Previous: Scaling & Financing
After you’ve started seeing a profit, you should start considering how you plan to leave the organization.
- Beyond the business plan, have a long-term goal if you want anything beyond simply yourself (or possibly your family).
- When you start getting bored with the business, you should sell it.
If you have a good-enough business idea and promising-looking financial statements, you can still sell the company even when you haven’t turned a profit yet!
- You’re almost guaranteed to have a marketable business that loses money if you own high-demand intellectual property tied to the company.
Logically, there are only several possible ways you can go:
- Sell the business outright and leave with a significant amount of wealth.
- Develop better management skills and scale it to a very large organization.
- Give the business to your children when they’re old enough to run it.
Learn when to stop.
- Most business ideas do not take off, and that’s okay.
- Avoid going deeper into debt and wasting more of your life than you need to.
- Create a fixed, measurable limit on how much you’ll go until you stop (e.g., no more than $10,000 of savings into the business).
Selling is generally a better idea than scaling, mostly because large-scale organization management is an entirely different skillset.
- Further, you have the opportunity to diversify the wealth you’ve acquired through building your business to that point.
If you wish to sell the business, you have several options:
- Propose a merger with another similarly-sized company.
- Sell the company to a larger company as an acquisition.
- Take the company public and sell it on a stock exchange.
- Sell the company internally as an Employee Stock Ownership Plan (ESOP).
Try to sell before you have to.
- Buyers want to feel “blue sky potential” and get excited about the growth they expect to see.
- If it’s already at its peak, it won’t inspire as much excitement.
- You have built a reputation, and the premium over the equity value of the company is the direct market price of your company’s name’s reputation.
- Most buyers are asking what financial gain your reputation will have on the future, then discount it over that window of time.
- e.g., if they expect to gain $10 million from your company’s brand within 3 years, they may propose buying it for $3 million but be willing to haggle up to $5 million for it.
Mergers & Acquisitions
Bear in mind what mergers and acquisitions will do to your organization:
- When you’re in a merger, you’re officially partners with whoever runs the other organization.
- When in an acquisition, staying on with the organization makes that company’s leadership your boss.
If you plan to interest a company in an acquisition, contact the CEOs who were interviewed in a major publication (e.g., Forbes).
- Generally, CEOs who have had their ego stroked publicly will pay a premium of 4.8% more for every major article they’ve had.
Most mergers and acquisitions (83%) do not boost the value of the company.
- Only do it if you want to be completely rid of the company.
- Be careful, though, since you might be selling it to a very unhinged person.
Do not retire.