Many entrepreneurs still dream of “going public,” making billions of dollars, and playing with the big boys. They don’t realize that this option would likely be their worst nightmare, since it costs millions for the road show, usually dilutes your equity to a tiny fraction, and takes away all your entrepreneurial control.

Even though the Initial Public Offering (IPO) alternative for a successful startup seems to be coming back into vogue, it is still extremely rare. Only about a dozen U.S. companies made the IPO transition in 2009, out of thousands of startups. Even in most of these cases, the original startup founders were pushed out, or heavily supplemented, with “experienced” executives.

Sure, there are examples of founders who have survived and prospered, such as Bill Gates and Larry Page, but these guys are the exception, not the rule. More importantly, you should never even start down this path unless you can really use a large infusion of $150 million in cash or more, and have $3 million in the bank and up to 18 months to dedicate to the effort.

I recently reviewed a good summary of the advantages and disadvantages of an IPO exit strategy for startups in a widely-used textbook “Entrepreneurship,” by Robert Hisrich, Michael Peters, and Dean Shepherd. Their synopsis of the key risks should make you look hard for an alternate exit strategy:

• Increased risk of liability. With Sarbanes-Oxley, the CEO, CFO, and the Board of Directors are all assumed to have full knowledge of all government standards of compliance and reporting. All are charged with personal responsibility and liability for reporting and public disclosures, backed by huge penalties, fines, and prison terms.

• Higher administrative expenses. Most estimates of the expense for compliance and accounting procedures of a public company are at least double, or maybe quadruple those of a private company. Expensive new IT systems, consultants, and investment bankers are usually required.

• Increasing government regulations. Just to keep track of new regulations and changing compliance requirements, many companies have added a new bureaucratic tier and a chief compliance officer, as well as more expensive lawyers. Annual reporting and audit requirements continue to increase.

• Disclosures of information. With public shareholders and high liability risks, every public company must disclose and answer to shareholders and the press on all material information regarding the company, its operations, and its management.

• Pressures to maintain growth pattern. Opening your company to the public will change the way you do business, from reinvesting returns for the future, to maximizing growth each quarter. The pressures to maintain growth patterns and meet the expectations of the investment community are typically real and intense.

• Loss of control. When shares are sold to the public, the company starts to lose control of decision making, which can even result in the venture being acquired through an unfriendly tender offer. With the more popular Merger & Acquisition (M&A) exit strategy, the control stays with the new entity.

On the other hand, if you are looking for major financing to expand manufacturing capacity, or need major marketing efforts to build your brand, an IPO may be the only way to get you there. Of course, IPO funds can be used to finance a big development effort, but the delay in payback will likely cause a quick stock price decline, which invokes the challenge of continuous growth mentioned above.

In any case, an entrepreneur in one who likes to build new products or services, and works ON their company, while a public business executive works IN the company. Once the new startup is “proven,” most entrepreneurs are happy to exit, before being forced out or burned out, to start again with a new and even bigger vision. Don’t be driven by greed to the wrong alternative.

Companies today are paranoid, afraid that even their friends will steal their business. Yet a creative collaboration with your biggest competitor may be the best opportunity for revenue and survival. But remember that “dancing with the wolves” can also get you eaten for lunch. You have to take the risk, but keep your wits about you.

Your goal is “coopetition” – to find a way to partner with your competitor in such a way that both parties can substantially benefit from the other’s resources – without stealing customers or damaging anyone’s credibility. It’s a great survival strategy for small companies or entrepreneurs, and a good expansion strategy for even the largest companies.

As an example, a few years ago I worked for small software company selling an expensive enterprise workflow product. It was heavy on visual development capability but light on modeling and simulation, and we kept battling a competitor in the marketplace who had essentially the inverse strengths in a similar product. We were both losing in the lucrative high-end market segment. Neither could afford to build what the other had, but we could easily integrate some of our combined features in a shared product.

We finally decided set up a strategic partnership with a joint product to capture this elusive segment of the market. As a result of our increased coverage and wider range of solutions, we both gained revenue and credibility, while reducing marketing and development. In the following quarter, we jointly signed up two new customers who loved our “end to end” integrated solution.

This example is only the first of six approaches for coopetition, with potential wins for both sides:

1. Best of both creates a new market. Your competitor has strengths, and you have different strengths. A strategic combination can win in a new segment of the market, which neither of you could do alone in the same timeframe or at the same cost.
2. Cost sharing and economies of scale. Companies work together on segments of their business where they believe they can minimize costs but not jeopardize their unique attributes. For instance, Dell and HP are strong competitors on notebook computers, but both offer Intel processors, rather than building their own to keep component costs down and broaden their application market through compatibility. Both now lead with the same processors, but Dell offers custom system configuration at ship, while HP capitalizes on more impressive display and battery technology.
3. Up-sell related products after the initial sale. If your customers would benefit by having both of your products, you might negotiate the opportunity to include your competitor’s product as a later add-on, or vice versa. This is called up-selling, or cross-up-selling, and both parties share the profits. You see this every day in retail outlets that are not “company stores.” They are more than happy to sell you alternative brand of shoes that match your suit, or suggest a premium appliance from another manufacturer, once you have selected the lowest cost refrigerator.
4. Integrate for new or critical mass. If your competitor has a similar product that could complement your own, you might consider arranging a deal where both you and your competitor would offer an integrated bundle or new product. Another way to “coopetate” is to create a critical new offering to address a common enemy. For example, if you’re selling a travel magazine, you could add a free travel video when someone buys a subscription. You’re now targeting people who want the travel magazine and those that want the specific video you are giving away. Others will now buy your travel magazine over a travel book, for example, which competes with both your magazine and the video individually.
5. Cross endorsement.If your “competitor” isn’t really competing with your direct market, you can refer business to each other without anyone losing customers. Affiliate marketing might actually be one of the more effective (and easier) ways to partner with someone else in the industry. Online, this starts with link exchanges, leading to referral fees.This also works for two businesses with different products but similar clientele, to increase the market for both. It could be something as simple as a chiropractic office that offers acupuncture and physical therapy cross-endorsing with a neighboring gym. Gym members could get discounts on chiropractic services and chiropractic patients might get free on-site body fat analyses from the gym.
6. Possible investor. Once you have established your credibility and value, a strategic partnership may extend to a financial relationship. They may have the finances you need and are ready to invest in a business area they know. Also, this competitor will now be a better candidate for merger or acquisition (M&A), due to the existing relationship, when either of you is ready for that step. For example, IBM, Intel, and other large companies routinely allocate and manage venture funds to invest in startups with new technology that may in fact be competitive with their own. Buying the startups that get traction is cheaper and faster for them than trying to manage similar development efforts within a large company.

Of course, for a strategic alliance to work, you must take precautions. Companies need to very clearly define where they are working together and where they are competing. The right place to start with a good joint non-disclosure and non-compete agreement. Also, make sure there is no misalignment of priorities between your organizations, which can negate all the positives.  For example, if your pride is your customer service reputation, don’t risk it by partnering with a company who has related items at a lower cost but consistently poor customer service.

While it is normal to instinctively look for ways to avoid, evade or protect ourselves from the perceived threat of a competitor, take the time to look at the opportunity strategic alliances may provide. You will find that it is sometimes smarter to capitalize on the positive aspects of a competitive situation, rather than fight to the death of both of you.

Most entrepreneurs expect to face the “normal” challenges of starting a business, which include finding the right opportunity, building and executing a winning plan, and financing their venture. But many forget the pitfalls associated with traditional business jobs which can apply even to the smartest and most dedicated people running their own business.

Often these facets of entrepreneurship don’t rear their ugly head until well down the road. Yet before you start, you should think about what the impact might be on your psyche, and how to neutralize these challenges in your own plan. I’ll summarize them here, but you can see more detail in an article by David Finkel in D&B Small Business Solutions:

1. Long-term daily job grind. Sometimes entrepreneurs are so set on creating a successful business, they forget to create one that they love to work on every day. After a time, they find that they have merely created a job for themselves, with the same rote responsibilities and stress that they experienced in a prior corporate world. Daily attendance is mandatory in order for the business to succeed and be profitable, and the so-called freedom is hard to find. Vacations and time-off don’t happen for years.
2. Formal training courses. Larger enterprises are always sending their “high fliers” to leadership refreshers, new technology updates, and training on employee performance management. Entrepreneurs find themselves all alone in the trenches, without the time, money, or incentives to do these things. The result is a sinking feeling after some time that you are no longer vital and competitive in your own domain.
3. Personal wealth management. Entrepreneurs find that the business skills needed to grow their business are not the same as the personal wealth skills needed to manage a healthy personal wealth plan for their family and their retirement. Their business is their entire portfolio. They are at the mercy of innumerable catastrophes, making this a huge risk.For these individuals, a lack of financial fluency often leads to poor decisions after they no longer have their businesses. They wake up one day without their business, and with nothing to show for the years spent building it.
4. How society perceives you. As a young entrepreneur, everyone looks up to you for running your own business. But later you find that you may be perceived by many as a person without job security, unlike your classmates or ex-colleagues, who are sought after or being placed in well-known large company or multinational positions.Even worse, you find that your business domain has developed a negative stigma through no fault of your own, as has happened to investment banks, mortgage brokers, and many nightlife businesses. It’s no fun to hide your business role rather than proudly proclaim it.
5. Business must be more than the money. Years into a successful business, owners often wake up one day facing a painful question: Is this all there is? To truly be successful your business must be about more than the money.Good entrepreneurs find a great personal adventure, like Richard Branson, or great philanthropy, like Bill Gates. Guy Kawasaki says the best reason to start an organization is to make meaning – to create a product or service that makes the world a better place.

Every business startup has to have a viable idea, but it also needs a strong sense of realism on the possible pitfalls. Starting a company as an entrepreneur should be viewed as the beginning of a lifetime career, not a work project that you expect to be over in a few months. As such you should consider the long-term challenges as well as the short-term ones.

Life is too short to end up with pain and regret after a “successful” career.

If you are just plain tired of working so hard, or your startup is not getting the traction you expected, should you shut down cleanly, or just file for bankruptcy and walk away? For those who think that bankruptcy is the easy way out, think again. Bankruptcy should always be the absolute last resort.

The “advantage” of filing for bankruptcy, of course, is that it gets creditors permanently off your back, with no continuing lawsuits, based on funds derived from selling all assets. You can hand the stressful job of liquidating assets and negotiating with creditors over to the court.

The disadvantages are many and long lasting. Your credit rating will be lost for six to ten years, and your business image will likely be permanently damaged. Once declared bankrupt, you as the business owner will likely always face problems opening new business accounts.

To add insult to injury, for a Chapter 7 filing, most courts charge a $245 case filing fee, a $39 miscellaneous administrative fee, and a $15 trustee surcharge, payable in advance (does anyone see the irony in charging for bankruptcy?).

There are many other negative implications to bankruptcy. These include the fact that some loans may not be forgiven, your bankruptcy records are open to public review, and any irregularities spotted later can lead to criminal charges.

The best alternative is always to get the business back on track, and sell it at a reasonable value, or do a normal closedown with full payout to vendors and investors. The next best alternative to avoid the stigma of bankruptcy (and the cost) is to privately negotiate partial business settlements with your creditors.

Making the business healthy may be easier than you think. Usually the top problem is pressing debt or cashflow, so here are some approaches to these problems you should try before giving up on the business and damaging your ability to start future ventures:

• Get a short-term loan. Visit some banks for the best rate and repayment plan that will help your business weather the financial storm. Do not rush out and sign for the first loan that is offered to you, or give up after the first bank declines.

• Sell assets to raise cash. Now is the time for a thorough inventory of all assets in your business. Chances are that you will find some items you can sell, or property to mortgage, to help alleviate your short-term cash flow problems.

• Trim expenses down to the minimum. If you have employees on your payroll, enlist their help. Be honest with them — let them know you might be able to save their jobs, at a reduced salary, if they can help you trim expenses down to the bare minimum.

• Find a friend or family-member investor. If they believe in you, there is always someone who will invest additional cash into your business to help you get back on your feet. You just have to find the right one. At this stage, honesty is the best policy.

As a rule of thumb, only after you have exhausted all these options, and you still calculate that it will take more than seven years to repay your debt, then you should consider bankruptcy. The question is which of the many U.S. bankruptcy filing types you should choose.

For business bankruptcy, there is really only one choice – Chapter 7 liquidation, with partial payments to creditors. Chapter 11 is for large businesses seeking to restructure their debt and continue operation, and Chapter 13 bankruptcy is only for individuals.

But the worst thing about bankruptcy is the emotional impact. It will hit you over the head like a death in the family, a major illness, or a natural disaster. For your own well-being, as well as your business image, I recommend you hand off a running business. It may look like more work, but you will keep your sanity, your integrity, and your will to come back strong.

If your startup is your dream, why would you want to think about an exit? It’s going to be so successful and so much fun that you don’t need to think about what comes after. Wrong. There are two very real and practical reasons why you need to plan an exit:

• Outside investors want to collect their return. Remember that equity investments are not like loans with interest. The investor sees no return until he cashes out, or the company is sold. Even three years is a long time to wait for any pay check.
• Entrepreneurs love the art of the start. Assuming your startup takes off, you will probably find that the fun is gone by the time you reach 50 employees, or a few million in revenue. The job changes from creating a “work of art” to operating a “cookie cutter.”

In three to five years, you will be anxious to start a new entity, with new ideas and spinoffs that have built up in your mind, and certainty that you can avoid all those potholes you hit the first time around. If your startup was less than a success, you’ll definitely want to erase it from memory.

So here are the most common exit strategies and considerations these days for planning purposes:

1. Merger & Acquisition (M&A). This normally means merging with a similar company, or being bought by a larger company. This is a win-win situation when bordering companies have complementary skills, and can save resources by combining. For bigger companies, it’s a more efficient and quicker way to grow their revenue than creating new products organically.
2. Initial Public Offering (IPO). This used to be the preferred mode, and the quick way to riches. But since the Internet bubble burst in the year 2000, the IPO rate has declined every year until 2010, and is now at about 15%. I don’t recommend this approach to startups these days. Shareholders are demanding, and liability concerns are high.
3. Sell to a friendly individual. This is not an M&A, since it is not combining two entities into one. Yet it’s a great way to “cash out” so you can pay investors, pay yourself, take some time off, and get ready to have some fun all over again. The ideal buyer is someone who has more skills and interest on the operational side of the business, and can scale it.
4. Make it your cash cow. If you are in a stable, secure marketplace, with a business that has a steady revenue stream, pay off investors, find someone you trust to run it for you, while you use the remaining cash to develop your next great idea. You retain ownership and enjoy the annuity. But cash cows seem to need constant feeding to stay healthy.
5. Liquidation and close. Even lifetime entrepreneurs can decide that enough is enough. One often-overlooked exit strategy is simply to shutdown, close the business doors, and liquidate. There may be a natural catastrophe, like 9/11, or the market you counted on could implode. Make rules up front so you don’t end up going down with the ship.

To some, an exit strategy sounds negative. Actually, the best reason for an exit strategy is to plan how to optimize a good situation, rather than get out of a bad one. This allows you to run your startup and focus efforts on things that make it more appealing and compelling to the short list of acquirers or buyers you target.

The type of business you choose should depend on your goals, and the way you grow it should be aligned with your exit strategy. Don’t wait till you are in trouble to think about an exit, rather think of it as a succession plan, or a successful transition.