As entrepreneurs, we know the deal.
Success can mean a $500M+ exit, financial independence and the thrill of “making it” in the Valley. Others have done it - why not you or me?
Failure can be a swift shutdown and then a corporate job for a year or two. Sometimes the markets just don’t cooperate.
But what happens when a business is somewhere in between success and failure?
You’ve raised money, built a good product, have happy customers, a loyal team - but the business just isn’t on an exciting - or even sustainable - growth curve?
First of all - congratulations are in order. You’ve done better than 90% of all venture backed companies. You’ve accomplished more in the last ~3 years than most people do in the entirety of their careers. Building a business to this point is really really tough. The investment of passion and energy sometimes make it difficult to make dispassionate decisions about your company.
With that in mind, here are a few signs it might be time to look for a buyer::
1) You’re running out of money and unable to secure follow-on funding.
This one’s pretty straightforward; arithmetic is an unforgiving master. If the business is operating a loss, and there’s not additional capital to sustain the enterprise, then begin conversations today. Sure, there’s always the possibility of a Hail Mary. But the more cash you have in the bank, the more leverage you have with potential buyers. One more thing: it takes money to wind down a business. You’ll want to make sure there’s cash for severance packages, taxes, and legal fees.
2) You’re Not Making Enough Money - Present or Future
Founder salaries are usually low. That’s all good and well if you’re 25. Not so much when you’re 35 with a spouse and kids. If the business is growing, a low salary should be (more than) offset by increases in the value of your equity. If both are stagnant - or in decline - then the opportunity cost increases daily. Ask yourself whether it’s time to focus your energies on a higher-yield opportunity - like another startup or a high-paying job.
3) The Business Is Growing Slowly or Not at All
Look at your numbers. Not your vanity metrics but the ones that really matter: your topline, your client roster, and your trailing sales numbers. How does it look? Would you invest in this business? Take a hard look at your numbers and ask yourself what you expect to change over the next 90-180 days. As entrepreneurs, hope springs eternal: breakout growth is always right around the corner. Keep swinging if you can. But if the last 12 months aren’t showing much lift, consider your options.