Selling Strategies: 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. By Wednesday, you’ve already worked a 40-hour week, and, if you’re like most founders, you’ve invested a significant portion 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 essentially 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 reach a point where someone else might be willing to risk more time and money for your business than you are.
David Will, the founder of Peach New Media, started his company in 2000 as a web conferencing reseller. In the beginning, Will frequently changed his business strategy, searching for an idea with staying power. After several pivots, he found success by selling learning management software to associations. By 2015, Peach New Media had 40 employees and received an attractive acquisition offer from a large private equity company. Will was torn. He loved his business and valued the team he had built. Simultaneously, the acquirer presented him with a life-changing offer.
In the end, Will realized that he had become more conservative as his business had grown, while the potential acquirer was willing to make a substantial bet on integrating Peach New Media into their existing acquisitions. Will understood that he had reached a point where his risk tolerance for his own business was lower than his potential acquirer’s. Consequently, Will decided to sell.
When to Sell:
The point where a buyer is willing to risk more than you do happens at a different stage for everyone. Let’s consider a scenario where you have a business worth $1 million today. Would you be willing to risk the entire thing on a new strategy for a chance at making it a $10 million company? Many entrepreneurs would take that bet.
Now, imagine you have a company worth $10 million, and it represents the bulk of your net worth. Most people would argue that $10 million is life-changing money. Would you 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 wager $10 million for a chance at $100 million.
When someone else is willing to invest more in your business than you are, it is probably time for your company to find a new owner.