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Study on Exit Strategies of Entrepreneurs

Updated: Feb 19, 2022

There are several ways for entrepreneurs to leave their companies. These different ways are known under the name "exit strategies." In the entrepreneurship literature, exit strategies are divided into three main groups: "stewardship exit," "voluntary cessation exit," and "financial harvest exit."

Stewardship exit strategies focus on behaviors that correspond to social values and are in the community's interest. Behavior that benefits the collective is given a higher value in this strategy. Stewardship exit strategies are "successions" or "buyouts," for example, "family succession," "employee buyout" (EBO), or "management buyout" (MBO).

Voluntary cessation exit strategies allow the founder to dissolve their company. Either when the entrepreneurial activity ends or when the company has fulfilled the purpose for which it was founded. It can be differentiated between "voluntary discontinuance" and "voluntary liquidation." Bankruptcy differs from voluntary liquidation or closure because the entrepreneur cannot meet his payment obligations to creditors.

Financial harvest exit strategies often result in significant financial gains for the entrepreneur. These are very desirable exit strategies as the exiting entrepreneur is often paid a premium. Examples of financial harvest exit strategies are "acquisitions" and "initial public offerings." In this context, going public means that the private company of the entrepreneur is converted into a public company. In addition, the entrepreneur exits his company by selling his shares to institutional or private investors.

In a recent study, Mr. Hohen compared entrepreneurs' originally planned exit strategies with the exit strategies they carried out. He found that the exit strategies that were initially intended and those that were ultimately carried out differ significantly. Two groups of entrepreneurs emerged from the data. The first group includes entrepreneurs who had financed their companies with equity. The second group includes entrepreneurs whose businesses were financed by investors. The study shows that the first group initially intended a stewardship exit strategy but did not execute it. The second group originally planned a financial harvest exit strategy and executed this exit strategy. The study uses the Theory of Planned Behavior and the Behavioral Agency Model as a theoretical framework. Finally, the study explains how entrepreneurs' initial exit intentions are linked to their actual exit strategies using these two theoretical perspectives.

The study can be downloaded free of charge from the following link:

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All blog articles are to be understood as experience reports and do not claim to be either correct or complete. Nor do they represent legal and tax advice. They replace in no way an individual advice. The author assumes no guarantee or liability. Use at your own risk.

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