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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



 

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