Startups Need a New Option: Exit to Community for Sustainable Growth

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Hatched by Glasp

Aug 29, 2023

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Startups Need a New Option: Exit to Community for Sustainable Growth

In the world of startups, the traditional path to success has always been centered around two major exit events: selling the company to a larger corporation or going public through an initial public offering. However, there is a growing movement that suggests startups should consider a third option: exit to community, or E2C.

The concept of E2C involves transitioning the ownership of a startup from investors to the people who rely on it the most - its community. This idea has gained traction as a way to ensure the long-term sustainability and accountability of startups, especially those that find themselves in the "zombie" territory - somewhere between failure and exit-ready.

One of the main benefits of E2C is that investor owners would have a new way of liquidating their investments that would otherwise lie dormant. Instead of letting a startup with potential simply fade away, the community could step in and buy the company with cash on hand, using the returns from their initial investment or future savings and profits.

Moreover, E2C offers a unique opportunity for key stakeholders, such as users or customers, to have a meaningful say in the direction and operations of the startup. For example, in a social-media company, users could have a say in how their private data is used, thus preventing the accountability crises that often plague venture-backed startups.

However, it's important to note that E2C may not be suitable for all startups. Ambitious ventures are inherently risky, and it may not be fair to distribute that risk among early-stage participants. Additionally, startups often need to make drastic pivots in their early stages, and having a large community of co-owners can make these difficult decisions even more challenging than if a small, high-trust group of founders is in charge.

To ensure the success of E2C, there are three key considerations that startups should keep in mind:

  • 1. Design Matters: As Tom Preston Werner emphasized in his talk at Startup School 2012, design is crucial. Every addition to a product dilutes its overall impact, so startups must focus on essential features and avoid clutter. By prioritizing design, startups can create a product that resonates with the community and maximizes user satisfaction.
  • 2. Optimizing for Happiness: Werner also highlighted the importance of optimizing for happiness. Startups should strive to create more happiness in the world for their customers, members, and shareholders. By focusing on the overall well-being and satisfaction of the community, startups can build a strong foundation for long-term success under community ownership.
  • 3. People, Product, Philosophy: Werner's three components - people, product, and philosophy - are key to the success of any startup, including those considering E2C. Having the right team of individuals who are aligned with the company's vision, a high-quality product that meets the needs of the community, and a philosophy that values transparency, accountability, and community involvement are crucial for a successful transition to community ownership.

In conclusion, E2C offers a new and potentially transformative option for startups seeking sustainable growth and long-term accountability. By transitioning ownership to the community, startups can harness the power of collective decision-making, prevent accountability crises, and ensure the company's future success. However, careful consideration of the unique challenges and opportunities that E2C presents is essential. By prioritizing design, optimizing for happiness, and embracing the three key components of people, product, and philosophy, startups can navigate the transition to community ownership successfully.

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