This post brings up a very interesting exit option that I don’t think gets enough credit or consideration in the startup community. It is definitely important to be aligned with your cofounders at the beginning on the vision, and whether becoming a sustainable lifestyle business is an option, but I’m more interested in how such a transition can take place once you’ve accepted one or more rounds of funding.
Investors are expecting a large return on their capital, and will probably also have board seats and rights. When you get to the point like “Startup” where growth and revenue have leveled off and it probably won’t be a huge success, how do you go through the process of transitioning the company into a lifestyle business? I imagine the investors will not want to stay involved, so what options do you have for letting them exit gracefully and reduce the pressure on your company to make moves such as pivoting or seeking an acquisition?
I think this would be a very good topic to study in more detail. As an entrepreneur’s risk profile changes over time, the option to keep the business you spent years building in operation at some level must be enticing. I’m sure many entrepreneurs would not be satisfied and would want to start something else, but for many, this could be good middle option between another startup or returning to industry.
This is a good summary of some of the major red flags to watch out for. For your second point though (No customer access to MVP or product), I don’t think that a startup being in stealth mode is necessarily a sign that it is doomed. There are several examples of very successful companies that started off in stealth mode for months or even years: Zillow, Nest, Siri, Bloomreach, to name a few. In most of these cases, the core idea was relatively simple, but the actual technology infrastructure needed to execute was very complicated. Startups in this situation face a major threat from larger companies that could quickly put together more resources and beat them to market. Stealth mode gives a company the advantage of time to build out the technology and start with more of a competitive edge.
This makes me wonder, is there a way to take advantage of the Build Measure Learn feedback loop when your startup is in stealth mode? Is it possible to talk to your target customers and get their input into your product without advertising your idea to the entire world? I think the biggest danger would be not having a clear plan for when your company can leave stealth mode and getting sucked into a perfectionist mentality.