{"id":2391,"date":"2015-09-10T10:00:10","date_gmt":"2015-09-10T17:00:10","guid":{"rendered":"https:\/\/berkonomics.com\/?p=2391"},"modified":"2025-05-06T13:42:13","modified_gmt":"2025-05-06T20:42:13","slug":"timing-your-exit-dont-ride-it-over-the-top","status":"publish","type":"post","link":"https:\/\/berkonomics.com\/?p=2391","title":{"rendered":"Timing your exit \u2013 Don\u2019t ride it over the top."},"content":{"rendered":"

Dave’s note: \u00a0For the second time, we invite Basil Peters, author of “Early Exits,” back as our guest – to provide more of his insight into the “when” to exit by selling your business. In future weeks, we’ll add the voices of other well-known professionals in the field of exits to my own, and try to give you a compendium of useful advice in the process.\u00a0<\/em><\/p>\n

By Basil Peters<\/strong><\/p>\n

Most entrepreneurs wait too long to start thinking about their exit.\u00a0 They usually sell their companies for much less than they could have.<\/p>\n

That\u2019s exactly what I did in my first company. \u00a0It was the first time I lost several million dollars, and the first of many similarly expensive \u2013 and valuable \u2013 lessons about exits.<\/p>\n

\"Basil_Peters2\"<\/a>I recently met with two bright entrepreneurs who are building a company in an exciting niche market riding on a long term trend. These two young founders chose their space well and were already global leaders in their niche. They had prototypes in the market and a respectable global mind share.<\/p>\n

[Email readers, continue here…]<\/em><\/span> \u00a0 Their niche was heating up quickly \u2013 unfortunately for them. \u00a0In the previous six months, I\u2019d read several articles in finance blogs or newsletters about yet another company that had just been financed in their specific vertical. \u00a0Most of the financings I read about were for $5 million to $20 million. In contrast, this local company had been built on something around $1 million in equity.<\/p>\n

This is a scenario I\u2019ve seen about a hundred times before – too much money flushing into a space the VCs think will be hot. Too many companies being founded with exactly the same business plan.<\/p>\n

These entrepreneurs were too young to attract the amount of capital they\u2019d need to compete in this new environment. They had only two strategic options \u2013 an early exit, or hiring a \u2018name CEO\u2019 that might be able to raise a big enough round in time. I recommended an exit because I knew the money flowing in to their space would also increase valuations \u2013 possibly by 2x to 5x over normal ranges.<\/p>\n

You can probably guess the young entrepreneurs wanted to wait a \u2018little longer.\u2019<\/p>\n

I don\u2019t want to be too hard on these young entrepreneurs. They were mostly victims of their own human nature.<\/p>\n

They just couldn\u2019t think about selling because they were having too much fun. They were leaders in their market and big companies were enquiring about huge orders. They knew their revenues were getting ready to grow \u2013 and possibly explode.<\/p>\n

\"Dave's<\/a>

Dave’s book on exits. See http:\/\/www.berkus.com\/shop\/<\/a> for this and more from Dave<\/p><\/div>\n

Unfortunately, they couldn\u2019t appreciate that it was also the absolute best time to sell their company. In fact, they should have started the exit process six to twelve months earlier.<\/p>\n

Human nature also affects the buyers. They will always pay the most when everything is going perfectly and the future looks even brighter. The buyers\u2019 human nature also means that a skilled M&A advisor can usually sell for a lot more based on the \u2018promise\u2019 rather than the \u2018reality.\u2019<\/p>\n

And human nature works against the entrepreneurs on the downside. This one ends up costing most entrepreneurs and their investors a lot of money, because most of the time CEOs and boards wait until it\u2019s pretty clear that the company\u2019s value has peaked before starting the exit process.\u00a0 By the time the buyers get to serious price negotiations, it\u2019s also clear to them that the company\u2019s best days are behind it. And another six to eighteen months have passed, usually allowing the trend to extend even further.<\/p>\n

With exits, like many things in business and life, timing can be (almost) everything.<\/p>\n","protected":false},"excerpt":{"rendered":"

Dave’s note: \u00a0For the second time, we invite Basil Peters, author of “Early Exits,” back as our guest – to provide more of his insight into the “when” to exit by selling your business. In future weeks, we’ll add the … Continue reading →<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"om_disable_all_campaigns":false,"_exactmetrics_skip_tracking":false,"_exactmetrics_sitenote_active":false,"_exactmetrics_sitenote_note":"","_exactmetrics_sitenote_category":0,"_uf_show_specific_survey":0,"_uf_disable_surveys":false,"footnotes":""},"categories":[13],"tags":[],"class_list":["post-2391","post","type-post","status-publish","format-standard","hentry","category-the-liquidity-event-and-beyond"],"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/berkonomics.com\/index.php?rest_route=\/wp\/v2\/posts\/2391","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/berkonomics.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/berkonomics.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/berkonomics.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/berkonomics.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=2391"}],"version-history":[{"count":2,"href":"https:\/\/berkonomics.com\/index.php?rest_route=\/wp\/v2\/posts\/2391\/revisions"}],"predecessor-version":[{"id":5774,"href":"https:\/\/berkonomics.com\/index.php?rest_route=\/wp\/v2\/posts\/2391\/revisions\/5774"}],"wp:attachment":[{"href":"https:\/\/berkonomics.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=2391"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/berkonomics.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=2391"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/berkonomics.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=2391"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}