When should you sell your startup?

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When should you sell your startup?

If and when you get to make that decision, you will have to weigh many factors and deal with multiple competing interests.

When you start a company, you start with an idea that is very close to you, and is in some way a representation of yourself. Throughout the years of hard work, you start to attach your own identity to the company because your personal goals and business goals are the same. However, there comes a time when entrepreneurs need to ask themselves whether they can turn their idea into what they believe it can be. If the answer is no, then it's time to consider handing it over to a more experienced hand. In the business world, one way to do this is to sell your startup to a bigger company.

If you are a startup founder, chances are you have at least thought about the possibility of being acquired by bigger companies. Even Larry Page and Sergey Brin wanted to sell Google to Yahoo for USD 1 million within a few  years of Google’s being set up. There are few decisions as life-changing for founders as those pertaining to when you should sell your company. If and when you get to make that decision,  you will have to weigh many factors and deal with multiple competing interests. So how do you know if now is the right time to sell?

 

Let the numbers speak for themselves

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(Source: joeandruzzifoundation.org)

Selling a company is a very emotional matter, so in these times of turmoil it can be very calming to know that sometimes you can leave it up to the numbers to help you make the decision. Say, your company is worth Rs 100 million today. You’ve launched your product and gained some momentum in the market. Out of the blue, a buyer comes along and offers you Rs 500 million. What do you do? Eric Paley, the Managing Director of Founder Collective, suggests looking at what your company is likely to be worth next year, the year after and the year after that. He suggests doing a five-year growth projection. If you’re only being offered what you are presently worth or just a premium to account for what you might achieve in the next months, you should just keep going by yourself. However, if a buyer is offering you a price that would take you two or more years to achieve on your own, perhaps you should take up on the offer.

 

Pay attention to the industry

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(Source: scottpublicrelations.com)

Paying attention to how the industry is behaving can give a startup insights into what might be the future of the industry. If you recognise that there's a trend on the horizon that threatens to make your business irrelevant or marginal, it's time to think about an exit plan. This may seem obvious, but it takes a lot of mettle to confront the fact that your business can no longer compete in the market. If you look at the current technological trajectory that our society is moving along, you’ll see that no business is safe. A startup running a speed-dating app should be very worried about the growth and popularity of Tinder. If you are a boutique hotel, Airbnb should make you rethink your market. Randy Gerber, a member of Entrepreneurs Organisation and owner of Gerber Financial Advisory, however, says, “When looking to sell your company, one should also consider when is the best time to sell it, not only use it as a last resort effort. It is favourable for both the founders and the employees if they sell their business when it's at its top.” Instagram and Whatsapp are the best examples of companies selling at the top of their game.

 If you recognise that there's a trend on the horizon that threatens to make your business irrelevant or marginal, it's time to think about an exit plan.

 

You are not able to run the company anymore

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(Source: statnews.com)

Once a business starts to grow, often the founders are faced with the reality that the skill set they had in the early stages of the business is not useful anymore, and that they have become less of an asset to the company. This might be hard to come to terms with; however, the best entrepreneurs are able to think of the legacy of their companies beyond themselves. Kevin Ryan, founder of Gilt, says that once a company gets above USD 5 million or USD 10 million in annual revenue, the company begins to require leadership in different areas. “Some founders are able to learn and grow with their companies, and tend to find their place in the new setting.” However, some are not as flexible, so it becomes the duty of the founder to recognise this point in the company’s lifecycle and have the humility to assign a new leadership. Health issues also come into play in this situation: Many founders have been known to leave their leadership position because they are either burned out or the growing needs of the business is taking a toll on them. At this point, it makes sense for the founder to sell the company, get the cash and retire in peace.

Health issues also come into play in this situation: Many founders have been known to leave their leadership position because they are either burned out or the growing needs of the business is taking a toll on them. At this point, it makes sense for the founder to sell the company, get the cash and retire in peace.

 

You just need the money

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(Source: blog.trimtimes.com)

One of the most obvious reasons to sell is because you just need the money. Many entrepreneurs start young. They are fresh out of graduate school and their lifestyle allows them to deal with the chaos and uncertainty that working in a startup brings. As they get older, get married or have kids, taking on more and more family responsibility in general does not sit well with this lifestyle. Making a third or less of the average salary in the market was fine when you started out, but is much less tolerable now. Getting old makes you risk-averse too. To sustain this new life of responsibilities, security is more important than dealing with the risks of running a potential billion dollar business. You have to ask yourself how much time and money you can put into your startup, and if the potential reward is still worth it. If not, it might be time to sell.

If You Recognise A Trend That Threatens To Make Your Business Irrelevant, It’S Time To Think About An Exit Plan.

The journey towards startup success is paved with uncertainty, and even veteran companies are not safe from failure. In times of uncertainty, there is no shame in considering if it's time to hand down the legacy of your company to someone more capable. This is one of the hardest choices a founder has to make. However, if you do not sell at the right time, staying put might just spell doom for the startup. Therefore, it is crucial to be able to recognise when that time has come for your startup.

 

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Guest Friday, 14 December 2018