Engineering Companies: Grow Or Will sell?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 the area tends to make many entrepreneurs lose sight of reality. In the Silicon Valley, nearly 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 those companies having a great exit or going IPO, you've got a 1 in 1000 shot of meeting the goals on this type of checklist. Of the other 999, most 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 think that their growth path will continue for quite a bit longer than it actually does. Generally, after they reach that plateau, they get stuck and have a difficult time growing due to one of several reasons: Their technology or offering starts becoming obsolete because of new technology, service or website Their well-funded competitors start to take their customers due to 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 extremely difficult to reverse the damage. At this stage, many technology companies feel that should they just add value to the client, they can usually offset the above negative factors. Sometimes, they are able to continue 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. So what is the best solution to beat the plateau? When your company reaches a long-term plateau, the solution is to sell the business or take on many partner that will help you grow through synergy, capital and management. Unless you do one of these, you are definitely not getting the best roi and there's a good chance you can lose your complete investment in a few more years. In fact, the optimum time to sell a technology company is when 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 best to sell the company. The reason is that selling an organization exhibiting growing forecasts is a lot easier than selling an organization 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 able to offer strong, growing forecasts a buyer can believe. Thus, the take-away here 's that if you are self -funded or perhaps a bootstrapped technology company that saw or is seeing good growth, most likely, it will come to an end. Therefore, you have to make a decision whether you will continue attempting to grow the business or whether you will capture the value you have previously created for the business by selling whenever your company is in a strong position. If you attempt to continue to grow, there is a good chance, you'll plateau and probably decline. Think objectively and choose the best path. Neil Shroff is 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 because the lead for two strategic acquisitions, and eventually worked closely with the board of directors to lead the sale of the firm. Previously, more info 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 |