It’s been nearly 10 years since I sold First Research for $26 million to Dun & Bradstreet. Do I regret doing so? It is a complex question, but let’s just go with YES. Here is why I encourage founders to think twice before selling their company:
- When you’re selling your business, you’re selling your passion: The words of one founder who made a great sale for his start-up especially resonate for me. Roger Bryan, who started Enfusen Digital Marketing, eloquently told mashable.com in an interview about his thoughts on the transaction, “I spent six years building the first company I sold. The day that I sold it was one of the greatest accomplishments of my life. . . .Then as each month went by, and the money sat in my bank account as I tried to figure out what to do next, the regret started to set in. I hadn’t sold my company; I had sold my passion.” Many founders feel a deep sense of remorse once a sale is complete, even if they have made a truly great deal.
- Most of the time, your “company” will becomes a “product”: Large businesses don’t normally maintain multiple independent departments for each product they sell. They already have a sales force, finance, and management – so why would they need those functions for your product? Cutting those duplicate expenses is one way mergers are profitable. The result is the destruction of the company you built.
- Merger negotiations are stressful: Selling your company is a full-time job – and keep in mind that you already have a full-time job managing your company that must maintain its current growth rate, which is probably fast. Life’s too short – trust me.
- Integration is stressful: Combining two organizations is like merging together two families. It’s a hellish two-year during which the acquiring firm must guess about which new business processes will work and which ones won’t. The stress is guaranteed to put gray hair on your head.
- Your employees often lose out: The first year after a merger, your employees are uncertain whether or not they’ll be fired—stressing everyone out. They’re told by the acquiring firm how “valuable” they are. But one important caveat—they aren’t told that they are only “valuable” for the first year or two after the merger. Screw that torture!
- The strategic fit between two companies can’t be known until they’re put together: The truth is that the acquiring company is only guessing about how successful integration will go – and they may have delusions of grandeur. Don’t assume that because a company is large and employs a bunch of MBAs and CPAs that they can foresee the future. Mergers are risky.
- You’ll be going through a not-so-great life-change: When I sold my company, I ended up with so much stress from integration and from losing something that I loved that I was visiting a psychologist and doctors to check my overall health. These stories don’t happen every time someone sells his or her company, but my research shows it happens quite often.
- You’ll probably want to rebuild what you already had: After selling their company, many founders, like myself, start a similar one all over again. To do that, you’ll have to grind out building a new business from scratch a second time.
- Having lots of money is overrated; owning a growing company is underrated: Just this morning, I was barking at the employees of my “yard irrigation company” because the system isn’t working properly and my expensive plants are dying. To my mind, that’s no way to live. Having lots of money is sort of cool, but having a high-energy growth company with a good culture is really, really cool!
- If you have a successful company, then you should have already earned money: Too many founders operate their company’s “breakeven” by investing all their operating profit into growth to increase their company’s valuation. Unless you are the next Amazon, why not pay out a reasonable percentage of profit as a dividend?
- It’s doubtful you’ll become “corporate jet rich” anyway: Corporate jet rich means you can afford several hundred thousand a year just for your jet. Ninety-nine percent of founders who sell their companies aren’t going to obtain that kind of wealth, so just keep your company and be happy with what you already have.
- Founders grow companies better than outsiders: A 2006 study showed that the average return on stocks of the 26 Fortune 500 firms run by founders was 18.5 percent annually from 1995 to 2005, which was seven percentage points better than the Fortune 500 average in those years. A 2010 study reported that “founding CEOs consistently beat the professional CEOs on a broad range of metrics ranging from capital efficiency (amount of funding raised), time to exit, exit valuations, and return on investment.”
The value of the satisfaction of guiding the long-term success of your company cannot be measured. When you sell out, you’re trying to quantify your creation, which doesn’t logically work. Ben Horowitz agrees in The Hard Thing About Hard Things, noting how the logical part is easy: “One of the most difficult decisions that a CEO ever makes is whether to sell her company. Logically, determining whether selling a company will be better in the long term than continuing to run it stand-alone involves a huge number of factors, most of which are speculative or unknown. And if you are the founder, the logical part is the easy part.”
To gain more valuable insight and perspectives about selling your business, check out John Warrillow’s podcast series Built to Sell Radio, a collection of well-organized interviews from founders who have sold their company. The best book on the subject is Finish Big by business writer Bo Burlingham.
By the way, I never could come up with 12 reasons you should sell your business. I’m just sayin’.
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