Running a startup is a lot of fun. Creating, problem solving, and adding value to the marketplace is a special feeling. Most likely, you became an entrepreneur because you love what you do. There are also a lot of financial perks to running your own business too.
But when is a good time to call it quits and hand over the business to someone else? That is a complicated question with even more complex answers. I’ll try to simplify it for you a bit in this article by offering you some cues that will help you identify the best time to sell your business.
If you are running a startup, one of the things you may have experienced is a lack of cash-flow; business and personal. It’s cool in the beginning because the excitement of growing a company outweighs the challenges. However, at some point, it’s time to cash in your chips.
Selling your business to increase your personal wealth or to invest those assets in other ventures is a good reason to sell the business.
Your Company is All Grown Up
Like a child that no longer needs you to walk them to the bus stop, there may be a time when your business no longer needs you to hold it’s hand. Instead, the business may need to “hang out with people it’s own age”.
Ok, enough parenting analogies. You may be a very skilled CEO but there may be people that have the resources and experience to take your business to the next level.
Sometimes your business will grow past your skill set. Many entrepreneurs have a passion for starting up a business, getting it running, creating a culture and a staff, and once it grows past that start-up, stage they sell it. This may be a hard truth for some founders or business owners but at a certain point you are no longer an asset to your company.
According to Inc.com, the $5 million or $10 million in annual revenue threshold (depending on business model) is when businesses begin to look at different models and starts to require various leaders in roles that you may not be able to fulfill. Sometimes, having the humility and foresight as a business owner to know when to take a step down is the best decision for your business.
When the stress of running your own business is simply getting too much for you, it might be time to look at selling your business. Running a business is hard, and at a certain point, many business owners get so stressed, anxiety-filled or depressed that they don’t enjoy running their business anymore.
This happens outside of business as well. Think about having a garage band that suddenly becomes famous. Many musicians and other artists find that they were happier when they made music that they loved instead of for record labels. Kurt Cobain began to recluse himself backstage instead of talking to fans when his band Nirvana became famous.
No one enjoys feeling trapped in a role, discouraged about your daily work, or finding it hard to get out of bed in the morning. While there are many other financial and business-related reasons to sell your business for its benefit, this is one reason to sell that is strictly for your health.
The Price Is Right
So, sometimes your health as a business owner may be suffering, sometimes your business may have outgrown your skill set, and sometimes you’ll be lucky enough to recognize that its time to get out while you can…and sometimes, its none of those things. If you have been running a growing start-up business and it is showing all the signs of success then you might just receive a lucrative offer to buy your company.
Facebook is an excellent example of this. Originally a mall social media site, the corporation is now something of a new media giant and has bought out smaller, growing companies like Oculus Rift (virtual reality) in recent years.
If the market is there for your business and an offer presents itself it is always a good idea to at least consider it. Of course, this takes a certain degree of humility, but the experience will definitely help you in your future entrepreneurial endeavors…and the money won’t hurt either.
If your business continues to grow without issue, you probably have the field vision to understand your role as a business owner. Hopefully, you also have that same vision as you keep track of your competitors and the market your business occupies. Similar to playing the stock market, if there is a trend on the horizon or business that could make your business fall apart, it may be time to get out while you’re still ahead.
This is one of the more basic principles discussed in this article, but so often business owners get so caught up in their own affairs that they forget to keep track of market trends, and unfortunately, in a situation like this you may have a very small window to take action.
Today, retail businesses are currently this issues by-en-large, according to business.com, but the majority of new technology businesses can definitely relate. Gilt, an online clothing retailer, was in this exact situation, and as founder and entrepreneur, Kevin Ryan, told Forbes, “If your company is not getting the traction it needs to be really successful, the faster you can move on, the better for everyone involved.”
Go back and think about why you started the business. Was it to provide income for yourself, a means to send your kids to college, an expression of your creativity, or maybe it was just a fun thing to do?
Take a look at your business currently, has it done what you set out for it to do? If so, it may be time to move on. Many people have initial goals for starting a business and as time goes on, those goals change. More times than not, goals get bigger.
But sometimes you should be happy with the initial goals you set when you set the goal. Perhaps your exit strategy was to sell the business for $500,000. But as your startup has grown, your vision of 500k grew $5 million. Maybe the $5 million isn’t worth the stress, risk, and other things that come with holding on to the business for longer.
Holding on to the business too long can cause the other things that we mentioned in this article. Overstaying your welcome will make it hard to be happy. Your companies valuation is always guaranteed to increase. Holding out for more money can sometimes harm you if get too greedy.
Of course, this isn’t an exhaustive list by any means, but a list of reasons you may consider selling your business that many business owners often struggle with. If you’re yearning for new business ventures, or trying to spend more time with your family and children, but don’t have the time, I think we could all agree those would be valid reasons. It is important to understand whom you’re selling to. Assuming you want your business to succeed after you sell it, do your research into the company, look at their past acquisitions and track record and discuss their future plans.
This article was first published on StartUp Mindset.
If you are a woman, a person of color or LGBTIA+ identified and are a part of a start-up company, this is the competition for you. The SoGal Global Pitch Competition is being hosted in over 25 cities and will culminate in a final contest in Silicon Valley as well as a "3-day immersive educational bootcamp." This could be an unprecedented opportunity for you, your business and for the future of entrepreneurial diversification.
We all know how important diversity is for the world and for any business entity. But the statistics need to catch up with these ideals, because diversity isn't just a moral imperative it can also have an impact on the success and efficiency of a business. So if the ethics isn't enough to get you interested, maybe these statistics will.
- Companies in the top quartile for ethnic and racial diversity are 35% more likely to have above-average financial returns
- Companies in the top quartile for gender diversity are 15% more likely to have above-average financial returns
- Bottom quartile companies (in both gender and racial diversity) are less likely to achieve even average returns
- In senior executive teams in the US for every 10% increase in racial and ethnic diversity EBIT (earnings before interest and tax) rose 0.8%
Despite the fact that diversity is good for business, funding as a woman or a minority is incredibly challenging, but this competition could be someone's game-changing opportunity.
SoGal is a global education and empowerment platform focused on diverse investors and entrepreneurs. Their mission is "to close the diversity gap in entrepreneurship and venture capital." A tall order, given that 2.2% of VC funding went to women in 2018. Compounding the gender gap with race shows an even poorer picture: in the past decade only 0.1% (yes, that is a decimal) of funding was allocated to black women.
It is a straight up fact that companies with higher levels of diversity perform better, so why is it so hard for diverse start-ups to get funded? Oh right, racism, sexism, homophobia, implicit biases, inequality, classism... the list goes on, but thankfully that's where SoGal comes in! According to Kelley Elizabeth Henry, director of SoGal, "We're done waiting for these statistics to change; we're taking action to point investment capital toward these diverse-led startups. [...] We will change the future of entrepreneurship."
To enter this competition all you have to do is be a part of a pre-Series A startup (raised less than $3M) and have at least one "woman or diverse" founder. After you apply to pitch, you'll have to be able to make it to one of the "regional round location," which range from the more typical options of New York and Los Angeles to global locations such as Nairobi or Bangalore. And, if you're really playing to win, you better earmark February 28 to March 1 of next year, because that's when the top teams will be in San Francisco duking it out to the very end. And by "duking it out," I mean participating in "curated educational programming," talking to press and getting "facetime in front of top-tier investors." Though not everyone can win, the experience in itself looks to be well-worth the time it takes to fill out an application form and huff it to the nearest large city for the first round.