Few decisions can be as life-changing for founders as deciding when to sell a business. Companies get sold for a whole host of reasons: founders break up; money runs out; shareholders force a sale. And in many cases, the financial upside of a sale is just too seducing for the entrepreneurs, particularly for first-time founders.
When making such a major decision, you’ll undoubtedly need to weigh many factors and most likely, some competing interests. However, I think the most compelling reason to sell is when the founders run out of ideas for how to grow the company further.
At the time, AbeBooks was still a nicely growing and highly profitable business, but we didn’t know how we could turn it into a billion dollar company. At the same time, the business could provide a lot of strategic value for many players in the book business, namely Amazon. So we decided to sell.
Looking back, there were several factors limiting our ability to grow, including:
- Geographical markets: We had internationalized to five non-English speaking countries in Europe, but felt that conquering Asia was too risky an endeavor for a relatively small company (our platform revenues were in the hundreds of millions of dollars).
- Vertical markets: Expanding from books to other media verticals seemed unrealistic, considering both the music and movie verticals had a rapidly shrinking share of physical goods.
- Market expansion: AbeBooks specialized in the long tail (used, rare, hard-to-find books). We saw only modest success when we tried to complete our offering by expanding into new books. Amazon’s brand recognition is just too strong among book buyers to allow competition.
- Acquisitions: We had acquired companies both upstream (Bookfinder, a major price comparison engine that sent up a large amount of traffic to us) and downstream (Fillz, a channel manager software that helped our sellers sell on other marketplaces).
Most importantly, we felt that we had optimized our business model to extract as much value out of the marketplace as we could. In short, we were struggling to think of ways to grow the company beyond modest increments.
For some founders, external factors and financial pressures may be too strong to avoid selling. But if you have a choice, don’t think about selling your company until you run out of ideas for how to grow it. Hopefully, that time will be far down the road.