‘Few are destined to be unicorns’: When is the right time to sell your startup?
Monday, May 13, 2019/
When it comes to knowing when the time is right to sell your startup and who the ideal buyer might be, founders first need to accept that very few Aussie tech businesses are destined to be a unicorn. However, that doesn’t mean you can’t do extremely well in a niche by solving a problem, offering a new or better solution and achieving growth and profitability.
I recently sold my HR SaaS business to an ASX-listed company for $10 million plus earn-out performance bonuses. My startup was spun out of my HR tech services and reseller business in 2013 after I identified employee onboarding as a niche being under-serviced by technology.
From a founder perspective, the most important lesson I have ever learnt is to blaze my own path and decide my own direction and approach. In the startup world, there’s a lot of focus on raising capital, being born global and the ‘go hard or go home’ mentality. But that approach may not actually serve your business, lifestyle or market you’re in.
Once I accepted I didn’t have to follow the usual startup path it reduced my stress levels, focused my strategy and meant I could spend more time with my wife and four young children. I realised we could build a great company focused on the Australian and New Zealand markets, grow at a steady pace (40% year-on-year), and choose our capital wisely (we were funded through my other business and some debt financing). Our office in Ringwood (25 mins from Melbourne’s CBD) is not your usual startup location, but it’s close to my home.
Never compromise on what is best for your wellbeing
Many founders make the wrong decisions for themselves. They feel pressure to move to funky, expensive locations, invest in ping-pong tables, chase VC funding and focus on international expansion. They do all of this before they’ve honed their product in the local market, built a strong culture and established a work-life balance that is best for their own wellbeing.
Running your own business is not for the faint-hearted and it concerns me that so much hype around raising capital, growth at all costs and hustling (otherwise known as work until you drop). What you don’t often hear about is the long-running and steady growth businesses that are healthy and successful. You also don’t hear about the majority of funded businesses that fail or die a slow death. It’s important to realise there any many paths as a founder you can choose to grow a successful business.
Ultimately, you need to realise a founder creates a business for their own personal reasons — whether it’s financial, to build a lifestyle, solve a problem or to change the world. So, remember your story as an Australian founder building a business can look different from the Silicon Valley playbook and still be highly successful.
I’ve made many mistakes along the way. I felt pressure to expand the business globally and we spent precious time and resources ‘feeling out’ the US and EU markets, But, I came to the realisation our product would require a lot of localisation and we’d need salespeople on the ground to close the deals — all of which would require more funding. This didn’t match my own personal ambition and goals, so we focused on dominating the local market.
Don’t be distracted by investor pressure
For me, the traditional path of raising capital wasn’t attractive due to the additional investor pressure, trajectory this often puts a business on, and the impact I perceived this would have on my family life. I also had the advantage of being able to self-fund from my other business, which meant I didn’t need to succumb to pressure from investors looking at the next funding round, I didn’t have to travel internationally, and I didn’t need to dilute capital. I kept the team very lean and became laser-focused on what we were doing.
I wasn’t expecting to sell so soon — we’d only been running for five years. But when the opportunity presented itself (a well-matched buyer and good valuation), I had to look at what it meant to me personally and for my startup’s people and brand.
I’ve been running my own businesses for more than 17 years, always investing back into the companies while carrying personal and business debt. I thought long and hard about selling, but in the end, it allowed me to de-risk financially, and spend more time with the family, while still retaining my HR business. The startup is now operating as a standalone brand within the ELMO group, which means there has been minimal disruption to the way we operate.
Do your due diligence
It’s easier to do due diligence if the buyer is a public company. You can study the business, financials and strategy. You also know they have the cash to buy you!
In our case, it gave assurance to our customers that we are financially secure and backed by a transparent business, allowing us to invest more in R&D.
If you’re going to sell, make sure you have a strong cultural alignment with the buyer. I wouldn’t have sold HROnboard to a company I didn’t like or didn’t believe shared my values. You need to think of how it will affect your people and, as the founder, you’ll most likely continue to work in the business after the deal closes.
Make sure the non-binding indicative offer captures any core principle or concepts of the deal that you as the seller are concerned about. These core principles make it clear to other people in the deal what you really care about.
Run a clean operation! Ensure you have current financials, corporate structures, a cap table, and complete customer and supplier contracts and employment agreements. This makes it easier during the due-diligence process for the buyer to understand your business and look for any issues.
Be clear about what your number is. Ask yourself how much you really need for the lifestyle you want. Understand the payment mechanics and hurdles in the deal and concepts like cash and debt free. These can impact the final payouts. And finally, make sure you get a good mergers and acquisitions lawyer.
Ultimately, the most important lesson you’ll ever learn is to decide your own fate. When the time is right to sell, embrace it as part of the journey.
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