Most founders jump into the startup scene similar to participating in a running race with no finish line.
Think like a Chess Grandmaster
Studies point out that chess grandmasters visualise the chess board state few steps away to a ‘winning game’ and make moves based on memory pattern that can lead to that board state, thus helping them win the game.
Many startups, however, operate in a game where rules are dynamic and are susceptible to unexpected changes. Due to a regulation or policy change, an unanticipated flood of competition could sweep in, or the ground is shaken underneath. Due to such unpredictability, most of the founder’s move is extremely tactical, the focus is on surviving and not getting killed as opposed to planning to grow like rabbits.
Yet thinking about end game is beneficial and very critical at few junctures in their startup journey.
Broadly, there are only 3 types of endgame:
The Case of Multiple Product Lines
What starts as an idea, reaches the product-market fit and it is quite possible that it hits a plateau either because it invites too much competition or the addressable market was not very large. At this point, one has to go back to the drawing board and come up with another idea and restart the journey towards product-market fit. Getting to product-market fit is not a process that can be repeated even with the experience of having done it once. Even a repeat journey feels like the first time. Many startups follow this path and continue to repeat the cycle. Wingify, Fusionchart, AgileCRM, Ozontel, Zerodha and many in India have traversed this path well.
Product Company IPO
The second option is to take the company public. There have been few instances of Indian startups going public in NASDAQ & NYSE and few have listed in India bourses. Indian exchange is in no way similar to NASDAQ and has more stringent conditions for listing. This makes it very unfavourable for tech startups that prefer growth over profits. A cursory look at the data shows that among tech startups, only about 11 of them have gone public in the last 11 years.
The Default Path is M&A
As an exception, if we leave out the outlier case of Flipkart which made the entire ecosystem viable, the rest of the power law distribution points out that average acquihire deal size is not too encouraging.
For the USA, if there is anything we can learn from the data of the last 20 years is that M&A is more likely than IPO.
Furthermore, the mean time for exit is between 4-5 years and that of IPO is between 7-8 years.
For a funded startup therefore even if they did not think about the endgame, data above shows that they would be shepherded to M&A or an IPO.
Any game including the startup game has an endgame. Being aware of the endgame allows a founder to be in control of what it is likely to be.