Early 2021, you would find yourself in a roller coaster if you owned stock of a small company called GameStop: A buying frenzy occurred—driven by thousands of Reddit users—and the stock increased by more than 1000% within two weeks. The objective of the Reddit user group was to squeeze several Wallstreet hedgefunds, which had shorted the stock.
After three turbulent weeks, the stock value plunged back to earth, leaving a few people very wealthy who sold the stock at its peak. Thousands were not so lucky and only got out with heavy losses.
The GameStop episode shows that it’s much easier to commit to something, than to abandon the commitment, especially after initial success. The most important part of any strategy, project, partnership or investment is therefore to know when to get out. It’s best to define this exit scenario before the start. This approach is called the exit ramp.
Five questions will help you to apply the high-performance principle of building an exit ramp:
- What needs to happen to trigger a review of our strategy?
- What would the end of our partnership look like?
- What will prompt us to abandon this project?
- What happens when we have spent the budget?
- At what value will we sell our stake?
If you want to beat the casino, the best way is to exit immediately after entering. However, if you still insist on playing, the second best way is to determine beforehand the maximum amount of money you want to lose. When it’s gone, you have reached the exit ramp. Then you know it’s time to leave.