The entrepreneurial ego is an interesting thing. Chances are you have a decent-sized ego, or you would not have started your business. It takes a significant amount of self-confidence to be a founder and assume the risk, responsibility and challenges required to build a successful business of any consequence. In this regard, a healthy ego provides a important advantage in 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 (or not) to sell business 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 is last company for $600 million and the one before he took public and then sold for $2.3Billion.
His desire to rapidly growing his current company has created an opportunity for a $5 - $10 million company to sell and essentially trade their equity for some of his. It is a window of opportunity that will likely close in 9 - 12 months (larger companies will be required).
I have spoken to several owners who have grown their companies for 5 - 10 years and are still only about half the size of his "company #3". Even with this evidence, two entrepreneurs have greater confidence in their ability to grow their value more quickly that my client. Regardless of the evidence presented by both companies growth rates.
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, experienced They would like to grow revenues and also add some geographic diversification.and is well funded.
I had a conversation with a very good potential acquisition which ultimately fell apart because the CEO/Founder was highly confident they could grow faster than the potential acquirer so a deal "would not make sense for them at this point". Ego.
The evidence clearly shows that they have been in business 2 years longer but are about half the revenue and growing at about 1/3 the annual rate of the potential acquirer. Although they are nicely profitable, they are not financed enough to ramp up client acquisition or buy a competitor.
Ego won out over evidence and my client will acquire another firm.
Big Fish or Big Pond:
I'm working with 2 entrepreneurs of $10 - $12 million companies who are struggling to continue their year over year growth rate because of their size (to small) and access to larger clients. Both are close to selling their company to strategic acquirers (taking some money off the table) who will open new markets and provide creditability (based on size of new company) 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 serve them well.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.
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