A couple of years ago I was advising a CEO. “Mark” had bootstrapped his company to profitability.
Mark's company began by providing consulting services. Then Mark's company provided IP to its customers along with consulting services.
Mark's company had grown to become a multi-million dollar revenue company. But Mark had become increasingly worried lately.
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Then over lunch one day, Mark said to me, “Brett, I think we’ve tapped our technology as far as it can go. I think I should sell the company.”
I agreed with Mark that it was time to sell the company. And I started working with Mark on an acquisition strategy.
We developed a list of possible acquirers, and we figured out how we would begin working to get Mark's company acquired.
We were about a month into the process when Mark called me and said, “Brett, I’ve changed my mind. I don’t want to sell the company any more.”
I asked Mark what changed his mind. Mark said, “I just don’t want to work for a big company again.”
Did Mark make the right decision? Only time will tell. But Mark's challenge is the one that all startup founders, and especially bootstrapped, startup founders face if they are lucky:
When if ever do you sell your company?
I’m going to diverge for a bit about a story about thinking on your feet. You’ll see how it fits in a bit.
I did a ton of public speaking as CEO. You probably have to as well I imagine. Sometimes you’re presenting to customers. Sometimes to your investors or board members. Sometimes your being interviewed by the trade press. Other times you’re presenting to your employees.
One time, I gave a talk to our employees saying all employees (including me) needed to go on minimum wage. It was a tough message to give the employees.
The day before I gave that talk, I spent four hours working with the executive staff on what type of questions I would get and how I should answer the questions.
Sometimes my initial answers were good answers. But, more often than not, my initial answers needed to be tweaked.
The preparation paid off.
I was prepared and ready to go by the next day. We had correctly anticipated many of the questions the employees would have.
There were still some questions we didn’t see coming. However, the preparation we did the day before allowed me to quickly and confidently answer the questions the team had.
What does preparing to answer questions have to do with selling your company? Everything!
The key word is preparation.
You’re dead if you just expect someone to come along and make an offer to buy your company. You will not know what to do even if someone does come along and make you an offer.
That’s how you think on your feet. It’s all about preparation.
It’s important for you to have a plan of when you would sell your company.
Start by asking yourself the following questions:
A. How do you know what’s right?
B. When is the right time to sell?
C. What price do I want for the company?
D. How do I know I’m getting a good deal?
E. Will the money make me happy?
F. What about my employees?
G. What’s going to happen to me if I sell?
H. What’s going to happen to my family if I sell?
Start taking steps now.
Don’t worry. This doesn’t mean you’re selling your company. It just means you’re being prudent.
Here are three easy steps you should take:
A. Research the market.
Look at recent transactions. What are other companies selling for in your market? You’ve got data now if nothing else. Then…
B. Establish relationships.
Why not get to know your competition? Again this doesn’t mean you’re selling the company. But, establishing CEO-to-CEO relationships or CEO to senior executive relationships can only help you.
C. Get a lawyer.
You need legal representation anyways, so get a lawyer that specializes in working with your type of company. Your lawyer will be critical to you in any sale or merger.
One final step to prepare: Dealing with investment bankers and brokers.
As my company grew in stature and size, I started getting phone calls from investment bankers. They wanted to meet with me.
It was way too early for us to sell, but I took the meetings. I would update them on the progress of the company.
In return, the bankers might pass along competitive or market data that was helpful to me. Or they might make an introduction to someone helpful to the company. I even used the relationship with an investment banker to help with due-diligence when we were raising money.
Over time relationships build.
And you want a relationship in advance of when, and if, you make the decision to sell your company. You want to be working with someone you have a level of trust with.
Why you should work with an investment banker or broker?
It’s actually pretty simple: You’ll get maximum value for your company by hiring an investment banker or broker.
Investment bankers and brokers have relationships with all the potential buyers. They can create a level of competition or perceived competition that gets you best price.
So when should you sell your company?
Selling your company is an extremely personal and emotional decision. You are literally selling a piece of yourself when you sell your company.
That’s why preparation is so important. Preparation will keep you focused on doing the right thing, and not doing the emotionally easy thing to do.
Now I’m not advocating that everyone should sell their company. You might be one of the lucky ones where you can run your company for the rest of your career.
Or maybe you’ll be one of the extremely rare CEOs that oversee an IPO. Congratulations to you if you are that fortunate.
However, even public companies merge or are acquired. So it’s more likely than not that your company will be sold someday.
So, how do you know it’s time to sell your company?
Let’s circle back to my friend Mark. Mark had taken his company as far as he could.
And that’s a good time to sell: When you can’t see a way to grow the brand. Now Mark, as I said earlier, backed out at the last second. Only time will tell if Mark made the right decision.
Here are four other good times to sell your company:
A. You’re tired.
And it’s getting harder and harder to gather the strength to fight each day. This is a good time to sell, or…
B. The market price goes way up.
Bubbles where the market price increases irrationally happen all the time in business. Think about the decision Mark Cuban made selling Broadcast.com to Yahoo! for $5.7B in 2000. Or…
C. You can see the market for your products is changing, and maybe not in a good way.
This is the decision Mark has to make.
The good news is you can usually see the market changes before the market does. A good example is Richard Branson selling Virgin Records in the 1990’s before the changes in the record industry. Or…
D. You need the money or want the liquidity.
The Silicon Valley, where I live, is littered with stories of paper millionaires that got greedy and never made any money.
It’s perfectly okay to make a business decision to take the money and sell your company.
When shouldn’t you sell your company?
The anti of the list above is a pretty good place to start. If everything is going well and:
- You’re enjoying what you’re doing, and…
- The valuation for your company hasn’t gone through the roof, and…
- The market for your products isn’t changing in a bad way, and…
- You don’t need the money or want the liquidity, then...
Keep doing what you’re doing. But, and this is a big but, stay the course if all four of the above conditions are met. Otherwise, it might be time to consider selling your company.
Selling your company is one of the most emotional things you’ll ever do in your life. Richard Branson said, “It’s like selling your children.” And selling your company is like selling your children because a piece of you is forever gone.
But the emotional pain of selling your company doesn’t make selling your company the wrong decision. The careful preparation you take in advance of selling your company can help you do the right thing when the time comes.