Great Companies Don’t Have an Exit Strategy
I started Puppet Labs in 2005. We grew to three people in 2008, and had 231 employees at the end of 2013. Along this path of building a company, I’ve been asked all manner of questions, and they vary depending on the stage of the company or the questioner. One question seems to be persistent, and it became more common when we took our first funding round in 2009. It has become downright rampant since we hired Bill Koefoed, our first CFO, in December 2013.
That question: “What’s your exit strategy?”
I’d like to explain why we don’t have an exit strategy, and why no one trying to build a great company should.
Until recently, my answer to the question of an exit has been pretty consistent: The best way to have a great exit is not to need one, so I’m focusing on building the best company I can by solving the most pressing needs of our customers. I’m confident that we’ll have a great outcome as a result.
Going back to the exit question, any new company has four basic potential outcomes: Go broke, get bought, go public or stay private forever. Two of those options — going broke or getting bought — are certainly exits, but the other two options have the company continuing to exist as an independent entity. Yeah, sure, you can talk about individuals having exit strategies, rather than just companies, and you could conceivably be an entrepreneur trying to build a company to the point where you can sell all your interest in the company, but … why? What are you doing building a company you don’t want to have a long-term interest in? A company built without passion — and with an end goal of making a few people filthy rich — is a shortsighted company not built to last. Everyone has their own motivations, but I can’t conceive of building a company whose success is measured by anything but customer happiness.
I’ve seen an even more troubling trend recently, where someone takes money and builds a high-growth, high-intensity company. You can operate at that speed only for a little while, though, so, about the time everyone starts to burn out, and everyone realizes that it’s a marathon and not a sprint, they sell the company. The entrepreneurs take a year off, the investors make good money, and now all the employees can catch up on sleep in their boring new jobs, leaving the customers out in the cold. Then the entrepreneur starts the whole cycle all over again.
I hear many Silicon Valley companies and investors talk about this model like it’s a success, but the only ones I see happy about it are the investors and entrepreneurs. However, if you build a company for the long term, you align everyone’s incentives. The investors get a much larger return on a more mature company, you keep all the promises you made to your customers, and your employees can stay with the company they helped build, and love.
Now, given our stage of growth, and our recent hire of Bill, I keep getting asked about an IPO, so my answer has to change a bit:
An IPO isn’t an exit.
At least it’s not for me, for our management team, any of our employees or any of our long-term investors. If we brought our company public, and all insiders sold all of their stock in the public offering, we’d have a bloodbath, not an exit.
An IPO is a means for a company to bring in cash, not the end of the game. The whole point is to raise money from public market investors so you can continue scaling and improving life for your customers. An IPO does have the happy side benefit of making existing shares more liquid. This doesn’t mean that all those shares turn to cash immediately. They aren’t allowed to, and if they did, that would cause a massive drop in the share price, because of oversupply and a sudden loss of trust by the market. That’s in no one’s best interest.
I started Puppet Labs because I saw both an opportunity and a problem in the market, and I’m trying to build the best company I possibly can to solve that problem and meet that opportunity. At some point, I might no longer be the best person for the job, but I literally can’t conceive of doing anything other than building a company able to tackle the problems that are most painful for its customers. The only way this could ever become boring is if I do a bad job of it and get crushed by the market. I can’t imagine quitting a company because its customer’s problems are too hard, but “boring” would drive me right out.
I once had an employee ask, “What happens if Puppet’s not the answer to our customers’ problems? Shouldn’t we be looking into whether we should start another company to solve those other problems?”
First, no single company could ever be the answer to all of its customers’ problems — the market moves far too quickly. But, if we’ve picked great customers with hard problems, and built a great team for solving those problems, we’ll never run out of opportunities. If we picked the wrong customers, don’t know what their biggest problems are or have the wrong team, well, we’ve got our marching orders then, don’t we?
Either you’ve done well and are crazy to walk away from it, or you’ve messed up somehow, and you’ve got an obligation to do your best to get things in shape. A personal exit strategy is a sign of a lack of commitment, not a sign of maturity or success.
So, no, Puppet Labs does not have an exit strategy, nor do I. Our mission is to help reduce the cost of technology change for our customers, so their technology is their competitive advantage. We think the best way to do that is to stay independent. While I can’t guarantee we’ll succeed, it’s our goal, and we plan to stick at it for as long as they’ll let us.