WHAT IS YOUR “NUMBER”?
The dilemma of choosing between selling your startup and growing it further
..If any dilemma is loaded with FOMO (Fear of Missing Out) potential, then it must be the one where you weigh up selling your company or growing it even further..
Taken in and of themselves, secondary buyout and exit (trade-sale) offers are a good thing for any startup. Getting one means you’re doing something right. It means you’ve reached a point where your baby has a value that’s concrete in some way. It probably means you haven’t gone bankrupt. All cause for celebration – or not?
Shall I sell now, or keep hustling for additional growth?
It is a huge decision to make. One that can be quite a headache.
If any dilemma is loaded with FOMO (Fear of Missing Out) potential, then it must be the one where you weigh up selling your startup or growing it even further. Nobody wants to be the guy that sold his Facebook shares in 2004. Nobody wants to be Aaron Patzer, who took so much flak for selling Mint.com in 2009, when it had so far to go.
Do people regret, if they sold too early?
Patzer did make quite a lot of money, after all. Millions, in fact. Most of us would be pretty thrilled with that.
To make a rational decision that isn’t wildly out of touch with reality, you must never lose sight of the reason you founded your startup in the first place.
Prepare for this moment: the sooner you actually have a serious conversation with yourself (and your founding team), the better.
- Is this purely a project to make money, or do you want to build something to last?
- Would you learn more about starting a new venture?
- Did you make an impact of some sort?
- Do you need to be as famous as Jeff Bezos?
- A combination of the above?
This is not a time to flirt with politically correct or PR-friendly answers. It’s about being honest to yourself (or yourselves). And the reason you want to define these aims as early as possible and keep reminding yourself of them is that this will give you a rational basis for making any exit decision. Especially if there are a few of you involved.
Remember that the day someone offers you big money for your startup is an emotional one. Even if you’re in this to change the world, there may be an initial instinct to take the money and run. Equally, if you were after a quick buck from the start, greed and FOMO can kick in with equal and opposite force. Cool thinking doesn’t really come into it at a time like this.
Which is exactly why you want your goals written down somewhere very prominent in your office. Goals you worked out a while back, when you weren’t feeling emotional.
Know your goals
Your philosophy may be that you’re never selling, no matter what, and that’s fine as long as you clarified that early on. But if even a small part of your motivation is financial, put a concrete number on that right upfront. For example:
- Do you want to retire young?
- Do you want to invest in ventures, rather than building another one?
- How much does that actually require?
(For help on that, have a look at the FIRE Movement’s numbers.) If your buyout offer gives you that amount, then you’ll know for a fact that you hit your goal. Then the decision to sell is easy and regret-proof.
On the other hand, if the exit opportunity comes in short of your number, you might rather want to stay in charge and raise another funding round. There could be other factors at play, of course. You may have solid reasons to believe you’ve peaked as a business, for example. Timing does not only count for growth, it also matters big time when it comes to selling a company. Once a market starts to consolidate, your venture might be a hot pick – years later the party could be over, and buyers can be rare.
Whatever your specific case, it’s having your goals – numerical or otherwise – defined early that will give you the proper perspective. And that’s critical for making cool decisions in a world where people forget that a number ending in the word ‘million’ is indeed a lot of money. A strange world in which, as TechCrunch wrote, Patzer ‘earned a fortune and was roundly ridiculed for it’.
Just like contestants on the game show Who Wants to Be a Millionaire, then, make sure you start your journey as a founder knowing exactly if — and when — you’ll be prepared to take the money.