One Way To Decide When To Sell
How do you know the right time to sell
your company? One answer to this age-old question is that the time to sell is
when someone else is willing to invest more in your business than you are.
When you start a business, nobody is
willing to invest in its success more than you. You’ve already worked a 40-hour
week by Wednesday and, if you’re like most founders, you’ve invested a big
chunk of your liquid assets to get your business going.
You’re
all in.
In the early days, you are willing to risk
your business on a new strategy because the business is pretty much worthless. As
the Bob Dylan lyric goes, “When you ain't got nothing, you got
nothing to lose.”
As your business grows and becomes more
valuable, you may find yourself becoming more conservative, unwilling to risk
the equity you have created inside your business on your next big
idea. You have reached a point where someone else may be willing to risk
more time and money for your business than you are.
Peach
New Media
David Will is the founder of Peach New
Media, which he started back in 2000 as a reseller of web conferencing. In the
early days, Will changed his business strategy frequently, trying to find an
idea with legs. After a number of pivots, he landed on selling learning
management software to associations.
The business grew nicely and by 2015 Peach
New Media had 40 employees and then received an attractive acquisition offer
from a large private equity company. Will was conflicted. He loved his business
and treasured the team he had built. At the same time, the acquirer was
offering him a life-changing check.
In the end, Will realized that he had
become somewhat more conservative as his business had grown and the potential
acquirer was willing to make a big bet on integrating Peach New Media into
another one of its acquisitions. Will realized he had reached a point where his
appetite for risk in his own business was lower than his potential acquirer’s. Will
decided to sell.
When To
Sell
The point where a buyer is willing to risk
more than you are happens at a different stage for everyone. Let’s say you have
a business worth $1 million today. Would you be willing to risk the entire
thing on a new strategy for a shot at making it a $10 million company? Many
entrepreneurs would take that bet.
Now imagine you have a company worth $10
million and your business represents the bulk of your net worth. Most would
argue $10 million is life-changing money. Would you be willing to risk your
entire company for a chance to make it a $100 million company? The marginal
utility of an extra $90 million is
minimal—we all only need so many cars—but the risk is significant. Fewer owners
would bet $10 million for a chance at $100 million.
What if your business was worth $100
million? Would you risk it all for a long shot at becoming a billion-dollar
company? It is hard to imagine any one person betting $100 million dollars on
anything, but if you’re the CEO of a billion-dollar corporation with ambitious
growth goals, $100 million is a bet you may be willing to make.
When someone else is willing to invest
more in your business than you are, it is probably time your company finds a
new owner.
*** Richard Kranitz (Wisconsin) is an experienced attorney and business consultant in the areas of corporate, securities and tax planning for corporations, partnerships, joint ventures, limited liability companies, multi-unit enterprises, and a variety of different non-profit entities. In addition, he has counseled their owners and executives in compensation planning, estate plans, and asset protection. Attorney profile at: https://solomonlawguild.com/richard-a-kranitz-esq
