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Not Sure If It's Time To Sell Your Business?
Here's One Way To Decide...
In February of 2015, private equity firm Accel-KKR acquired Will’s company, Peach New Media, a learning platform software company he started in 2001. As CEO and founder of this SaaS software and service business—with a strong emphasis on scalability, customer experience and company culture—Will grew the company to 40 employees and 200+ clients. Currently, he is in the process of mentoring and building new technology businesses.
When you start a business, nobody is willing to invest more than you in its success. You’ve already worked a 40-hour week by Wednesday and, if you’re like most founders, you invest a big chunk of your liquid assets to get your business going.
You’re all in.
In the early days, most of us are willing to risk our business on a new strategy because the business is pretty much worthless. 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 of their time and money in your business than you are. But who would be willing to invest more than you, the founder? The answer is a company much larger than yours.
At The Value Builder System, every one of the 24,000 entrepreneurs we’ve served starts by getting their Value Builder Score, which measures your business on eight factors important to acquirers. The larger the business, the worse our customers tend to do on Growth Potential, one of the eight things we measure. In short, the faster your company is growing, the more valuable it is to an acquirer. Many of us choke off the growth of our company as it grows larger because we become too conservative, unwilling to risk our business to chase a new growth strategy.
Peach New Media
David Will is the founder of Peach New Media, which he started back in 2000 as a reseller of web conferencing. 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 an attractive acquisition offer from a large private equity company. As Will described when I interviewed him for my podcast, he 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 point 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 $5 million company? I think many of us would say yes.
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 $20 million company?
What if your business was worth $50 million? Would you risk it all for a shot at a $100-million company?
Most of us have a point where the value of our business is such a large proportion of our wealth that we are no longer willing to risk it all on a new growth idea. It’s at this point that we would do well to realize everyone’s appetite for risk is different and you have reached a point where your business should probably find a new owner.