It’s been over seven years since I listed my first app in the Shopify app store. It was super-basic. So basic that I was slightly embarrassed to put it out there. The simplicity might have been the key, since by the end of 2019 we had tens of thousands of active users, a team of seven and revenue well into six-figures.
Our growth was consistent. The products were resilient, supported by an excellent team. As for owner involvement, I’d gone from doing everything to just managing the team. When I sold it surprised a lot of people, since things were going great. Many said that their goal was to own a company like mine. The first thing that’s hard to understand is that looking at the number is almost always looks better to hold the business than to sell it.
The numbers don’t make sense
When valuing a business of this size it’s usually a 3-5x multiple of seller’s discretionary earnings (SDE) that determines the price. The owner ‘earns’ from the business with their combination of salary, dividends and other benefits like an office and computer equipment. This is added to company profit to arrive at annual SDE.
Then we have a multiple. A multiple closer to 5x, or sometimes more, is achieved by having a more attractive business. A low churn rate, lots of history, a solid team, good margins and good growth are attractive to buyers and can push you up to 5x or beyond.
I had an attractive business and good SDE so the valuation was at the higher end. Even with that, since it was growing, I could simply hold onto it for a couple of years and earn more than I could get by selling it now.
The sales process is also expensive with no guarantee of completion. Where I live I’m hit with a bunch of taxes from an asset sale. I’d also have to invest a lot of time in finding a buyer and working through due diligence. Once the sale closes, there’s a transition period where I’d work without compensation to hand over control smoothly to the new owner.
Plugging all of this into a spreadsheet, the valuation less how much the sales process costs were never greater than a couple of years of SDE. There was no ’sell now’ result going by the numbers except in dire, unlikely scenarios. Staring at my spreadsheet, selling looked like a poor financial decision. Yet in my gut I felt it was time. I needed to dig into why.
I’d been working on the business for over 7 years. It was really satisfying to look back and see how far we’d come. I was proud of what my team and I had accomplished.
And it was a hard and long road to get there! While I’d benefited in a small way financially, most of the profits had been ploughed back into the business over the years. The first couple of years I’d paid myself not much more than $1000/month. Even in the latter years I was earning just what a senior engineer would. I lived modestly as I always had and I was happy with that. My own earnings was not a primary motivator.
But what if my business disappeared tomorrow- how would I feel? I felt I would be devastated. Strangely not so much because I’d lose doing what I love, I knew I’d be able to find something else I enjoyed doing and could support us. It was mostly because I felt I hadn’t taken enough out of the business for my family and I vs. the risks I’ve been running to get there.
If the worst were to happen, and the business disappeared overnight, I wouldn’t have much left to show for it. The risk/reward ratio needed to be adjusted where I stood at that point.
If I could rewind, I wouldn’t take much more out, since reinvesting in the company clearly got it to where it got to. If I had, the seedling might have died before it had grown. But where I stood at that point made me realise that I one option was to spread my risk and cash out some of what I’d invested.
The job I’d made for myself
I’d started my working life as an engineer. It was not even really a decision. Ever since my parents bought our first computer (a ZX Spectrum, sometime after they started ending up in charity shops) I’d been programming. When we got our first PC and modem I started building webpages for fun, then for pocket money, then for clients.
Since I’d skipped university and left school at 15, when business started dropping off I sold my small agency and decided I needed to work as a developer in a larger team and learn a thing or two.
As my career progressed I discovered the fork in the road most engineers get to. You can choose either a management track or a deep senior engineering role, like an architect. With no academic engineering education and an aptitude for managing teams and projects, I chose: development manager.
That was fun for a while. Hiring a team, managing them, coordinating with other parts of the company, forming strategy. In the end it developed into lots of (usually pointless) meetings and zero coding. One of the reasons I decided to leave and starting building my own stuff was to make things again. Coding them up, developing the product, talking to customers.
The company grew. Everything I’d seen told me I needed to hire and manage, staying small didn’t even occur to me. Of course, as I hired, I became a manager again.
This phase was thrilling. It had just been me for a while, no co-founder and no colleagues. I didn’t do a good job of building out my professional network. Now, having a team pulling in the same direction was a thrill. Being a manager, this time with complete autonomy, was also fun. I owned the company and could steer it anyway I wanted.
As time went on I discovered that I tire of being either 100% a manager or 100% a developer. For the last couple of years it had been 100% management. That manager’s schedule didn’t open opportunities to satisfy my maker side.
I thought about bringing in a CEO and moving myself into a CTO role. I spoke with founders who’d tried that, but heard no success stories. Hiring a CEO for a company of our size, with the broad skillset we needed, didn’t seem likely.
On this maker / manager journey I’d learned the roles I thrive in. Unfortunately the seat I was sitting in and had made for myself wasn’t that. Maybe I could change things around to get there, but it we certainly a vote for selling.
Our team was really capable, I could be hands-off if I wanted to be, and we were stable and growing. Maybe I could turn this into a passive income thing? I’d engineered our processes so I could step away, so it sounded plausible.
First I tried this out it in a small way by carving out a couple of days a week to build something new. I closed the company Slack and email. But even on these free days, thoughts of the business popped up. I’d removed the interrupts, but some of my thinking was still tied up there.
At times it was totally subconsciously, just a general feeling of tension or weight if there was an issue the team was facing. It was clear that if I were to hang onto the business in some form, it would occupy me to a degree. Actively removing it would be the only way to free me up to focus on something new.
2019 was a very challenging year which caused my first burnout. It crept up on me insidiously.
I started feeling helpless for no particular reason. For weeks and months I stuck to my daily schedule: get up, get the family ready, go to the office, come home. It felt like drifting. I couldn’t focus or get satisfaction. I knew I needed to talk to someone. Someone who didn’t know me and had the experience to get to the core of what this was.
I worked with a clinical psychologist who knew the whole bootstrapped founder space. She helped me untangle the ‘me’ from my business. I’d built it, but we were not one and the same. That was a crucial step to look at the decision to sell as what was right for me and not just financially or for the company.
Two key questions
It was now nearly a year since I’d thought about selling. I'd played out lots of scenarios in my head and talked them through with friends and colleagues. There were two questions I asked myself that made me determined to sell.
I asked myself ‘if I sold the business now and the new owner doubled it in value in a year, and I could’ve sold it for double as much if I’d held onto it, how would I feel?’. If I could sell it for an amount that feels right to me now, I was totally at peace with that scenario. If the business doubled after I sold it, I’d be proud of what I had started and that I had put it on that trajectory.
The other question was ‘if I didn’t sell now and it started to decline and I could only get half of what I could get for it today, how would I feel?’. I’d feel strong disappointment. An opportunity missed. While it was very unlikely this scenario would happen, it was a risk, and I knew I couldn’t live with that.
After a long period of working all of this out, it was my answers to these two questions that finally made the decision clear. My spreadsheet doesn’t tell me I should sell, but my gut says I should. It’s the right thing for me. I knew that selling now on terms that made sense would be the best decision, there would be no 'what if' that could happen that would make me regret that choice.