A fundamental question for all owners – when is the right time to sell your business? The answer to this age-old question is this – the time to sell is when someone else is willing to invest more in your company than you are.
When you start a business, nobody is willing to invest in its success more than you. It’s your baby after all, so it’s no surprise that you’re prepared to work a 40-hour week by Wednesday, and it occupies every waking moment of your day. On top of that, like most founders, you’ll have invested a big chunk of your liquid assets to get your business going. You’re one hundred per cent committed.
In the early days, you’re willing to take risks because your business is pretty much worthless. As the Bob Dylan lyric goes, “When you ain’t got nothing, you got nothing to lose.” But as your business grows and becomes more valuable, you probably find yourself becoming more conservative, unwilling to risk the equity you’ve created inside your business on your next big idea or something that may seem like a gamble. You’ve reached a point where someone else may be willing to risk more time and money in your business than you are.
Peach New Media
Take the case of David Will, founder of Peach New Media, who started 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 developments, he landed on selling learning management software to associations.
The business grew nicely and by 2015 Peach New Media had forty employees. It was then he received an attractive acquisition offer from a large private equity company. Will was conflicted. He loved his business and treasured the team he’d built. At the same time, the acquirer was offering him a life-changing amount of money.
In the end, Will realised that while he had become more conservative as his business had grown, his potential acquirer was willing to make a big bet on integrating Peach New Media into another one of its acquisitions. Will realised he’d 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 at which a buyer is willing to risk more than you can happen at a different stage for every owner. Let’s say you have a business worth £1 million today. Would you be willing to risk the entire operation 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 a life-changing amount of 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, so many houses – yet the risk is significant. Fewer owners would bet £10 million for a chance at £100 million.
Then again, what if your business was worth £100 million? Would you risk it all for a long shot at becoming a billion-pound company? It is hard to imagine one person betting £100 million on anything, but if you’re the CEO of a billion-pound 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’s probably time for your company to find a new owner. You may feel this won’t happen for many years. But without the benefit of a crystal ball, can you be so sure? What if your health fails, or your top talent leaves, or you lose your best client, or someone makes you an amazing offer? Will you still have the appetite and energy to keep investing time and money in your business?
Ask yourself – is now the right time to sell? Am I in the investment mode, or selling mode? These are important questions that every owner should be able to answer, whatever stage they’re at. Take the issue of value. What is the current value of your business, and how long would it take to increase this value to make your company more attractive to buyers? You can discover this by finding your Value Builder Score. It will reveal the current value of your business, and what you can do to increase this figure. Even if you’re not ready to exit, every owner should know not just what their business is worth, but what it could be worth.
To discover your Value Builder Score here.