Technology Companies: Grow Or Easily sell?Posted by Didriksen Mikkelsen on May 16th, 2021 The excitement and buzz of Silicon Valley is certainly what makes it the technology capital of the world, but the peer pressure in the area can make many entrepreneurs lose sight of reality. In the Silicon Valley, nearly every entrepreneur's checklist includes: get capital raising, grow beyond wildest dreams, and do an IPO or sell to Google. With significantly less than 1% of startups getting funded and significantly less than 10% of those companies having a great exit or going IPO, you've got a 1 in 1000 shot of meeting the goals on such a checklist. Of the other 999, many of them generate very little 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, after they get to that plateau, they get stuck and also have a difficult time growing because of one of several reasons: Their technology or offering starts becoming obsolete because of 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 A company like Google starts to own product for free Once you get to this point, it is extremely difficult to reverse the damage. At this time, many technology companies feel that if they just add value to the client, they can usually offset the aforementioned negative factors. Sometimes, they are able to continue steadily to grow, but usually either the competitor is one step away or the upsurge in value doesn't warrant the upsurge in cost to the customer. Just what exactly is the best solution to beat the plateau? When your company is at a long-term plateau, the solution is to sell the business or take on a majority partner which will help you grow through synergy, capital and management. If you don't do one of these, you're definitely not getting the best roi and there is a good chance you can lose your complete investment in some more years. In Additional hints , the best time to sell a technology company is while you are growing. Our rule of thumb is that while the company's revenues are growing greater than 20%, it is best to keep growing the company. When it starts teetering around 20% or dropping below 20%, it is advisable to sell the company. Associated with that selling an organization exhibiting growing forecasts is a lot easier than selling a company exhibiting flat or nominally increasing forecasts. Buyers are typically 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 is that should you are self -funded or a bootstrapped technology company that saw or is seeing good growth, most likely, it will come to an end. Therefore, you have to decide whether you will continue attempting to grow the company or whether you will capture the value you have previously created for the business by selling whenever your company is in a solid position. If you try to continue to grow, t here exists a good chance, you will plateau and probably decline. Think objectively and choose the best path. Neil Shroff may be the Manging Director of Orion Capital Group, a mergers and acquisitions advisory firm. Neil is well-versed in mergers and acquisitions, operations, business development and management consulting. Ahead of founding Orion Capital Group, Neil co-founded an overseas manufacturing outsourcing firm. During his tenure, Neil acted as 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 a position of financial and operational distress to position 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 recommendations for numerous clients in the biotech, medical device, and material technology industries.Like it? Share it! More by this author |