The Entrepreneur’s Dilemma: Growth Or Sale

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Thursday, June 19th, 2008 Subscribe To Our Feed

The most common statistic associated with start-ups is that 9 out of 10 new businesses fail. Admittedly: odds are against the entrepreneurs. But if you’re one of the few whose jumped the hurdles most others could not, you often face yet another quandary- that is to raise capital and expand the business, or to sell the company to a larger business, usually in your vertical industry. This is a tough decision for most entrepeneurs, not the least of which is because they have an emotional connection with the company the founded.

However, a mistake some founders make is becoming too emotionally wedded to their start-up. A window of opportunity can close before the founder makes up his or her mind to part with their creation. One example of a company that sold at the right time was grayboxx, whose founder Bob Chandra recognized that there was strategic value to the company’s core technology and sold it to the highest bidder in the local search space.

Let’s begin with a few useful perspectives on the subject. In the area of tech, sometimes you don’t need a reveue stream to sell out for significant sums. In the words of YCombinator’s Paul Grahm, don’t “sweat the business model”. However, some would assert that the dream of an acquisition by Microsoft, Yahoo, or Google is hardly a substitute for a real business plan, as the Kiko team (www.kiko.com) can attest to.

Michael Arrington, who writes the popular Tech Crunch blog, describes a number of companies that he believes exited at the right time: Writely, Weblogs, Inc., Myspace, del.icio.us, Userplane, Flickr, Bloglines,Grouper, and Skype.

If you’re still undecided, here are some tips to consider when making the big decision.

Get an outside perform to evaluate your business. You need to have a strategic assessment completed. This can be performed by you as the owner and any family or confidant that you have in the business. You might decide after reviewing this assessment that the time is not right to maximize share holder value by selling the company. It could make more sense to develop the business using the recommendations outlined in the assessment.

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