Exit Strategies

A short and possibly controversial rant about closure.

There’s been a lot of back and forth recently in the arts world about organisations going under. Most recently, the decision to shutter the San Diego Opera at short notice has caused much consternation (and a few petitions to boot) from people passionately committed to seeing them stay open. They’re not alone in the opera world. Just a few months ago, New York City Opera went under, and rumours persist about a few other companies that are heading the same way. And that’s just opera; many museums, theatres and other arts organisations are under increasing challenges to remain solvent.

But I have a controversial thought to put forward: Sometimes, getting out of the game might be the best decision.

Now I admit that in the case of San Diego Opera I don’t have the financials on the company to assess the decision. Furthermore, I know that the impact of the lost cultural value on the region will be large, and the short timing leaves a lot to be desired in terms of staff management. However, the decision to close up instead of running the company into the ground and bankruptcy seems like the better of two options, if those were the only options available.

That’s because the end of any business is inevitable.

In the marketing world, we are taught about the product life cycle. In the strategy world we are taught about the industry cycle. Both models teach that over time, the need for a product or industry will reach a peak then decline. Both models imply that players in the market enter and exit as demand tapers off. Even if in aggregate levels are stable, new entrants will displace old ones as time goes on and new innovations occur. The timeframes may vary but the pattern does not.

Disruptive changes and new product innovations can sustain a business, but eventually, businesses decline to the point where they are either subsumed by other businesses, file for bankruptcy or disappear. It’s an inevitability. Nothing lasts forever. And as potential business leaders we should accept that we may find ourselves in a situation where we have to make the call.

So why don’t we talk about this more openly? Is it that it’s not considered important enough to teach?  Or does it run even deeper, reflecting our culturally inherent fear of death and the uncertainty of what comes after? Are we simply too scared?

It is good practice to look at where a business and an industry is heading. It is better practice to look at the options available given the state of the business and the industry. And I would argue it is best practice to consider whether the best option is to exit. And yet it feels as if this isn’t even thought about, let alone taught (with the exception of mergers and acquisitions). The closest we get is the study of turnarounds, where a new leadership changes the business model to something (hopefully) profitable. But not all turnarounds succeed. What then?

Exiting the business can be painful, but if it’s planned and managed well, it can be less painful.

Which leads to a second controversial thought: closing an organisation can be positive (in the long run).

Just because an organisation goes under doesn’t mean that nothing will come in to replace it. If there’s still a demand for a service or a product (be it opera, airlines or even fast food), someone will eventually make an attempt to meet that demand. They’ll do it with a different model, and hopefully learn from the decisions of the organisations that came before. And the cycle will repeat. It’s evolution.

This is why I believe a well executed exit strategy is a must. It manages resources and expectations, and sets the best possible groundwork for successors. Bankruptcy hurts debtors, is messy, and makes the barrier to entry harder for new organisations by making it harder to get funding (“How can we be assured you won’t go bankrupt too?”). Choosing the right point to leave helps to ensure that those who follow have the best chance to succeed.

If only we would acknowledge the value of exiting the market, and teach exit strategies more than we do now, we might all be better off. Especially in the arts.