Making sense of entrepreneurial exit strategies: A typology and test

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Author Information : Alexander McKelvie (Whitman School of Management, Syracuse University)
Dawn R. DeTienne (College of Business, Colorado State University)
Gaylen N. Chandler (Barton School of Business, Wichita State University)

Year of Publication : Journal of Business Venturing (2015)

Summary of Findings : While exit strategies are important to entrepreneurs, there is little understanding of what might drive a founder to develop one exit strategy over another; we predict and examine the factors that lead to the development of financial harvest, stewardship and voluntary cessation exit strategies.

Research Questions : 1. What are the main factors attributed to an exit strategy for entrepreneurial founders?

2. What are the unique personal and business predictors for each of the exit strategy types: financial harvest, stewardship and voluntary cessation?

What we know : Entrepreneurial exits, and in particular exit strategies, are an important part of entrepreneurship. But how these develop in entrepreneurs is not well understood.

We provide a lens through which to better understand how entrepreneurs consider how they are going to exit their business at some time in the future. These factors are known to influence the decisions and behaviors that the entrepreneur engages in.

Devise that types of exit strategies can be put into categories, with predictors of each. This takes into consideration that not all entrepreneurs want to “cash out” by selling their business, but rather captures a diversity in personal motives and business factors. These categories are predicted by different sets of factors, which shows that many complex decisions are being made.

Novel Findings : Show that the seven types of exit strategies can be put into consistent categories.

Entrepreneurs with financial harvest strategies have higher levels of extrinsic motivation, larger founding teams, more innovative opportunities and use causation.

Entrepreneurs with stewardship exit strategies have lower levels of extrinsic motivation, higher levels of motivation for autonomy, smaller founding teams size but larger numbers of employees.

Founders with voluntary cessation exit strategies had smaller numbers of employees, lower innovative businesses and tend not to use causation-based decision making practices.

Novel Methodology : Surveyed 189 founders during the formative years of their business. Usually exit strategies are studied at a later time in business development or after the founder has already exited the firm.

Implications for Practice : Provides new insights into how individual- and business factors relating to the entrepreneur's motivation, decision-making process, opportunity, team size and number of employees affect the development of an exit strategy.

Suggests important differences between financial harvest, stewardship, and voluntary cessation exit strategies.

Implications on Research: First research to offer a systemic analysis of the factors that will predict the type of exit strategies different founders will pursue.

Contribute early stage study of an important part of the overall entrepreneurial process, but one that is not well understood.

Provides further evidence of founder motives, although first to see that applied to the study of exit strategies

Full Citations : DeTienne, Dawn R., McKelvie, Alexander and Chandler, Gaylen N., 2015, Making sense of entrepreneurial exit strategies: A typology and test, Journal of Business Venturing 30: 255-272.

Abstract : Entrepreneurial exit is a major event in the development of a venture. However, we have little understanding of the factors that drive the development of an important pre-cursor to exit: the exit strategy of the founder. Based on the existing literature, we develop a typology of entrepreneurial exit strategies consisting of three higher-level exit categories (i.e., financial harvest, stewardship, and voluntary cessation) and develop an initial test of our typology. Specifically, we examine entrepreneurs' perceived innovativeness of their opportunity, motivational considerations, decision-making approach, founding team, and firm size. Our results show different predictors for each of the three exit strategy types and represent a significant contribution to the understanding of exit strategies in new ventures.

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Alexander McKelvie

Alexander McKelvie

Professor McKelvie is an associate professor of entrepreneurship and chair of the department of entrepreneurship and emerging enterprises. His research concerns the study of different types and patterns of growth, corporate entrepreneurship, the acquisition and use of new knowledge in new firms and entrepreneurial decision-making.
Alexander McKelvie
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