As an entrepreneur, you’re optimistic. I know this because if you weren’t optimistic, you would have let doubt and uncertainty creep into your decision to start your business. You’d still be sitting on the sidelines, thinking of everything that could go wrong.
But you’re an optimist. You chose to start a business despite the risks, and every day you muster the courage to overcome the hurdles associated with building a business. A lesser man or woman would have quit many times over. But you are still here because you’re an optimist.
I’d go so far as to say optimism is a prerequisite for starting and growing a business. Optimism allows you to keep going when losing a significant customer or key employee. Optimism is the fuel that helps you to overcome yet another prospect rejection. Pessimists need not apply.
Despite the many benefits of being an optimist, there is one nasty downside to a glass-half-full attitude.
The Problem with Optimism
Chronic optimism may lead you to downplay potential risks in your business, leaving you inclined to keep your business for longer than you should. Why would you ever sell if you are convinced your business will be even more valuable next year?
Rand Fishkin had built Moz into a software company with around $5 million in annual recurring revenue when he received an acquisition offer from HubSpot with a mixture of cash and HubSpot stock. Fishkin considered the proposal but felt confident he could continue to grow Moz to $10 million in revenue and beyond.
Fishkin countered HubSpot’s offer of $25 million by asking for $40 million. HubSpot declined, and Fishkin continued to build Moz on his own. Soon after turning down HubSpot, Fishkin raised a round of venture capital, and as he described in our Built to Sell Radio interview, that’s when things started to go wrong. Moz lost focus. Fishkin suffered a bout of depression, and eventually his investors removed him as Moz’s CEO.
During our conversation, Fishkin estimated that given the company’s struggles and the guaranteed return the VCs were entitled to as preferred shareholders, his founder’s shares were worthless.
Based on the appreciation of HubSpot’s stock since its 2014 IPO, I asked Fishkin what that $25 million offer from HubSpot would be worth now. Fishkin estimated the offer would have been worth close to $200 million. Instead, at the time of our interview, Fishkin was trying to figure out how he would pay for elder care for his grandparents from his liquid net worth of around $800,000.
Fishkin went on to write a great book about his journey and is now the co-founder of a new company, SparkToro, but I’m sure there’s a tiny part of him that wishes he had accepted that HubSpot offer all those years ago.
How Mac Lackey Decided to Sell
It takes a unique founder who can be optimistic about their business and, at the same time, sober about the risks it faces. Mac Lackey licensed the world-renowned FC Barcelona brand and training methodology and started a business producing soccer camps and immersion trips for young American athletes. As he described during our Built to Sell Radio interview this week, the company enjoyed a great relationship with the head office staff at FC Barcelona. Still, as Lackey’s business crested $10 million in revenue, he felt uneasy.
Lackey’s company relied heavily on its FC Barcelona relationship, and if the club decided to stop licensing its name and methodology, his business would be severely impacted. Lackey chose to sell his shares to his partners and take the win.
Could Lackey have gotten more for his business had he held his shares longer?
Probably.
But Lackey did the intelligent thing. He built a business, he made it successful, and when the value grew to the point that losing it would hurt, he sold it.
Psychologists define cognitive dissonance as the ability to hold two opposing ideas in your mind at the same time. Having interviewed hundreds of founders for my podcast, I would say that the best entrepreneurs can be optimistic about the future and clear eyed about the risks they are shouldering at the same time. When the risks outweigh the upside, the savviest founders find a way to get out, even though they know they are almost certainly leaving some money on the table.
