Would you Sell Your Company Today for $1 Million? If Not, when Should You Sell Your Company? –
Imagine working years at growing your very own business to a point it is finally showing a profit, only to have a larger competitor offer you less than what you think the company is worth. How would you feel about selling your business to this competitor? Do you decline the offer or do you accept?
The increased use of the Internet by consumers to purchase goods and services from various places has many business owners no longer just competing with our immediate neighbors. We are now competing with other businesses from around the globe.
Even if you’re the only clothing store or web developer in your town, you’ll eventually have to compete with other businesses such as movie theaters, bars, online outlets, etc. Although not actual competitors in your particular sector of business, these are places where your customers will spend their money instead of with you. At what point do you decide to no longer compete with various competitors in your community or business sector? And if a competitor offered you $1 Million today for your company, would you sell?
According to Forbes Magazine’s article, How Do You Know When It’s Time to Sell Your Company, “Deciding to sell your company is a really big deal for most entrepreneurs. When you have taken friends and family money, have professional investors, and have employees who count on you for their livelihoods, the thought of selling without a huge win can make your stomach turn.”
John Hammett, an investment banker at Corporate Finance Associates and a former company owner himself, describes in Entrepreneur.com how at one point in his career, he learned some valuable advice that has stuck with him to this day.
“Anytime you have an opportunity to get liquidity in your company, you need to seriously consider it because running a business is risky and the longer you hold on to that business and the bigger you get, the more chance you risk of failure,” says Hammett. “There is value in a business but no liquidity until you go through a transaction of selling a piece or all of your company to a buyer.”
Below, is a short story, Philo Farnsworth vs RCA: Who Really Invented Your TV? We’ll use this story to illustrate what could have been an ideal situation and right time to sell a company.
Philo Farnsworth designed and built the world’s first working all-electronic television, but refused to sale his patents for $100,000 to RCA. RCA also offered him a job working for the company. RCA was owned by David Sarnoff and in 1931, RCA was known for manufacturing radios. With Farnsworth patents, RCA could use its radio manufacturing companies to assemble televisions.
Instead of selling his patents, in 1938, Farnsworth established the Farnsworth Television and Radio Corporation in Fort Wayne, Indiana.
In 1939, after a 10 year legal battle with Farnsworth, RCA finally agreed to a multi-year licensing agreement totaling $1 Million. After the agreement, RCA was free to sell electronic televisions and cameras to the public.
But Farnsworth never saw any of the money because of the start of the World War. During the war, the government used nearly every manufacturing company to produce supplies and equipment to support the war effort. So, therefore no televisions were being produced.
After the war, Farnsworth’s patents had expired and RCA didn’t have to pay him a penny for the rights to the patents. By 1970, Farnsworth debts had grown to the point he was forced to stop work on his research. For decades, Farnsworth battled depression and turned to alcohol in the final years of his life. He died of pneumonia on March 11, 1971, in Salt Lake City, Utah.
Today, RCA is recognized as the first pioneer company to invent the television, while very little is mentioned of television’s true inventor, Philo Farnsworth and his company, Farnsworth Television and Radio Corporation.
Remember, the increased use of the Internet by consumers to purchase goods and services from various places has many of us no longer just competing with our immediate neighbors. Running a business is risky. We are now competing with other businesses from around the globe. Your competition could be an established business in your sector or a new business offering a substitute or similar product that makes your product redundant. Knowing the right time to sell is crucial and anytime you have an opportunity to get capital from the sell of your company, you should seriously consider the opportunity to sell.
And finally, as in the case of Farnsworth and RCA; if the competition is financially stronger than you and has made you an offer; maybe you should consider selling your company or else get stomped on by competition with a much larger footprint in your sector of business.