Deciding to sell your company is a really big deal for most entrepreneurs. When you have taken friends and family money, have professional investors, and have employees who count on you for their livelihoods, the thought of selling without a huge win can make your stomach turn. That said, the decision to move on is a difficult one even in the best of times. Many entrepreneurs who have cashed out big still experience feelings of remorse and depression after the fact. Selling is all about letting go and moving on — and it’s very hard to do.
So, if you don’t have someone banging down your doors with fistfuls of cash, how do you know when it is time to sell? Many companies simply run out of money and collapse, and the decision is made for them. But if you are breaking even or have enough runway, with some pre-planning and soul searching you can take a much more active role in planning for your company’s future with or without you. Here are the questions I asked myself when trying to decide the fate of my company. I hope they will be helpful to you in finding your own path forward.
1. Which do I have more of: passion or exhaustion?
People who are thinking about starting their own companies often ask me what I feel is the single most important thing they need in order to be successful. I always answer “passion.” When you are involved and invested in a startup, you will need to spend so much time and energy on your project that if you do not really care about it, you will simply not be able to sustain yourself through the work that it requires. I have always cared deeply about the environment and created a company dedicated to helping people decrease their impact on the planet. My desire to create change fueled me for four long, exhilarating, exhausting years. Along the way I sacrificed money, personal time, and family time, but I for most of that time, I did not feel a moment of regret.
Then one day recently I woke up and realized I was just tired. I was burnt out and even a week long vacation without my computer did not revive me. My scale had finally tipped from passion to exhaustion. If you are tired and cannot revive yourself, it might be time to find a new CEO or make the difficult decision to sell.
3. Do I have an A+ team? Can I recruit one? Can I afford them? After years of struggling with smart and hard working amateurs, I recruited a top-notch team. My goal was to raise enough money to pay them. Together we built a plan and an economic model, based on what the company had accomplished to date, and layering in their experiences — and then went pitching for the funding we needed to “go big.” The feedback we got was that the amount we needed was too much, so we started scaling everything back, and tried asking for less. As I began lining up investors for our $600k round, I had a sinking feeling. I knew it was not really enough money to do what needed to be done properly and that we would once again have to raise more money before we had enough proof. I felt that I was merely setting us up to fail.
Four years ago, I might have taken what I could get and started the build, expecting to raise more along the way. However, going back to No. 1 above, I was tired and I did not want to spend all of my time raising money instead of running the company. I also did not want to compromise quality, because I now know for certain that when it comes to employees, especially in the IT world, you get what you pay for. Sometimes there is no “lean” version of something that you need to run your business: you either have to do it well or not at all. If you can’t afford the people you need to make your idea a reality, or recruit them as underpaid co-founders, it may be time to move on to your next idea.
4. Do my circumstances allow for the level of financial sacrifice required to run a startup? When I started my company, I was fresh out of graduate school. I had just gotten married and my husband was a Ph.D. candidate. Now I am a mom and my husband is on the job market. We’d like to have another kid. Making a third (or less) of my market salary was fine when I started out, but is much less tolerable now. I have several friends who have shut down or sold their companies because their risk profile changed. You have to ask yourself how much time and money you can put in to your startup — and if the potential reward is still worth it. If not, it might be time to sell.
5. Could a sale solve my problems? The answer to this question depends entirely on the type of company you are running and the competitive landscape, but I realized that I could solve the talent, funding and distribution issues we were facing by merging with a larger company. You might need to consider a sale to a strategic buyer to accomplish your long-term goals.
6. Will someone buy us? You can’t sell if no one wants to buy you, and you have to weigh the costs of letting the competition know you are for sale against the possible reward of selling. Most large companies have dedicated business development people looking at deals. If you think you might want to sell, set up an informational meeting and let them know you are thinking about it. If there is mutual interest, you can explore the matter further, sign a non-disclosure agreement, and start negotiating. If the deal makes sense for you and your company, selling can become the obvious choice.
7. What are my other options? Ultimately, whether you sell will depend on your other options. What will you do if you do not sell your company? Will you keep the business? Shut it down? Try to find another CEO to replace you? How attractive a sale will be depends entirely on the context of what else is happening in your space, in your company and in your personal life. Just remember that most startups fail, but most entrepreneurs succeed.
As serial entrepreneur Kevin Ryan (founder of Gilt) told me recently, “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.” So what do you think, is it time for you to sell?