Though we were meeting at 6:30 that morning, he didn’t need coffee. Randy (not his real name) lived a caffeinated life. He ran at a fast pace, the success of his company was evidence of that.
But I was sensing Randy was ready to slow down, maybe take some chips off the table. A few weeks earlier I had reviewed Randy’s business and told him how much he would make if he sold it in 2016. I also projected what he might make if he waited two years to sell; given his incredible growth rate, he would like likely double his value by waiting just two or three years.
But Randy was torn; he was a bit bored and tired of the travel. All things considered, he was ready to sell. “Ok, I know I make more if I wait, but is there any logic in going ahead to sell now?” My first thought was to say “a bird in the hand is worth two in the bush” though I never understood what that meant, and Randy didn’t seem in the mood for glib retorts. So I offered three observations as to why he should sell now, even if it meant walking away from what could be a bigger pot of gold in a couple of years.
I first pointed out to Randy that we are in an unprecedented period of near-zero interest rates, and no economist believes that is sustainable; once interest rates begin to rise, no one is sure how the economy will react. Second, though the stock market has seen a dip in early 2016, the stock market is still trading at all-time highs. How sustainable is that? Finally, the low cost of oil has been a wonderful boon for consumers, but like low interest rates and the high stock market, it’s hard to see how the low cost of oil is sustainable. Simply said, while no one can predict the direction of markets (don’t trust those who say they can), it’s a reasonable to believe there is some economic disruptions in our future, sooner than later.
Randy is fortunate that his competitors haven’t yet shown much interest in the niche he serves. Having patents on his designs gives him some comfort that his niche can’t be quickly ripped off. However, Randy knows the value his product brings to his customers is so significant that sooner than later he’ll face competition, likely stiff competition. Of course, the big boys tend to throw a lot of resources at the market. Right now, Randy is the big fish in the pond. But it’s likely there’ll be whales swimming around the same waters sooner than later.
I asked Randy how his daily role in the business has changed since his hyper-growth stage started. “Well, truthfully, it’s gotten to be a bit of a pain in the backside, if you get my drift.” He went on to describe how he’s moved further from the design and engineering process that he loves to now having to spend more time on accounting and sales management. “I can do that stuff ok” he said, “it’s just not my strong suit.” I told Randy this might be another sign it’s time to sell his company. As the business grows, it gets more complicated and there are more moving parts. Randy said he has to hire new employees, bring in more senior-level management, attend more conferences, etc. All of that “business stuff” is taking him away from the passion that got him started in the first place. I told Randy this kind of job frustration is often the catalyst for an entrepreneur to sell their business.
Whether he sells in 2016 or waits a couple of years, Randy is going to do very well. But holding on too long can have its downsides. My final comment as we were leaving Starbucks that morning ….Randy, you never know the perfect time to sell a business but when your heart says it’s time, it probably is.
Tennessee Valley Group
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