Your business: love it, like it, or list it? 5 questions to decide.

At some point in time in the life of your business, you start to ask yourself, “Do I love it? Like it? Or, list it?”

You may have already decided it’s time to list it. If so, congratulations! This article is not for you.

But if you’re unsure when to sell, then read on. 

Because you’re in good company. Baby boomers are retiring in record numbers and, as a result, we’re witnessing the greatest sea-change of business ownership in history. Nearly 5 million other business owners are planning to sell their business in the next decade. Yet, it’s estimated that only 30% of businesses between $1M-$30M that go on the market will sell successfully.

Those that do sell may not get the premium their owners hoped for. Some sellers hold out hope for a higher valuation that never comes.

Remember Groupon? In 2010 its owners rejected a $6 billion offer from Google in favor of staying independent. Now, nearly a decade and half later, they have a market cap of $600M, a full 10x less. It’s highly unlikely that they’ll ever achieve an exit matching that earlier offer.

The decision on when to sell is as important as the decision to sell.

There are many factors that can affect the final transaction value for your business: market attractiveness, competitive activity, investment cycles, growth potential, and financial options, to name a few. Many of these will be external factors, outside of your control.

What is in your control, however, is your exit strategy. 

Three exit futures.

THE LIST IT PATH.
A good exit strategy begins with an assessment of the probabilities of three potential futures. One exit future is to sell now. This is the LIST IT path and your focus is on what must be done to prepare the business for immediate sale. If you’re on this path you’ll find plenty of brokers, investment bankers, and others who can provide a market assessment, valuation analysis, and the requisite activities that are needed to get you across the line. Choose wisely among these professionals and they can help you get the most from your business today.

THE LIKE IT PATH.
LIKE IT is the second possible path to an exit. In this path you continue operating your business as usual (BAU), incrementally building upon your growth to gain more customers, more revenue, and correspondingly, a higher valuation. At some point you decide the time is right, either you’ve met your revenue goals for the business or your personal situation has changed, and you pivot to the first path to sell now.

THE LOVE IT PATH.
Lastly, you can LOVE IT and create a step-change for your business, transforming it by identifying areas where significant valuation growth is possible and by making the necessary changes in your business to pursue them. This could involve entering a new market, developing a new offering, spinning out a portion of your business, or partnering with or acquiring another business. There are many options that you could consider to significantly enhance your business value. But pursuing them will take a realignment and an extraordinary level of commitment.

So which path is right for you?

Do you love it, like it, or list it?

The right path for your business is entirely dependent on a variety of factors. At a high-level, the LIST IT path is especially suited if you have immediate interest or need to exit. The LIKE IT path is particularly attractive if you're nearing an acceptable level of valuation and you don’t really want to invest more personal energy to lead it on a new path. 

The most potentially risky and rewarding path is the LOVE IT path, where you engage the afterburners and give it one more transformational push before you exit. Here are five questions you can ask yourself to determine if the LOVE IT path is right for your business:

LOVE IT ESSENTIAL #1: Do you have the energy to lead a step-change?

I’m assuming that, as the owner of your business, you’re the primary driver for its continued success. As such, it should go without saying that your desire to maintain or even increase your level of engagement in the business is a vital first consideration as to whether you should turn on the afterburners and create a step-change of growth for your business. 

If you can’t see committing to 3-5 years to accelerate your business growth, the third path may not be for you. I say “may not be” because I’ve observed on a number of occasions owners whose energy has been revived once they see that viable high-growth options exist for their business. 

While you might be excited about the growth options for your business, it’s vitally important that any other owners in your business — especially those engaged in critical aspects of your business — are also in alignment with you on your exit horizon and strategy.

Without alignment, every internal conflict becomes a distraction to creating the business value growth you’re seeking.

Just as a clear growth path can energize an owner, it can also help forge alignment among partners toward a bigger, shared purpose between them.

LOVE IT ESSENTIAL #2: Are there higher growth options available to support a step-change?

Are you in a high-growth, low-growth, or no-growth business? 

Clearly, companies that are in high-growth will tend to have higher valuations. So the question of when to exit may come down to assessing your exit criteria and likelihood of favorable conditions when you do reach your valuation target. As long as you can sustain high growth, you’re in an advantageous position. You don’t need to turn on the afterburners; they’re already on.

Companies with low- or no-growth are not as fortunate. At least not yet. 

If you’re leading a low- or no-growth business, you do know one thing though: higher valuations are not likely going to come naturally. You’ll need to be creative and make some bold moves to transform your business. 

How bold?

That depends on how you answered LOVE IT ESSENTIAL #1 and the resources at your disposal. That’s the next consideration you should take.

LOVE IT ESSENTIAL #3: Is your business generating enough cash flow to invest in a step-change? 

Unless you’re Apple, Nvidia, or Microsoft, you’ll be resource constrained. One might argue that even those companies with billions of dollars in the bank face other kinds of resource constraints.

To be sure, companies with access to capital can afford to place more bets — and more risky ones at that. Yet, when you’re tightly resource constrained, when you’re in a no-growth situation in particular, placing any kind of bet may seem out of the question. 

But there are nearly always viable options to grow any business.

The problem that many leaders of highly resourced-constrained businesses face is that they’re so focused on trying to get their current system of business to generate cash that they don’t consider what options might put their business on a better footing.

For them, generating options for growth is a future exercise when the business is a little better off. 

These leaders have put the “how” before the “what.” They presuppose that the cost of executing on an option will be unacceptable so they don’t even consider what those options might be. 

You certainly can’t build a growth strategy without considering the resource requirements that will be needed to deploy it. Conversely, assuming that the resource requirements are beyond your reach will keep you from finding the options that can meaningfully increase your business value.

LOVE IT ESSENTIAL #4: Do you have the risk tolerance to make a step-change?

It’s especially important to consider your level of risk tolerance, and those of your co-owners, before you embark on the LOVE IT path. Many entrepreneurs, like those at Groupon, have turned down an offer to buy their business years ago that they could only wish to have today. They said “no” to those offers in full conviction that they could grow their business, but now find themselves with a business that is worth less today than when they received that offer. 

Deciding to LOVE IT is a bet on yourself and the future — much of which you won’t have control over. A sudden illness or death of a key individual, an economic downturn, the loss of a significant customer, just to name a few, can significantly impact your future valuations. 

But so can inaction.

That’s why it’s important to assign confidence levels to each growth option you're considering and to identify what is an acceptable level of confidence before you take action. Assigning confidence levels to each option can keep you from the trap of favoring the highest growth option without considering its probability of success. Read my article that explains all of that. 

Remember, just because you may have high-risk tolerance does not mean that the riskiest option is best for you. It just means that your aperture is open to a wider range of options than those with lower risk tolerance. You should still choose the option that meets your growth targets and has the highest probability of success. 

LOVE IT ESSENTIAL #5: Does your leadership team have the capability and capacity to manage a step-change?

The LOVE IT path takes a lot more than choosing a growth option and devising a strategy to pursue it. Everything is about execution, and it takes an exceptionally strong team to execute a step-change in the business. 

Once the decision to turn on the afterburners is made, the team must simultaneously execute the new growth strategy and maintain the current business operations. This is, of course, one of the primary reasons leaders don’t consider high-growth options for their businesses. They see the strain the current leadership team is under with the current business and believe it impossible to add the burden of a new path. 

While consideration of your team's capabilities and capacity is important, it shouldn’t preclude you from evaluating growth options for your business. In fact, assessing your team’s capabilities and capacity in the context of your growth options can help you identify the gaps that you have and how you may need to fill them, with either hired talent or with outside advisors and consultants — just like an acquiring firm would do in assessing your business and how they can grow it.

Love it, like it, or list it.

The author Robert Fritz once wrote, “You must love something enough to see it exist.” 

That’s incisive — and especially so when you’re considering whether now is the time to sell your business. You may love the idea of being free from it now… or you might love the idea of investing a few more years to get an even better takeout. 

Either way, find what you love and work to make it exist.