The Power of Micro-Exits: How I Found Success After Failure
Why early exits can be a good thing and how to make them happen. (#90)
Most startups never achieve exponential growth and gigantic returns. When they don’t, it’s a real punch in the gut. But lately, more founders are shifting away from raising huge sums of capital and billion dollar pipe dreams. Part of this is the AI revolution, with the notion that startups can be built and scaled with less capital and fewer people. Another part of it is founders focused on smaller exits—where they’re deliberately building businesses designed to exit early, or at least with optionality to do so and still generate a meaningful return.
Adam McIsaac has lived this experience and spent years digging into the topic of early exits. I asked Adam to share his journey, lessons learned and his playbook for winning with what he calls micro-exits. I believe we need more comprehensive and thoughtful content on the topic. The result is a content series that we’ll publish over the next few months. Today is the first post, introducing the concept of micro-exits and why they matter (along with a sneak peak into the practical steps to executing a micro-exit).
Follow Adam for more on LinkedIn and X.
“The only way out is through.” — Robert Frost
Building a startup is hard. In fact, it can be brutal at the best of times. The odds are stacked against you, the emotional whiplash is excruciating, and often the wins are short lived as you soon discover a new fire to deal with.
Building a startup is also exhilarating. It teaches you more about yourself than you could imagine. It empowers you to make meaningful decisions on a daily basis, dig in and solve problems, and lead others to do their best work along the way.
All this said, the night I sold my startup (Robin), I cried alone in a bathroom amidst a celebration. Not tears of joy or sadness, but tears of relief. I was relieved to have found a positive end to my startup journey, to have survived, and to have secured an outcome that I was proud of.
Let me be clear. From a financial perspective, I didn’t hit a home run. I barely hit a single. But I got on base. And that’s more than what ~90% of founders can say. I had achieved a Micro-Exit.
What is a Micro-Exit?
I define a Micro-Exit as the sale of a startup with the following characteristics:
A total enterprise value below $10M USD. Although this may not sound like a big number in today’s startup world, it can provide an outsized outcome, depending on the state of the business upon acquisition.
The business is likely described as ‘small’, ‘just ok’ or ‘growing slowly.’
The exit happens within the first 2-5 years of the company being founded.
The company has only raised a Pre-Seed and/or Seed round of financing. (Although it theoretically could happen at any stage of a company’s existence, it’s less likely if you’ve raised a Series A+ given the course you’ve set and the economics for founders).
The founders are required to work at the acquirer post-acquisition for 1-4 yrs.
I also use the term micro-exit because it can have a tremendous impact on the microeconomic outlook for founders and their immediate quality of life. In many cases, a micro-exit provides founders enough liquidity to significantly change their financial situation. It may not lead to an early retirement, but after years of earning startup founder wages, it can make an immediate impact on their situation and their families.
You may prefer to call this type of sale an early exit, an acquire-hire, a soft landing or whatever you’d like. The nomenclature isn’t important. What’s important is to have a good, public conversation about micro-exits and how, under the right circumstances, they can be a good outcome for founders who ultimately can’t benefit from the power law of a venture capital portfolio.
Learn to celebrate the little wins
Startup ecosystems are designed to reward big bets, big funding rounds and big wins. Ask anyone, and we’d all theoretically rather produce another Shopify (Canada) or Wise (EU) than a thousand micro-exits. There’s lots of evidence that massive success stories, and the associated “mafia” economics, are black gold fertilizer for startup ecosystems. But ask a thousand current founders if they’d take an acquisition offer today that yielded <$10M for their team and investors given their current traction, and you might get a very different answer.
I’ve spent the last few years speaking to founders who have stories not too dissimilar from my own. Stories where they launched a business, floundered, yet they found a path to a micro-exit. Unfortunately many of these stories aren’t being proudly told at large. Why? Because feeling like you “failed” when you set out to build a venture scale business hurts. Shame is powerful. Often, posturing and hiding behind a vague “we’ve been acquired” headline is easier than telling the nuanced truth of a micro-exit.
As founders, investors and operators we don’t properly celebrate these types of outcomes as “successes” given the lens we use to evaluate startups. I believe we need to promote micro-exits as a viable path for a subset of businesses and entrepreneurs, and share insights and tactical advice so founders can spot the opportunities to maximize their returns with a micro-exit, given the realities of the business they’re building.
“In hindsight I think we made out like bandits. We got out at the frothiest time with 23X revenue. Was originally fully stock deal, bonuses, salaries, green cards, etc.” - Anonymous founder discussing a micro-exit
What is this content series about?
The goal of this series is to provide bite-sized pieces of content that can help founders who find themselves in a similar situation to where I was with my startup - a few years into building a business that had value, but with clear limited upside. This is going to be content for exit-curious founders who are ready to have an honest conversation about the realities of their business, and their expected return.
“If you’re sub $1M in ARR and a banker takes it on, it’s a red flag. Any banker worth their salt wouldn’t touch it.” - Startup advisor and former founder
This content series is not for founders that are still on a path to building a venture scale business. Unfortunately I have very little advice for you and wish you all the best of luck on your journey.
This content is for founders who:
Have an existing startup and want to find a modest exit in the next 12 months; and,
Haven’t messed up their cap table and governance so bad that they can’t do so freely; or founders who,
Have yet to launch, but want to build in optionality for a micro-exit along the way.
In this series I’m going to cover:
My experience building and selling Robin
Anecdotal stories from other founders who have achieved mico-exits
A 12 step playbook for founders when considering a micro-exit
How I would theoretically (and quickly?) engineer a micro-exit for my next startup
Ultimately I want this content to help Focused Chaos readers discover the many viable exit paths for a business. And if I can help just one founder achieve a micro-exit in 2025, then writing this will all be worth it.
Here’s a sneak peak into a future post:
Chapter 1: Preparing to Sell
It can be difficult to decide it’s time to sell your startup.
For me, the signs had been there for some time—I was just avoiding them.
Toward the end of 2019, I was reviewing the business with my team. We were faced with the reality we had missed most of our revenue targets and were far off our growth plan. We did have some loyal customers, but rarely received feedback that our product was a “must-have.” We had never found a user acquisition lever we could pull repeatedly, and this meant we were just okay at a few acquisition channels, but not great at any of them.
Most importantly though, we were emotionally and financially exhausted. Truthfully, we had fallen out of love with our business.
Let me be clear: knowing you want to sell your business isn’t the same as giving up. Giving up can be easy. Giving up can be shutting down. Trying to sell your business is hard and requires confidence you’re pursuing an outcome that is likely to give you back some of the things you sacrificed along the way.
Knowing when you’re ready to sell is also unique to your experience and the context is personal.
Don’t let anyone tell you it’s time to quit.
At the same time, don’t let anyone tell you to keep going when you know in your heart you don’t want to.
If you have decided you want to sell, take these key steps before embarking on the process.
1. Build consensus
You will increase your chances of a successful sale by building consensus with your stakeholders as early as possible. This includes team members, investors, advisors and other parties with strong ties to your company.
You can either seed the idea of a sale or exit earlier in the process, or move quickly upon the decision to sell. If your startup is anything like mine, this will likely come as no surprise to many stakeholders.
Key team members will likely be thinking what you’re thinking: “This isn’t turning out how I had hoped,” or “Is this where I think I can do my best work for the next five years?” Having open and honest conversations with key team members will help to get alignment on the next steps for a sale, and to evaluate who has the stomach for it.
For investors and advisors, the state of your business should be clear from your monthly updates if they have enough experience as operators or perspective across a portfolio. Truth be told, if you haven’t been growing quickly, they’ve likely written off your business in some capacity or another. Once you suggest a path to sell and get them a return on their investment (of money or time), they’ll likely be supportive.
(Side note: Supportive is different than helpful. Supportive stakeholders provide words of encouragement and usually stay out of your way. Helpful stakeholders dig in, make introductions and help you polish your startup for potential suitors. Helpful stakeholders are incredibly valuable and can make a material difference in the outcome. More to come on this later.)
2. Buy yourself time
Selling a company, like fundraising, can be an excruciating and long process from start to finish. If you’re starting cold, you must find a way to buy as much time as you can. Ideally, find a way to scale down to get six to nine months of runway.
Often, founders wait to sell until they have very little in the bank. Don’t let this be you. Scaling down can include layoffs, disinvestments, OPEX reductions and leadership payment deferrals. Simply put, do anything to buy yourself as much time as you can to run the process.
3. Pick your coaches
You will increase your chances of success by learning from others who have already done what you’re doing. I spent the better part of a week reaching out to anyone I knew who had sold a similar business to uncover founders with potentially relevant experience. Find your coaches early in the process as they will be immensely helpful at every step. Coaches can be existing advisors or mentors, but they can also be peers from your extended network.
4. Get some rest
Be sure to re-energize before taking on a sale. Try to get into a good headspace and be excited about the work ahead. Go on a trip. Get a massage. Do mushrooms.
The process of selling your company is both a sprint and a marathon. You’ll sprint at first to get as many meetings with prospective acquirers as possible. Soon thereafter you should work quickly to eliminate anyone who doesn’t seem like a good fit (until you have your first offer—more on this later) to focus your time and effort on running the marathon with the best leads. Obstacles will arise, deals will die and then revive, and acquirers will go dark. Ensure you have the energy and patience to tackle these challenges as they come.
More coming soon!
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So true, esp. in the AI-powered solopreneur era