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What’s your number?
You know the one.
It’s the amount of money you would have to be offered to sell your business. It can be tempting to imagine selling for an outlandish sum, but is that amount necessary for you to consider your exit a win?
I recently interviewed Cheryl Contee, the co-founder of Attentive.ly, a social listening software she and her partner, Rosalyn Lemieux, built for non-profit organizations.
Contee, who has also written a book on her journey titled Mechanical Bull, spoke to me for a recent episode of Built to Sell Radio. According to Contee, there are four different kinds of outcomes for founders who sell.
The first is an “acquihire,” where you sell your company to an organization that agrees to employ you and your staff. While tech giants like Google have consummated some spectacular “acquihires,” most transactions of this nature include only a modest exchange of funds. Contee describes the main benefit of an acquihire as “salvaging your dignity,” which, of course, is hard to put a price on.
The next level is a “new car” kind of exit, which Contee uses as shorthand for a five-figure sale. These kinds of exits can be a fantastic learning experience and allow you to pocket some money and gain a ton of experience. I often refer to these kinds of transactions as selling your “training wheels business” because they can be the precursor to a much larger financial success down the road.
The third level in Contee’s framework is a “new house” kind of exit, which describes a six- or low seven-figure deal that allows you to climb the first two steps on Maslow’s hierarchy of needs. In the 1943 paper, “A Theory of Human Motivation,” Abraham Maslow described how humans are motivated by a series of stages of fulfillment. Once our needs at one stage are met, we go on to search for another set of needs to be met. The first tier of needs Maslow described are physiological and safety. Selling a business for enough money to buy a house with cash can be psychologically rewarding because it allows your basic needs for shelter to be met. The psychic reward can be very powerful for someone who has experienced the stress of wondering if they will be able to afford rent.
The fourth level is to sell for enough money that you will never have to work again. This is the classic exit many owners dream about. It describes the point where work becomes a choice. Some owners refer to this point as when they retire even though they may still work because they enjoy it.
At The Value Builder System™, we refer to “The Freedom Point” as the time when the sale of your business, when combined with any other financial assets you have accumulated, will give you a nest egg large enough to live for the rest of your life. (Download The Freedom Point: A Financial Planning Guide for Business Owners to learn more).
In Contee’s case, she decided to sell Attentive.ly at a time when the founders were able to walk away with a level three win. She went on to write a book and started a new business, a digital media agency called Do Big Things, which is thriving.
It can be tempting to think the only reason to sell is to create enough wealth to retire, but there are three other stages worth considering, each with its own payoff you might find attractive at different times in your life.