The best time to sell your company can be found inside you.
It is not dependent on external opportunities, like buyers knocking on your door or special events.
These provide opportunities, but they are no reasons to sell or not to sell.
If your company is just a tool to make you enough money to pursue your true goals, sell it as soon as you get a high enough offer to do what you really want to do. Every month later is a useless delay, preventing you from doing what’s important. Sell it and never think about it again. It was a tool and it did what it was supposed to do. End of story.
That would be the easy case. Likely it’s not the real case.
This raises the question: What is your true goal?
It’s probably the most difficult question ever. That’s why ‘Know thyself’ was inscribed at the ancient Oracle of Delphi.
Find the answer to this question: What do I really want to do?
Imagine yourself in the future when your grandkids come running to you: “Grandpa, tell us a story from your life!”
What is the story you would enjoy telling then? And which of your current stories will you not find worthy to tell?
And if your kids bring friends to your home, what will they tell them? “This is my dad, know what he did one time?” What story should they tell then to make you proud and assure you did the right thing?
What is the story you want to tell about yourself? And others to tell about you?
Find these answer and you will discover that your question about the best timing to sell your company will become trivial and very simple.
Assuming you are a venture backed company unless you are one of a very, very small group capable of an IPO, the best possible outcome for your company is to get acquired. The moment you took an investor’s cash you are on the track towards a liquidity event, The only question then is timing and your own personal risk/reward ratio.
There are various growth metrics you can look at to help you answer the question of when is the optimal time to sell, but they are mostly worthless as they are all predicated on your ability to accurately forecast growth as well as the macroeconomic environment.
You are going to sell, so ask yourself honestly, is it better for me to exit now and make a good chunk of money or roll the dice and hope for a lot more. How confident are you in your forecasts and ability to execute? How confident are you in the macroeconomic environment and market in which you operate?
Here is an interesting answer from Gordon Miller, the Supreme entrepreneur.
When asked when did you it was time to sell your company, he came up with an incredible answer.
“Not until 3 weeks after I had already turned down the offer for $10 million. I started my first company when I was 28 and 6 years later just as I turned 35, I got an offer for $10M. I turned it down cold. Then I was playing golf a few weeks later with my broker and the conversation went like this:
Broker: “So, did they make you an offer?”
Me: “Oh, yeah, but I turned it down. It wasn’t enough.”
Broker: “How much was it?”
Me: “They offered $10 million.”
Broker: “And you turned it down? Why?”
Me: “I had a target of $50 million in mind.”
Broker: “Right. And you didn’t even call me to discuss it?”
Me: “No. why the hell would I do that?”
Broker: “Because I would have asked you these questions… how much do you make now?”
Me: “Ah, you know I make about $250,000 per year. Why?”
Broker: “Do you think you could live on $500,000 a year?”
Me: “Haha, ah, yeah… we do pretty well on $250,000. I am sure we would do just fine on twice that.
Broker: “Well then had you called me, I would have told you to take the money because if you invested the $10 million conservatively and made $1 million a year in interest, and paid yourself $500,000 of that and reinvested the other $500,000 a year, do you know how how much you would have after 30 years of compounded interest by the time you are 65?”
Me: (feeling ill) “Uh, no… but I’m afraid you are going to tell me.”
Broker: “You would have $92.8 million in the bank… so while you were holding out for $50 million, you actually turned down $15 million in income over 30 years and over $100M in total.
Me: “Damn it. I wish I had called you… (sigh)”
The moral of this story is that the $10M was a good offer for our revenue amount of $2M a year at that time, so it was a 20x on EBITA and 5x revenue. Don’t be stupid. Have good advisors and know when a good deal is a good deal. And be smart enough to take it.
The only counter to this is that we have built so much value in all the other companies so far that when I do sell out at 65, I will still cash out at over $100M and I will have made over $15M doing it, but I will have done it the hard way. Work smart not hard. Let your money work for you, don’t work for your money.”
Hope you get the gist!