Entrepreneurial exit as a critical component of the entrepreneurial process: Theoretical development

a r t i c l e i n f o a b s t r a c t By demonstrating the importance of entrepreneurial exit to the entrepreneur, the firm, the industry, and the economy I contend that our understanding of the entrepreneurial process is incomplete without the inclusion of entrepreneurial exit. I define entrepreneurial exit and demonstrate how this conceptualization provides concepts that are unique from those addressed by researchers in other domains; thus outlining a space for it within the literature. In each phase of the entrepreneurial process I explore the development of an exit strategy, reasons for exit and options for exit. 1. Executive summary " Whether a privately held business is large or small, in a traditional field or exclusively in Internet commerce, newly started or generations old, it is owned by one or more individuals — and those owners all have one trait in common: They will someday leave that business. They may sell the business, they may close it down, or they may die in the saddle. But one way or another, exit they will! " In this article I argue that entrepreneurial exit — the process by which the founders of privately held firms leave the firm they helped to create; thereby removing themselves, in varying degree, from the primary ownership and decision-making structure of the firm — is an important part of the entrepreneurial process. A significant amount of previous entrepreneurship research suggests that the entrepreneurial process is complete when the new venture is created. However, " a central part of the new venture value creation efforts hinges on the ability to harvest that value at some point(s) in the future " (Holmberg, 1991, p. 203). In this article I develop the perspective that the entrepreneurial process is more than just the creation of a new venture and does not end with creation, but rather with the entrepreneurial exit. I also argue that not only is entrepreneurial exit an important process for entrepreneurs, it also has a significant effect on firms, industries, and the economy. A number of entrepreneurs – perhaps the majority – initiate a business without much thought to an eventual outcome (King, 2002). Only forty-five percent of the 2004 Inc. 500 CEOs – the CEOs of the 500 privately held, fastest growing firms in the United States as identified by Inc. magazine – report that they started their …