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Why exit strategies are crucial to business success

Strategy is often a focus at the start of something but exit strategies are also crucial to business success.

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In business, we are encouraged to look ahead, seek out the opportunity and to chase it. However, little attention is paid to what is currently going on in the business—what is efficient, what is effective—and what is no longer serving the organisation. Over time, things that start as powerful and effective drivers of the business can stop being valuable as things change in the company and its competitive environment.

Unless you take the time to build deliberate ‘exit’ strategies for things that no longer serve you, it can significantly hold you back from high performance.

Why a lack of exit strategies holds you back

An organisation has limited resources—human, financial, time—each of which is soaked up doing the activities of the business. New and valuable processes and resources are added to drive performance, but over time these things can become regimented ways of ‘doing things’—often without sight of why they were implemented in the first place.  As things become the norms and standards, such as processes, product lines and even people, many resources are absorbed in doing things that no longer truly add value to the business.  Imagine if these resources could be freed up for something more valuable?

The psychology of the endowment effecthanging onto things

It may seem crazy, but it is only human nature to hold on to things that we should let go of. We endow objects that we have with more value than they are worth in a logical trade—for example, an experiment showed that people would not trade even something as simple as a coffee mug for its face value, believing that because it was ‘theirs’ it had greater value. This was supported by loss aversion—if they sold the coffee cup, they would ‘lose’ its future utility. Fear of loss can double the perceived value we put on an item, even if this is completely out of step with true market value.

Inside your business is the same. All the great projects, processes and people that have accumulated over time are often held onto due the endowment effect and loss aversion. It is often easier to let things remain as they are, than lose something that we have always done.

Your worst enemies in business are fear and habit. ‘What if we don’t?’ And ‘but we have always done it this way!’ Are clear signs that emotional, rather than logical decisions are being made. These fail to address the real questions about what value it adds, or what else could be done if it was stopped.

All the things that you hold onto (for emotional reasons, or out of fear or habit) soak up valuable resource. In order to create space for high performance, this resource often needs to be freed up and redirected to more valuable business activities.

It’s time to create space for high performance in your business.

Ways to think about exit strategies

  • Define ‘exit’ as a strategic lever for your business.In your planning, decide what things you can exit that would free up resource, or that no longer serves you in the business.
  • Take an outside view. Would another company in your position do the things you do? What things do they do differently if they are ‘state of the art’? Use this as a lens to review your processes.
  • Plan your business over three horizons—knowing that as new things flow into the business, old things have to make way.
  • Notice your reaction to change—particularly when you will stop doing something. Avoid fear and habit, and when emotions start to play a part such as loss aversion of the endowment effect, challenge yourself to think more logically about what is going on.
  • Understand that competencies and processes have to change as the organisation develops. Recognise that what may have served you before may be stopping high performance now.

Perhaps it’s time to produce exit strategies that enable room for high performance in your business.

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