Part One: Growing, Selling or Riding the Clutch?

I have always believed, at a fundamental level, that the best businesses, (like the best entrepreneurs) only have two “gears”; growing and selling.

Best in class entrepreneurial companies are either setting the “world on fire” by expanding aggressively into new markets and products or services with passion, drive and zeal – or they are not.   But when the their entrepreneurial leaders have stopped growing the business, for what ever reason, in my experience they immediately turn their focus and put the same level of energy, passion and attention into selling the business as they did into building it.  They work to understand and drive a well-thought through transaction to completion, and in doing so they extract more value.

There is no in-between for these leaders, they manage their emotions well, they are honest with themselves and they move on to their “new reality”, sometimes within the same role and function under the new ownership.

However, in my experience this is the exception not the norm.  More often, we see companies and their leaders stuck between these two gears either “riding the clutch” and coasting toward the sale or “grinding the gears” and eroding shareholder value. These leaders are selling down the road; in two or five or ten years; when markets improve or their financials are better.

When we hear this sort of talk we realize we’re dealing with emotion not logic and there is significant work that the entrepreneur must do to prepare for a sale; and it all starts with self-realization. That is, the greatest effect on the value realized in a business sale, in my experience has more to do with being honest with oneself than anything else.  The best results seem to be realized by those leaders who have found a path through ego, pride, fear (of the unknown or what’s next), self-delusion and other emotions that can grip and paralyze all of us as entrepreneurs – that is, they can separate their emotion from their business decision. They realize that their success (and net worth) is directly and only related to the business’s success and the best time to start the sale process is the day you stop growing (at the very latest).

Of course the two-speed approach doesn’t cover every situation and “coasting” or “clutching” shouldn’t be mistaken for preparing to transact. But those who can, will dig deep and realize that too often their personal needs, fears and insecurities are a significant impediment to value creation.

Entrepreneurs should challenge themselves and be completely candid to determine whether or not they are actively growing the business and, if not they should figure out what are the obstacles to growth?  Have they; lost their appetite for risk? Are they burned out? Do they lack sufficient capital or management to find opportunities or drive growth?

If they aren’t wholly committed to growing the business then the business owner should get comfortable with the fact that at some level (whether conscious or not) a sale is (or should be) eminent and if not managed properly or delayed and deluded by emotion and fear, they are simply eroding value.  They may think they are fooling their family; friends; employees; customers but passion and fire and desire can’t be faked.  In fact, an announcement by a leader that they are thinking about a sale/succession will more often be seen as relieving to employees and other stakeholders; that the owner is dealing with reality and looking in the mirror, rather than burying his or her head in the sand.  When growth stops the death spiral begins, so as responsible entrepreneurs we need to lead, follow or get out of the way.

The Take Away? As a business owner, it’s never to soon to get brutally honest with ones self, to step around, over or though emotion, ask the tough questions and plan for a sale.   Because of the inability to be honest with themselves, too many business leaders resist thinking and planning ownership transition.  Its one of those areas that they know is important and one day they’ll need to address but unfortunately gets as much mindshare as picking out music and flowers for their own funeral.

The following was part ONE of a multi-part series, exclusive to the Wire called An Entrepreneurs’ Playbook for Selling A Business, presented by Jason Sparaga President & CEO of Ontario-based investment bank, Spara Capital Partners Inc. 

For more than fifteen years, Jason and his team have exclusively served the advisory needs of Canadian entrepreneurs, across nearly every sector, raising hundreds of millions of dollars through debt and equity financings, leading acquisitions and divestitures and always working closely with highly successful entrepreneurs.