While some business owners might be reluctant to admit it, there’s a question always lurking in the back of their minds: when should I sell my business, and how should I do it?
It’s nothing to be ashamed of. After all, if you’ve poured your heart and soul into something for years of your life, you may as well have something to show for it, right?
The process of exiting a business comes in many shapes and sizes, with some entrepreneurs selling their businesses after just a few years, and some after 50 or more. Sometimes the acquisitions are planned, and other times they happen fortuitously.
And in some rare cases, businesses will choose to take their company public to receive a ‘return’ on their stake while also keeping the business in their hands.
However it happens, passing on your business is something founders will inevitably have to do at some point, and according to Shark Tank investor and renowned Australian entrepreneur Naomi Simson, most Aussie entrepreneurs know in creating a business they’re in turn creating an asset which will be valuable “at some point”.
“Most business owners are working towards retirement with their business being the main asset they have, but the challenge is finding out where the business belongs, and what the best exit is for it,” Simson tells SmartCompany.
“Running a startup for three years and selling it is very different to running a small manufacturing company for 20 years and doing the same. People are always at different stages, and it’s about working out what stage you’re at.”
Simson says founders should think about where and how their business can create value, rather than thinking about the process as a way to get a conventional return on investment. This includes processes such as IPOs, though the RedBalloon founder acknowledges those are few and far between in the SME and startup space.
Going with the flow
Many business owners who’ve spoken to SmartCompany and StartupSmart over the years have rarely had plans for exiting their businesses, choosing instead to go with the flow and think about it if the opportunity arises.
This was the case for Celeste and Hui Ong, the founders of Australia’s first restaurant reviews site Eatability, which sold to Optus for $6 million back in 2012. Today the founders are back in the business game, launching dating app Pair just a few weeks ago.
However, Hui tells SmartCompany he and Celeste were “naive” in the early days of Eatability, and never really considered the option of the business being acquired. Even a few years in, when the two received some offers for the site, they knocked them back, preferring to keep the business as a side project.
“We never really considered an acquisition until after five years or so, and only at that point did we think it would possibly make sense, but only if the right company came along,” he says.
“In the end when Optus approached us, the timing was perfect so it just happened.”
However, things didn’t work out at Optus after the two realised the telecom wasn’t interested in building out Eatability as part of its main business, and the two left to start something new. With Pair, Celeste says they have no exit strategy in place, instead looking to just “play it by ear”.
By and large, Simson agrees, saying early on business owners should focus on the customer — because without a customer, you don’t have a product.
However, she caveats for situations such as Shark Tank and other times where businesses have numerous or significant investors, saying in those situations it’s important for founders to think about returns for their investors.
“When people come onto Shark Tank to raise money and look for mentorship, they need to respect that the investors are looking for a return. That doesn’t have to mean an exit, but we do expect it to be at least a dividend of some sort,” she says.
Stop thinking about the exit
So should business owners be thinking about an exit strategy from day one? According to ActivePipe founder Ashley Farrugia, absolutely not.
“I don’t believe any founder should be in a startup thinking about an exit strategy. To me, that’s just saying you don’t believe in your product and your business enough to stick with it long-term,” the founder says.
“My view has always been to build a big profitable global business.”
As the founder of a fairly successful Australian startup, Farrugia says he often has budding founders come to him for advice and mentoring on their business plans. Often, he sees business owners with more knowledge about their exit strategies than their business’ growth plans.
“Have a think about what message you’re getting across when you think this way, are you really passionate about the problem you are solving if you’re focused on the exit?
“Is your team going to buy into your vision if all your interested in is an exit strategy?
“My strong belief is there is always an exit opportunity for fast-growing tech businesses, however, this should never be the focus,” he says.
Celeste holds a similar view, advising founders to put their time into focusing on their users and the user experience.
“If customers are getting what they need, an acquisition will come down the line,” she says.
Don’t treat your business like a “victim”
Speaking from her own experience at RedBalloon, Simson concludes business owners should also be aware of when it’s time to pass the baton, and leave their business in more capable hands.
She says she did this with RedBalloon, stepping back as chief executive officer to work as co-founder and “effective CMO” because she admitted her presence could be “really distracting for people”.
“I’m an idea-a-minute sort of person, so I could be quite distracting. I think founders also have a job to know when to pass their enterprise on to someone else or another organisation in order to let it scale,” she says.
It’s a sort of ‘if you love it set it free’ situation says Simson, who believes otherwise founders can end up being destructive and “treating the business like their victim”.
“Not all founders are meant to be chief executive officers, and the real trick to success is to not attach business growth to founder personalities,” she says.
You can help keep SmartCompany free for everyone to read
Small and medium businesses and startups have never needed credible, independent journalism and information more than now.
That’s our job at SmartCompany: to keep you informed with the news, interviews and analysis you need to manage your way through this unprecedented crisis.
Now, there’s a way you can help us keep doing this: by becoming a SmartCompany Supporter.
Even a small contribution will help us to keep doing the journalism that keeps Australia’s entrepreneurs informed.
And it’s not all one-way traffic either. SmartCompany Super Supporters get to dial into our monthly editor’s meeting and attend a monthly, invite-only webinar with a big-name entrepreneur.