by Todd Taskey
The entrepreneurial ego is an interesting thing. It takes a significant amount of self-confidence to be a founder and assume the risk required to build a successful business.
While relying on your ego in the early growth stages of your business may be critical, at some point, an entrepreneur is well served to rely more on evidence than ego.
I submit the following examples I’ve encountered over the past few weeks as we’re in various stages of closing transactions to sell businesses at very fair (or better) valuations that will make their founders wealthy.
I’m currently helping a very successful entrepreneur identify companies that will help continue his rapid growth in 2011. His deals are typically structured as cash and company stock. He sold his last company for $600 million.
His desire to rapidly grow his current company has created an opportunity for a $5 million to $10 million company to sell and essentially trade its equity for some of his. It is a window of opportunity that will likely close in nine to 12 months.
I have spoken to several owners who have grown their companies for five to 10 years and are still only half the size. Even with this evidence, two entrepreneurs have greater confidence in their ability to grow their value more quickly than my client.
That is ego, not an honest evaluation of evidence.
Future growth rate
I’m working with a Google Apps reseller who is growing very rapidly, has great technology, experiencedand is well-funded. They would like to grow revenues and also add some geographic diversification.
I had a conversation with a good potential acquisition that fell apart because the CEO/founder was highly confident his company could grow faster than the potential acquirer. So, he said a deal, “would not make sense for them at this point.”
Ego won out over evidence and my client will acquire another firm.
Big fish or big pond
I’m working with two other entrepreneurs of $10 million to $12 million companies who are struggling to continue their year-over-year growth rates because of their size (too small) and access to larger clients. Both are close to selling their companies to strategic acquirers who will open new markets and provide creditability that will allow them to win much larger projects in the future.
Both entrepreneurs in this example put ego aside and focused on the evidence presented to make intelligent decisions that will probably serve them well.
Bottom line: It is hard to know when ego shifts from an asset to a liability, if it ever does.
Build a strong advisor network or board, share with them often and be willing to ask for (and listen to) their honest feedback when it comes time to maximize value when selling your company.
Author: Todd Taskey is the founder of Potomac Business Capital.