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What is an Exit Strategy?

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  • Written By: Brendan McGuigan
  • Edited By: O. Wallace
  • Last Modified Date: 02 November 2016
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An exit strategy is basically a plan to get out of a situation. The term exit strategy is most often applied to investment in business, and to military engagements. An exit strategy is recognized as being crucial to help bring about a positive conclusion to either a business or military undertaking.

In business, an exit strategy is usually determined at the outset of the business modeling. A good business plan will incorporate an exit strategy for investors, helping to show them that the model will result in profit for them, no matter what. An exit strategy can take a number of different forms, depending on the business, the investment, and the general climate. An exit strategy is often presented as a bail-out option, in case the company begins losing money, or it appears its future is not as bright as predicted.

Perhaps the most ideal exit strategy for a business from an investor standpoint is simply to sell the entire project. A buyout can have a great return on investment, can happen within a relatively short period of time, and involves very little fuss or confusion. If the company was successful, and the marketplace is ripe for their product or service, selling an equity position can offer a great yield.

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If a company doesn’t want to entirely sell off, they might recapitalize as an exit strategy instead. This will allow them to pay off their current set of investors, allowing them to exit from their investment, but will allow the company to remain under its current ownership, and continue functioning.

The current climate of Internet startups, like the dot-com boom of the 1990s, has been criticized for its heavy reliance on a single-minded exit strategy. It has been quipped that 90% of Web 2.0 companies have as their entire business model the simple idea of getting bought out by Google or Yahoo!. Of course, while this is an excellent exit option if it is offered, it makes a poor exit strategy, because the odds of it actually occurring are quite low.

In military use, an exit strategy refers to a plan for getting out of a conflict at a certain point. In modern warfare it is considered risky to enter a war without a very clear exit strategy, including quantifiable measures of success and limits of acceptable losses, in tandem with plans for dropping out of the conflict without leaving a large power vacuum. The phrase was widely used during Vietnam, although not in the public forum.

The idea of a military exit strategy reached widespread public usage during the Clinton administration, when President Clinton was repeatedly criticized for failing to have an exit strategy for a number of conflicts the United States became involved in. It continued to be used during President Bush’s administration, in relation to the wars in Afghanistan and Iraq.

In both business and war, an exit strategy allows those involved in supporting the endeavor — investors or the general public, respectively — to have more confidence that they won’t lose everything should things go poorly.

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TrogJoe19
Post 3

I don't think we should have an exit strategy for Iraq or Afghanistan. We made a mess there and should stay there until the people are enabled to deal with the results of our problems completely. This will take a very long time. Presidents pretend to have an exit strategy for the sake of public support, but they do not. They understand how unrealistic an exit strategy is for the current situation in the Middle East.

Armas1313
Post 2

@Leonidas226

If Google and large companies provide an easy exit strategy for failing businesses, why would we want them to have competition? It seems like a failsafe idea to have a large business which can shelter and save other businesses. There is no malicious activity in the google business, it is a very open and democratic place. They are certainly not big brother, if that is what you are suggesting.

Leonidas226
Post 1

Getting bought out by Yahoo or Google? Even if this is a viable option and a website is offered to be bought, why would they want to do it? I know there is the obvious incentive of a monetary benefit, but I think that by holding out they can both increase the offered amount and increase the potential for competition. Big internet companies need to be competed with just like any other big business. Google has become the Walmart of the 21st century.

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