Technological innovation Companies: Grow Or Will sell?Posted by Didriksen Mikkelsen on May 16th, 2021 The excitement and buzz of Silicon Valley is definitely why is it the technology capital of the planet, but the peer pressure in your community tends to make many entrepreneurs lose sight of reality. In the Silicon Valley, almost every entrepreneur's checklist includes: get capital raising, 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 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 believe 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 due to a new technology, service or website Their well-funded competitors begin to take their customers because of more expensive marketing campaigns, lower cost, or a better service A company 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 stage, many technology companies believe that should they just add value to the client, 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 upsurge in value doesn't warrant the upsurge in cost to the customer. So what is the best way to beat the plateau? Whenever your company is at a long-term plateau, the solution is to sell the business or take on a majority partner that can help you grow through synergy, capital and management. If you don't do one of these, you're definitely not getting the best return on your investment and t here is 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 as 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. The reason is that selling a company 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's 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, 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 will capture the value you have already 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 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 finally 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 business's transition from the 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 |