At a recent speaking engagement to international entrepreneurs, I was asked the question, “When do you know it’s the right time to sell your company?”
The question is so simple, yet so hard. The complexity comes from the mix of personal, business and competitive components that could affect the decision.
Initially, four to five reasons came to mind. Upon reflection, I’ve added a few more. Because of the complexity, I’m sure I’ve missed a few, and I’m open for additional suggestions to add to the list. [As a caveat, I’m not considering a life change that might cause a forced sale of the company. If that occurs, and you have a business partner, I surely hope you have a buy/sell agreement. More on that at another time.]
You hit your number.
Hey, everyone has goals, and a good number of people have their net-worth number in mind. If you could sell for your number, and you’ve done the financial planning, why not take it? The economy, economics of the buyers or your industry could take a turn, or your industry could be eliminated with new technology (AOL anyone?). You’ve worked hard, pulled all-nighters and faced the pressure of making payroll. Consider maybe it’s time for some ”you time” in life.
You’re bored, and you’ve outgrown the sweet spot of your skill set.
The Bill Gates’ of the world are amazing because they can go from startup founder to Fortune 500 CEO. Yes, there are glory stories — Bezos, Dell, etc. — but they are extremely rare. Most founders like the chaos that is running a startup, so if the startup chaos is what motivates you and puts the fire in your belly each day, sell and get back to your roots. The world needs more startups.
It accelerates the company.
Maybe a window is closing in your market, and you have the need for speed. It’s also a way to make a run for the roses with less financial risk.
You’re limited in your growth without a partner.
Two heads are better than one. Perhaps you roll up or merge with another company to partner up. Culture is so important for this to be a success.
You need to pay back investors.
If you’re taking outside investment from a fund, consider that they have a life cycle: They invest, grow and then harvest, normally over a five- to seven-year period. Making sure they get a return on their investment enhances your gravitas and credibility when you are fundraising for company No. 2 or 3.
You’re under pressure from the competition.
If you are in the crosshairs of a competitive market or industry changes, it could be time to pull out the big guns. If you don’t have the big guns, I bet your larger buyer does. Or, competitive pressures could come from a change in the market in terms of life cycle. If your market is mature and ripe for disruption, perhaps it’s time to cash out.
Exit opportunities are closing.
Say there are three big companies that would make great partners. You know who they are because you planned your exit options. And let’s say two of the three have an investment in or have bought a company like yours. You’re at a crossroads: Do you partner with the third? Or do you risk spending the next five or so years pivoting to find another partner?
Don’t exit.
There is nothing wrong with not selling and continuing to run a profitable and successful company. Maybe your approach will be to pass it on to the next generation in your family, or perhaps implementing an employee stock ownership plan (or ESOP) for your employees.
It’s a deeply personal decision to sell since you put so much time into your company. I recommend seeking advice and input. But, at the end of the day, it’s your call to sell your creation.
Keith Luedeman is the founder of Goodmortgage.com, an investor with Charlotte Angel Fund and a business mentor with the QC Fintech accelerator.
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