As we discussed earlier in the chapter, timing your entry and exit is absolutely vital. I have seen many entrepreneurs who had an opportunity to sell a company for tens of millions of dollars, but hung on until the company became worthless. Why didn’t they let go? Greed.
I’ll never forget a very painful conversation I had with one such business owner who, in a matter of weeks, went from being a multimillionaire to the depths of bankruptcy. Words can’t express the heaviness of his heart and the pain in his soul as he confessed that he had jeopardized his family’s security and his children’s college education.
On the other hand, David McInnis, the founder of PRWeb, had the opportunity to sell his business for twenty-eight million. Everyone was telling him to hold onto his company. He really struggled with the decision. The business had very strong fundamentals, it kept very healthy margins, and it led the market in its segment. He sold in the end, but could it have gone for more? Probably; the market stayed pretty stable. David hit the bank button and stabilized his life. He actually had multiple offers for the company and did not choose the offer with the most upside, but rather the smaller downside risk.
In your first time or two through this process, your priority should be stabilization. I think David got it right.
I had another visit from a young entrepreneur who was in turmoil, hovering around the decision to sell or not for over a year. He asked my opinion, and I shared my first-time philosophy. If given the opportunity, sell. Pay off your home, pay off your debt, and save for a rainy day. After that, you can build back up and do it again. There is no limit to how many times you can step up to bat.
After tremendous torment, this young entrepreneur made the decision to sell the company. From a bootstrap investment he had a seven-digit gain. I saw him again after the sale, and he was happy and full of light. All of his debt was gone. He had paid off his house and cars and stashed some away for his kids’ education. The confidence gained in a first liquidity event that gets you out of the rat race is worth more than the money itself. It will put you in a powerful position for future ventures and give you the satisfaction of success.
One Last Note: The FAQ
I frequently get asked: what multiple can I expect from a sale? The answer to this question is pretty diverse and is based on your industry and how strategic your company value is. A small owner of an income-generating business is typically valued at three times gross annual profits. More strategic acquisitions can sometimes command five to seven times earnings.
There are situations where you get crazy multipliers, too; for example, The New York Times acquired About.com for a double-digit multiplier. In another crazy one, Google acquired YouTube for a billion dollars— and, for crying out loud, YouTube was losing money. These situations are very rare—almost flukes—and should not be your goal.
The safest, most secure way to get an exit event is to get profitable quickly and then stay profitable. Making your mark in the entrepreneurial world has nothing to do with falling into a fortunate fluke; rather, making your mark in the entrepreneurial world has everything to do with making it on your own, starting right, sticking through it, and ending strong.
Porter’s Points – Timing and Greed
- The biggest obstacle to successfully timing your exit is your greed. Everybody wants to make it big, but if you hold out too long, the market may fall out from underneath you.
- When you are new to the entrepreneurship world, sell! Having a good exit event, even if not as huge as you would like, increases your confidence and prepares you for bigger future accomplishments.