Key takeaways from “How To Decide When To Sell Your Business”
- Is someone else willing to risk more to grow your business than you?
- What stage of your business should you sell?
- Do you have other, more profitable opportunities elsewhere?
- How the ‘sunk cost fallacy’ can prevent you from selling
How do you know the right time to sell your business?
There are many factors that go into wanting to sell, such as wanting to retire, feeling burned out, wanting to do something else, etc…
Also, there’s that moment where someone makes you an offer for your business that you just can’t refuse!
Determining when to sell your business is one of the most difficult decisions you’ll ever have to make.
When you start a business, nobody is willing to invest the time, capital, and sweat in order to succeed more than you. You work 80 hours a week and, if you’re like most founders, you’ve invested a big chunk of your liquid assets to get your business going.
Needless to say, you’re all in and it’s not easy to get all out.
Have You Become Too Conservative In Your Business?
When you first start your business, you are willing to take risks to get your business going. You’ll switch strategies or take on a new strategy because the business is pretty much worthless.
As the Bob Dylan lyric goes, “When you ain’t got nothing, you got nothing to lose.”
But, as your business grows and becomes more valuable, you may find yourself becoming more conservative. Suddenly, you have something, so taking risks becomes scarier. You have reached a point where someone else may be willing to risk more time and money for your business than you are.
And it is at this point, where someone else is willing to risk more time and money for your business, that you should consider selling your business.
What Stage Of Your Business Should You Sell?
The stage of when you’re ready to sell will vary for different people.
Let’s say you have a company that’s worth $1 million currently. Now let’s say a new technology comes out that would require significant time and cost investment but could yield you a 10x growth. Would you be willing to risk the entire thing on a new strategy for a shot at making it a $10 million company?
Many entrepreneurs would take that bet.
However, if your business is currently worth $10 million, would you take that same risk? Would you be willing to risk your entire company for a chance to make it a $100 million company? Fewer owners would bet $10 million for a chance at $100 million.
When someone else is willing to invest more in your business than you are, it is probably time your company finds a new owner.
Start Over With A Clean Slate
I’ve been around business owners for the majority of my adult life. The business owners making the most money are NOT in the same business they first started. Some failed (which is a common learning experience), some sold for a minor profit. But very few successful business owners are still in their first business.
In fact, one of the most compelling reasons to consider selling your business now is to give yourself a clean slate for designing your next business. You can take all of the lessons you’ve learned building your current company and apply them to a new idea, which can yield you a great deal more money!
Here are just a few entrepreneurs who decided to sell so they could start something bigger and better:
- Elon Musk would never have founded Tesla or Space X if he hadn’t sold X.com to eBay.
- Bob Parsons would never have founded GoDaddy if he hadn’t sold his own software company called Parsons Technology.
- Bill Porter had invented 20 projects before created ETrade.
Sunk Cost Fallacy
What is a sunk cost? Individuals commit the sunk cost fallacy when they continue a behavior or endeavor as a result of previously invested resources (time, money or effort). If the costs outweigh the benefits, the extra costs incurred (inconvenience, time or even money) are viewed differently and will cause us to make poor decisions.
As business owners, we may have spent tens of thousands of dollars to start up the company. We may have also sacrificed (what feels like) tens of thousands of hours of time to get the company up and running.
The sunk cost fallacy can affect your decision of when to sell your business because of all the time and effort involved, you may feel as though you have to continue on – regardless of whether or not you’ve run your course in the business. This is not true. When, as a business owner, you no longer feel that you can continue to grow, have the desire for that business, or feel the need to do something different, then you should sell.
Summary of How To Decide When To Sell Your Business
In summary, the easiest time to know when to sell your business is when someone offers you a humungous check. Aside from that, the decision can be difficult. The sunk cost fallacy definitely plays a part in us hanging on to our business too long. If someone else is willing to put more investment time & money into the business or you feel passionate about a different endeavor, then it’s a good time to sell.
If you have any questions about when to sell your business, please feel free to contact us.