ended in a successful sale to a large corporation. Everything went smoothly. Having now read Exit Path, I understand why. In that case, I was blessed with a co-founder who, by his nature, did all the right things to position us for a successful exit.

For two of my startups, I decided to move on to other opportunities and we decided to open source the technology to continue the mission without the burden of running a business and worrying about sales and profits.

For one of my startups, we realized that it wasn’t going to reach a scale that was self-supporting and we started pursuing potential acquirers. We spent time in serious discussions with one potential acquirer, but in the end failed to close a deal. Having now read Exit Path, I understand why. Thankfully, we still had plenty of runway to shut down gracefully, providing plenty of time for customers and team members to transition.

Touraj Parang has had similar experiences. His first startup ran out of cash and exited poorly. His second exited well. Since then he’s been involved in many more deals, both on the buying and selling side, and he’s learned what factors are within the founder’s control that can significantly influence whether a successful sale happens or not. Of course, he acknowledges that there are many things outside the founder’s control. He also acknowledges that some startups simply fail to create anything that a buyer would want.

Exit Path is his attempt to turn the lessons he has learned into a manual to set entrepreneurs on a path to exit as well as possible.

When he gets into describing the execution of an exit strategy, the book does its job exceptionally well. Parang describes what entrepreneurs need to do, when they need to do it, and why. He also educates founders on aspects of the transactional process that most of us will rarely (if ever) have encountered, pointing out areas requiring particular attention, and when it’s critical to get specialist advisors involved.

That being said, the book gets off to a slow and somewhat muddled start. Don’t give up. Work through these opening sections and you’ll soon discover the wealth of invaluable information in the back half of the book.

The book is organized into four sections:

• Part I: A New Perspective on Exit Planning
• Part II: Creating Your Exit Strategy
• Part III: Playing the Long Game
• Part IV: Mastering the Short Game

Parts III and IV are where Parang’s experience and wisdom shines.

Part I is an extended argument for why entrepreneurs should intentionally plan the exit of their business from the very beginning. My own experience tells me that Parang is right, but he takes too many pages to make his case and his belaboring the point had me on the verge of giving up on the book more than once. I’m glad I didn’t.

Part II is marginally better. I’m guessing that Parang’s skills really shine in the executional stages of an exit plan described in Parts III and IV and that the planning stage comes less naturally to him.

Or maybe it’s just me. Maybe my own strengths at strategic planning make his guidance in Part II seem to be stating the obvious, while his guidance on the later stages are less familiar and therefore more insightful and helpful to me.

But I’m guessing it’s a mix of the two.

An example of the weakness of this section is his frequent reference to creating an Exit Strategy Canvas (ESC). He compares the ESC to the Business Model Canvas (BMC) often used by Lean startups. The BMC lays out 9 aspects of a startup’s business in a logical way that explains how everything fits and flows to create value for all stakeholders. Parang lists and describes the 6 elements of an Exit Strategy Canvas, but he never shows us how to turn those elements into a visual reference where the pieces fit and flow. It leaves me thinking that Parang conceptually understands what needs to happen in this planning stage, but he’s still learning how to do it with the precision and confidence that show up in Parts III and IV.

Part III is where the book really starts to shine. The “Long Game” is the collection of activities that startups need to continuously pursue, often for years, to be prepared for when the timing is right to actually sell the business.

The most important aspect of this stage is developing and nurturing strategic relationships with potential future acquirers. This is valuable whether or not you ever sell your business, but managing these relationships with an eye towards a potential future sale is critical for success if that ends up being the right path for your business. Reading this section helped explain why the planning stage is so critical.

This section also introduces the three factors that you can develop during the long game to increase your leverage when the time comes to sell:

• Expand your options: “whoever can walk away from a negotiation has the power to dictate terms”
• Develop your insight: “understand the areas where your strategic partner will need you, and then make sure you put your best foot forward in those areas”
• Enhance your appeal: “a startup can successfully attract suitors if it (1) fulfills a strategic need for them, (2) has alignment in vision and culture with them, and (3) is realistically acquirable by them”

Part IV covers the stage when you move from planning and preparation to action. It helps you determine the best time to sell your business, how to attract bids, and how to manage the process from initial interest through closing the deal and integrating your business into the buyer’s organization. It breaks the transactional aspect of selling your business into two phases: the “term sheet” phase and the “agreement” phase and explains what you need to know in each of those phases. Parang also helpfully explains when and how to use outside advisors (lawyers, bankers, and strategic advisors).

Any entrepreneur going through the process of selling their business should read (or re-read) this section. Most of us don’t do this often enough to know or remember the subtle details that can make a huge difference in the outcome of the sale.

Bottom line: Exit Path provides a guide for entrepreneurs in how to successfully sell their startup. While the last section of the book is absolutely essential reading for anyone in the midst of selling their business, the preceding three sections explain what every startup should do well in advance of that event to dramatically increase their chances for success. If you’re an entrepreneur, or dream of becoming one some day, I strongly recommend that you read Exit Path by Touraj Parang.