(Excerpt from Selling Your Marketing Agency)
If I sit down at the blackjack table with $200 and turn that $200 into $500, I immediately take $300 and put it in my pocket and then keep playing with the “house money,” thereby guaranteeing a profit. Other people go from $200 to $500 and then try to turn that $500 into $1500, knowing that they may end up losing all of it.
This is the essence of my conversation with my friend who couldn’t fathom selling his company on the cusp of a banner year. From my conservative perspective, taking money off the table while the company is doing great is a smart, de-risking decision; from his, the future potential of the company emboldens him to keep the business independent and go for a much bigger outcome.
In fact, shortly after this conversation happened, the COVID pandemic disrupted the world economy, and my friend suddenly saw his agency’s bookings drop dramatically. He realized that much of his net worth was tied up in his agency and that a “Black Swan” event like COVID or just bad luck could destroy his nest egg overnight. Fortunately, the business ended up thriving after a few down months, and my friend was able to sell for a great valuation, but COVID taught him a valuable lesson about risk and financial diversification.
I have two adages that I share with entrepreneurs that describe my mind-set. First, the difference between $1 million dollars and $2 million dollars is a lot less than the difference between zero and $2 million dollars. Second, it’s better to sell your company too early than too late.
I worked at a company that was run by a 20-something entrepreneur. He had an offer to sell the company for $500 million and rejected it. A few years later, the company was sold for just enough money to pay off debts. By contrast, Mark Zuckerberg was offered $900 million for Facebook, turned down that offer and now runs a company worth hundreds of billions of dollars.
My litmus test here is simple: if you turn down an offer of life-changing money and your business declines, how much will that decision haunt you? For some founders, the money is irrelevant. These founders get so much joy out of just running their business that missing out on a big exit is irrelevant.
For other founders, accepting an offer and then seeing their company increase in value many times over is devastating, so they’d rather risk saying no to a good offer, even if it means missing out on a better one.
Again, there’s no one answer. You have to figure out how much risk you want to take and whether you care more about de-risking or maximizing upside.
