One Way to Decide When to Sell that Every Business Can Adopt
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, the business is your most valuable asset.
You're all in.
You are willing to risk your business on a new strategy in the early days 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.
You may have reached a point where someone else may be willing to risk more time and money for your business than you.
Peach New Media
Peach New Media started in 2000 as a reseller of web conferencing. In the early days, the strategy frequently changed, trying to find an idea with legs. After several pivots, it focused 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. The owner 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, he realized that he had become somewhat more conservative as his business had grown. He realized he had reached a point where his appetite for risk in his own business was lower than his potential acquirer's, so he sold.
When To Sell
The point where a buyer is willing to risk more than you are happens at a different stage for everyone, and it is worth talking to an outside advisor as a “check on sanity”. 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? 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 anyone betting 100 million dollars on anything. Still, 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.
