Buying? Selling? Raising capital? When is the right time to pursue such time-consuming undertakings? In my opinion and experience, there is no right or wrong answer. But the key is to not wait until it is too late, especially when it comes to raising capital or selling the company.
In my over 20 years of advising, I have seen many companies not pull the trigger at the right time and then be left with the least appealing options: Selling at a below-market valuation, liquidating assets, or being forced to close their doors for business.
Why would these smart entrepreneurs wait so long and miss out? I break it down from the perspective of running a large national IT company overseeing many business unit P&Ls and evaluating hundreds of acquisition opportunities, as well as my experience as a strategic advisor for clients I’ve taken on and those I’ve declined to represent. Mainly I see one consistent element that holds companies back and paralyzes them from going forward:
FEAR = Frustration, Ego, Anxiety, Resentment
Having a clear understanding of the market and a grip on reality is the trick to keeping FEAR at bay. As I’ve mentioned in Top 4 Deadly Pitfalls Startups Should Avoid, over 90% of all businesses fail in the first year. That means very few are smart and diligent enough to make it to the next year. So, before you start thinking about a “Unicorn” valuation, which is well under .025% of all companies in this world, understand that the odds are stacked against you.
I do not want to get in the way of anyone’s dreams, but there comes a time when the entrepreneur must check the ego and be realistic about prospects and timing. Accept that you may only make millions versus billions, or even just hundreds of thousands. But this is better than taking a loss and filing bankruptcy. At least you make some good money and live to fight another day and move on to the next gig.
I see many frustrated entrepreneurs who struggle with deciding what they want to be “when they grow up.” They can’t decide or commit to which direction to take the company. These questions persist and often haunt them:
- Are they going to be a sales and marketing company with a product/service to sell that they provide or do not provide?
- Are they going to be a technology company without sales and marketing that is really built to sell to a strategic partner that brings the sales, marketing, distribution, and back office to the table?
- Are they going to be a software developer or a manufacturer of the hardware platform that runs the software?
- Are they going to try to be all of the above?
The best advice when evaluating these questions: Pick a direction that is your core competency as an owner, surround yourself with smart people with integrity, and put your focus there. In addition, no matter what, make sure you stay focused on the customers who keep the lights on for you, versus trying to figure out what the next market shift is going to be. This stops you from always being in a state of flux. Take action, stop guessing, and make money first so your options will grow. Not making money means your options will shrink quickly.
Are you experiencing FEAR as you’re evaluating strategic alternatives? A solid advisor can help you define your offering, set realistic expectations, and make the right move at the right time.
Steve Pomeroy is the founder of Big Change Advisors, a Los Angeles M&A advisory firm of business advisors and capital sourcing advisors for startups and middle-market companies. Since 1992, Steve has completed over 38 transactions including M&A, Capital Sourcing, and Public Offerings representing over $800 million in total transaction value. Through Big Change Advisors, Steve donates a percentage of all fees – or invites clients to donate a portion of Big Change Advisors fees – to help serve the homeless through the Los Angeles Mission. To request a free consultant, contact Steve here.
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