Why You Should Exit While You’re Ahead

Business owners often ask us what the best time to sell their business is. Needless to say, that is a complicated question that involves the intersection of different, often competing issues including the readiness of the business to be sold, the readiness of the owner to sell and current and future economic conditions.

The very best time to sell your business is when someone wants to buy it. While it can be tempting to continue to grow your business forever – particularly when things are going well — that decision comes with a significant downside.

The future always holds risks – and, in the case of selling your business, there are many different risks to consider. There is the risk that your business will encounter issues that make it harder to sell or less valuable. There is the risk that something happens to you or key managers that makes a sale more difficult. And, of course, there are macro factors far beyond the control of a business owner that may make the sale of the business in the future more difficult or impossible. We are well into an up business cycle for business sales. It is possible to imagine that cycle going in for several years, but you cannot escape the fact it is a business cycle and it will nit go on forever. We cannot predict when the cycle will end, but we know that it will end.

This article tells the tale of a business owner who waited too long and did not take advantage of an opportunity.

Take a look at the story of Rand Fishkin who started his entrepreneurial journey when he joined his mother’s marketing agency as a partner:

When Fishkin realized how much his Mom’s customers were struggling to get Google to display their company in a search, he immersed himself in the emerging field of Search Engine Optimization (SEO).

He began writing a blog called SEO Moz, which led to an SEO consulting and software company. By 2007, Moz was generating revenue of $850,000 a year when Fishkin decided to drop consulting to become solely a software business.

The company began to grow 100% per year and by 2010, Moz was generating around $650,000 in revenue each month, attracting the attention of Brian Halligan, co-founder of marketing software giant HubSpot.

HubSpot wanted to buy Moz and was offering $25 million of cash and HubSpot stock – an offer almost five times Moz’s $5.7 million of revenue in its last complete financial year.

But Fishkin wasn’t satisfied. He believed a fast growth Software-as-a-Service (SaaS) company was worth four times future revenue and was confident Moz would hit $10 million by the end of that year.

Fishkin counter offered, saying he would be willing to accept $40 million. HubSpot declined.

New Plans Ahead

Instead of selling Moz, Fishkin raised a round of venture capital and started to diversify away from SEO tools into a broader set of marketing offerings. The further Moz veered away from its core in SEO, the more money his business began to lose.

By 2014, Moz was in full crisis mode, and Fishkin had begun suffering from a bout of depression. He decided to step down as CEO, describing his resignation as a “lot of sadness, a heap of regrets and a smattering of resentment.”

Fishkin became a minority shareholder in a company he no longer controlled where the venture capitalists had preferred rights in a liquidity event.

A Lesson Learned

In the ensuing years since turning down Halligan’s offer, HubSpot went public on the New York Stock Exchange and had been worth nearly 20 times as much.

Fishkin revealed that today, his liquid net worth is $800,000 – much of which he was about to spend on elder care for his grandparents. The Moz stock he holds may or may not have value after the venture capitalist get their preferred return. At the same time, Fishkin estimated HubSpot’s offer of $25 million in cash and HubSpot stock would now be worth more than $100 million (based on the increased value of HubSpot’s stock).

Fishkin’s tale is a cautionary reminder why the best time to sell your company is when someone wants to buy it – a story that is shared in his book Lost and Founder: A Painfully Honest Field Guide to the Startup World.

What if an offer was made for your business today? Would you be ready to sell? Would you regret if you said no?

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