How Do You Know When It's Time To Sell Your Business | John Warrillow

[Music] when is a good time to sell like that's a fundamental question because it's three years five years 10 years or how much revenue i should hit before i even think about selling how many employees like what's been what's been your experience and what would be your advice yeah so most of the entrepreneurs that i know of want to sell at the nadir at the maximum a spot right when their business is at the top when you know the economy is booming when interest rates are low like everything sort of comes together and like that's what i'm gonna sell right and and a lot of entrepreneurs think that you know we can time that the problem uh is number one no one has a crystal ball and coveted certainly cleared that number two the best time to sell your business is when someone's buying it i uh i interviewed a guy just after i interviewed you dan i interviewed a guy named rand fishkin have you ever heard of rand no he he wrote he wrote a great book it's definitely worth picking up called lost and founder he started a company called moz and moz seomoz is oh yes yeah software company helps you do seo yes and rand built it up to around five million dollars in revenue and he thought you know what um i'm gonna i'm gonna just keep doubling the size of this business when he gets a call from brian halligan the guy who started hubspot yes and halligan says look rand we love what you built five million dollar company we want to pay you 25 million bucks for it so five times revenue yes most of which is cash some hubspot stock yes fishkin thinks well you know we're on this kind of trajectory we're booming we're at 5 million in revenue now we're expecting to go to 10 maybe we'll you know kind of wait for a little while we'll get more and afterwards yeah and uh and so he kind of plays hard to get and says no we want 40. halligan's like 40 for a 5 million company no way can't do it and so they they split and uh long story short fishkin's business starts to go into a tailspin he personally as he describes in the book and told me on my show you know he went through a period of depression ultimately he left the company um the business the the he raised some venture capital instead they used preferred shares and ultimately he was left with just some uh some some privately held company shares that may or may not be worth anything one day um and and and what's kind of an interesting postscript to the story dan is that that offer based on the appreciation of hubspot stock oh million dollars today wow so anyway it's a long-winded way of saying we all want to time the business sale for the best possible moment but the reality is the best time to sell your business is when someone's buying and when someone calls you up and says look we we like what you're doing uh take that call because you may never know when the next opportunity will be do you also see that because business is such a it's different from a stock or different from even a home right it's not like every single day you got someone come by and say hey i want to buy your business you might in 20 years only have one or two people knock on your doors hey i'm i'm interested in looking into buying your business this doesn't happen a lot even if we go out there and search and hunt and knock a door saying anyone wants to buy it it's not like that yeah it's it's a very opaque market to use sort of an mba word uh there's there's there's very little activity it's not like a stock in ford or tesla where you can trade it you know what the value is any day of the it's a very opaque market and and yeah there is not a lot of liquidity and it's one of the reasons that you know i talk a lot about in the art of selling this idea of trying to create a competitive marketplace for your company because if you just get stuck in a proprietary deal which is when you negotiate with one other company it's a definition of basically getting hosed because you're negotiating from a position of weakness so you know what i would counsel someone like rand to do is is take the call from mark halligan and at the same time see if there's another company that might be interested in acquiring you and at least create some competitive tension yes yes you don't you want a little bit of that walk away power right you don't want to be if they walk away like oh my god i'm going to wake another 10 years and i'm not going to see another buyer that walks through the door right even though you know maybe the second buyer may not be anything or they may not even go through but it's good hey i'm talking to so and so as well let's see who has a who's you know giving giving me a better offer right that makes sense yeah and and one of the things i spent a lot of time talking about is the is the use of a of a private equity group as a bit of a pawn in a negotiation when i talk to entrepreneurs and again maybe dan you've had the same experience they they'll tell me that i want to sell to a strategic right and and i don't like the idea of a private equity group sometimes they want to sell to private equity but other times it's like i want a strategic yes and and so what i counsel them is that's great to have an aspiration but if you can also be attractive to private equity groups um most private equity groups are sheep they have the same criteria they want a business and a unique uh niche they want a management team in place they want a differentiated advantage they want positive cash flow like it's the same stuff and if you're attractive to one you're probably attracted to a hundred and so what i love to do is is make sure that you've got private equity on your list of potential acquirers and once you tick the box against their criteria for an acquisition you can often find lots of different guys and there you're into a real competitive uh conversation and again you've got leverage when you're in a competitive conversation correct and you never know what cycle that private equity is in maybe they they need to get money out like you just don't know maybe you say hey we do we just raise a whole bunch of money we need to get the money out yeah and they they don't mind to pay a little bit more because they they would rather deploy more capital than not deploying capital right yeah for sure and and there's also this kind of hybrid somewhere in between where i i refer to them as a strategic hybrid basically they are a private equity company by legal definition um but actually they're they're doing a roll-up so they're almost acting a little bit more like a strategic a strategic acquirer usually pays the most for your business because they've got assets that correct you can uh that they can leverage on right yeah exactly right and i've got a a a situation i'm aware of where somebody's rolling up dental practices and and so the more practices they roll up the more buying power they have the better margins each practice can make right um so it's it is a private equity group that's backed but in many ways it's acting almost like a strategic acquirer interesting interesting