Re: Anyone Sold a Design Firm Before? - Insights from a Serial Entrepreneur
Excellent "problem" to have right now.
I have founded or co-founded a number of companies, 2 of them design firms, 4 of them web-development firms (that sound a lot like yours).
Some sold for good money. One deal (I was VP Marketing) received a $28.5 million acquisition price... and ended up broke after 1 year. The founders walked away owing taxes on the purchase price, but no cash to pay the bill.
One associate sold to Palm Computing for either $40 million in stock, or $45 million cash. On Thanksgiving day. He took cash. Smart, smart move. He now owns a beautiful riverside home and a pretty yacht... and a new, thriving Web 2.0 firm to play with. And investors chase him, rather than vice-versa.
Here's the upside: you can get a decent multiple on revenue if you have some brand and IP assets (eg a recognizable brand in your market; some software or processes that make development and optimization of sites and web content better than another).
Before pulling the trigger on a sale, here are some quick things to think about:
1) Why are you considering selling? Bored or Burned-out? Competitive threat? No fun anymore? Want to go do something else?
Know the answer to this before you do anything. Sometimes you can hand the keys to a trusted, talented associate, employee or pay-for-hire CEO (be wary, but it's doable). Sometimes that break can be all you need to keep the firm thriving.
And sometimes the buyer will simply become an investor in your firm, giving your the extra resources to have a "mini-liquidity event" and to fuel bigger growth... the things you would do if you had the extra cash.
2) Think about how you want to exit your firm:
Cash?
Cash+Equity (so you can play in the upside)?
Stock-swap (this is HIGHLY volatile. The $28.5 million deal above was that kind of deal. Ask me if you need more info)?
3) Think about what you want to do next:
Play?
Work Different?
Retire?
Each has pros and cons to consider. I have sold half of the companies I've founded. 2 are still running today with plenty of cashflow and profits. I would have done better to replace myself and held onto the firms than to sell.
4) Think about how long you can stand to work for the acquiring company.
I've found that most of the time, they want you for 12-36 months.
And most of the time, you'll be climbing the walls at 4-8 months. SO think carefully about how you structure your personal exit as well.
5) A Business Attorney is a must. I've taken the cheap route twice. Not a smart way to go. Go with a professional attorney who is referenced from a friend in the business. You'll make 20% to 300% more, and you can fix costs with a good attorney and both win (example: a girlfriend was offered $25k and a job to sell her handbag business in 2000. She grabbed the best attorney in her field, and ended up with $3.2 million and a contract that paid $17k per month as a "design contractor".
6) Be very present with the process. It's important to understand what your goal is, what your buyer's goals are, and how they mesh. Bad deals happen because of either bad people, or a bad mix of businesses. Keep that in mind and you'll do much better. If you'd like, I have a document that describes each of the key factors when combining businesses (in a very 30,000 foot view, but covering the 7-key issues).
I hope that helps. This can be an excellent opportunity to cash-out and follow your passions.
Or an opportunity to entrench and find new passion within your business and life, and grow to the next level.
Either way, enjoy, and my very best to you. If you want to talk about it for a bit, I am open for an email and phone call.
To your success,
ME
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