Technology Companies: Grow Or Offer?Posted by Didriksen Mikkelsen on May 16th, 2021 The excitement and buzz of Silicon Valley is certainly why is it the technology capital of the planet, but the peer pressure in your community can make many entrepreneurs lose sight of reality. In the Silicon Valley, almost every entrepreneur's checklist includes: get venture capital, grow beyond wildest dreams, and do an IPO or sell to Google. With less than 1% of startups getting funded and significantly less than 10% of these companies having an excellent exit or going IPO, you've got a 1 in 1000 shot of meeting the goals on such a checklist. Of the other 999, most of them generate hardly any if any revenues and just fizzle away. Some become viable technology businesses with none or little outside funding and achieve significant growth until they get somewhere between and million in sales. While such companies are growing, most believe that their growth path will continue for a lot longer than it actually does. Generally, once they get to that plateau, they get stuck and have a difficult time growing due to one of several reasons: Their technology or offering starts becoming obsolete due to a new technology, service or website Their well-funded competitors begin to take their customers because of more expensive marketing campaigns, less expensive, or a better service An organization like Google starts to offer the product for free Once you get to this point, it is very difficult to reverse the damage. At this time, many technology companies believe that if they just add value to the customer, they can usually offset the above negative factors. Sometimes, they are able to continue steadily to grow, but usually either the competitor is one step away or the increase in value doesn't warrant the upsurge in cost to the customer. Just what exactly is the best way to beat the plateau? When your company is at a long-term plateau, the answer is to sell the company or take on many partner which can help you grow through synergy, capital and management. Unless you do one of these, you are definitely not getting the best return on your investment and there's a good chance you can lose your entire investment in some more years. In fact, the optimum time to sell a technology company is when you are growing. Our guideline is that as the company's revenues are growing greater than 20%, it is best to keep growing the business. When it starts teetering around 20% or dropping below 20%, it is advisable to sell the company. The reason is that selling an organization exhibiting growing forecasts is much easier than selling an organization exhibiting flat or nominally increasing forecasts. Buyers are usually looking at the forecasts of your company to determine its value, so it is much better being in a position to offer strong, growing forecasts that a buyer can believe. Thus, the take-away here's that should you are self -funded or perhaps a bootstrapped technology company that saw or is seeing good growth, probably, it will come to a finish. Therefore, you have to make a decision whether you will continue trying to grow the business or whether you'll capture the value you have previously created for the business by selling whenever your company is in a strong position. If you try to continue to grow, there is a good chance, you will plateau and probably decline. Think objectively and choose the right path. Neil Shroff is the Manging Director of Orion Capital Group, a mergers and acquisitions advisory firm. more info is well-versed in mergers and acquisitions, operations, business development and management consulting. Prior to founding Orion Capital Group, Neil co-founded an overseas manufacturing outsourcing firm. During his tenure, Neil acted because the lead for just two strategic acquisitions, and eventually worked closely with the board of directors to lead the sale of the firm. Previously, Neil was a Managing Director for a Jefferies Capital Partners portfolio company where he led the company's transition from the position of financial and operational distress to put of profitability. In his early career, Neil was a management consultant at SRI International and another small consulting firm where he centered on developing strategic tips for numerous clients in the biotech, medical device, and material technology industries.Like it? Share it! More by this author |