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Ask HN: How important is exiting your company?

15 points by bitbotbit ↗ HN
How important is it to your future fundraising/professional network potential to exit your company versus jut shut it down, if either are an option? How do you weigh the opportunity cost (shutdown = move on immediately, versus M&A seems to be at least 6mos to term sheet, 12 mos retention)?

My personal situation: I'm co-founder of a company that is

   * 7 years old, 6 team members
   * 900K ARR, 25% operating profit margins, 13% CAGR
   * no investors, bootstrapped
The business in its current state could continue indefinitely, but requires active management and engineering. We don't see a believable path to high growth in the current market, and my co-founder would like to leave by end of year. My options are:

(A) Help him EOL the company by 12/31 (and walk away with $0).

(b) Transition to CEO and drive the M&A process on my own (he leaves as soon as possible). We estimate 20% chance of a $2-3M exit, 60% chance of a 500K-1M market share sale. In worst case, shutdown the company on my own in June (estimate 200K walk away cash at that point).

Ultimately, I would like to start a new company ASAP. However, I have little capital runway (maybe 8mos), no significant VC network, and no other exit on my resume. What's the best choice given the circumstances?

23 comments

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kenesom1
If you no longer want to run the business, there isn't much to lose by offering it for sale or letting someone else manage the affairs indefinitely while you pursue other opportunities.

It's profitable and worth something to buyers. The engineering team alone would be worth a fair amount per head in terms of recruitment. You can delegate the leg work to brokers if you don't want to spend that much time on an acquisition.

It's not important to have an exit per se (though nearly any transfer of assets can be called an exit). The experience of running a business (a profitable one at that) is a positive signal to future partners/investors.

bitbotbit
Handing off day-to-day management: We explored this option in depth by speaking with as many founders as possible who had attempted this. Ultimately, the consensus was that unless you have an employee who is positioned to and interested in increasing their role, finding a good candidate to assume leadership is extremely difficult (a 9-12 mo proposition). Then there's still pretty decent odds once on the job they'll fail or leave, forcing the founders back into the business. When the team is so small, it seems the founders cover so much surface area its difficult to replace them. Of course, this could be our failing to train, delegate, and operationalize the business.

Thanks for the perspective, really appreciate it! Good to hear experience of running a profitable business may be sufficient.

rokhayakebe
Why don't you guys hire someone to run it and get paid monthly dividends?

What good reasons must you have to shut down $250,000 of profit monthly, lay off 4 people, when it can be ran by someone else?

bitbotbit
Mostly opportunity cost. We think finding a good candidate to hire and run the business is likely a 9-12 month proposition, which could still fail after the hire (bringing the founders back in).
[deleted]
(comment deleted)
bitbotbit
Some of the problems we thought we'd face moving management to someone else are well outlined in http://jacquesmattheij.com/sell-it-or-run-it-there-is-no-mid..., posted earlier this year on HN.
rokhayakebe
Constructive feedback: If you've ran a business for 6 years and no one inside can run it, that's not very good. Please ensure your next business is not the same.

This being said, you can't shut it down. Simple as that. At $1MARR there are either hundreds of clients who depend on you, or a few big clients who depend on you. You can't let them down.

Look at your competition. Call their CEOs or COOs and either 1) either someone on top and give them 20% to 50% of your company or 2)sell it to them.

bitbotbit
For context, we got into the situation we're in based on not having a strong understanding of the market/ unit economics from the get-go. It's taken heroic efforts from the team and a significantly large, complex technical product to be viable. Many lessons learned, not least to code less and do market/customer discovery straight-away.

Thanks for the feedback, your points are all valid.

LifeQuestioner
"If you've ran a business for 6 years and no one inside can run it, that's not very good."

"based on not having a strong understanding of the market/ unit economics from the get-go"

Dude, not strong understanding of market etc and other reasons given are not correlated to not having a person on the inside after 6 years who can run it...it probably means staff havn't been involved enough...

I guess that's part of a problem of bootstrapping, everything has to be pyramid structure even with only 6 employees? Never thought about that.

bitbotbit
Not having a strong understanding of the market from the get-go and not having an employee to run the business after 6 years is correlated in the following sense:

Founders have a large amount of surface area to cover (office, accounting, insurance, payroll, legal, taxes, hiring, management, etc). If you are in a market that doesn't allow you to grow quickly enough to hire in a large enough team to cover these functions (plus the meat and potatoes of the actual product and customer requirements), you can be left stretched extremely thin. If founders are covering 15 different company functions, it hard to find someone who can handily take over.

davidandgoliath
Surely @ ~$18k p/mo in profit this can be figured out though, as in, outsource the cruft as much as feasible. That's far worth keeping a company in operation, imho.

Assuming the business won't simply shut down without the founders being full throttle on these sorts of tasks, it'll free up time for M&A.

Curious, why the urge to sell?

bitbotbit
Thanks for the feedback. Namely, there's a number of other product ideas I think could be higher growth that I'd like to explore. Recently moved to SV from a fly-over state, and think may finally have the potential to leverage an SV network for mentorship/advice.

A lot of the feedback I've gotten from founders has broken down in the following sense: if the person has grown and sold a company before of >= 10M ARR, they typically say shut it down ASAP and move on. If the founder has never grown and sold a business before, they advise to keep it running.

hacknat
While I don't have any advice for an exit. A strategy you could employ to buy yourself more time is to offload all your non-leadership/administrative work onto another employee at the company (possibly hiring someone extra, and moving everyone up a rung on the ladder).

Try to get yourself to a place where you are running the company and aware of what is going on, but doing nothing else than telling people what to do. Maybe you could bring yourself down to 10-20 hours per week? Then you could use the extra time to focus on finding an exit or building the next thing.

mtrpcic
While this sounds good on the surface, what do you think his 6 employees are going to do when one founder quits and the other immediately drops to working part time? They're going to leave for better pastures, and OP won't have the opportunity to end things on his terms.
hacknat
Why do they have to know that he's working part-time? He can still show up to the office, but focus on other things.
bitbotbit
Good point. Could work on other things while at the office, but seems difficult to have enough time while down a founder, and trying to run and M&A at the same time.
bitbotbit
This is a concern. It could result in needing to either do the job of employees who leave myself, or need to train in temp staff. Either efforts could dilute the viability of spending sufficient time on M&A.
buildops
Sell. Will make it easier for you to raise money on your next company and even if you sell at a discount (say $1m exit or even less), don't disclose the terms, and you will have a much easier time in the future.
bitbotbit
When you say much easier time in future, any specifics outside of raising? Does professional network find an exit much more impressive than just running business profitably for number of years?

Thanks for the feedback!

bitbotbit
Has anyone sold their company, then regretted it from a time investment standpoint?
rahimnathwani
900k * 25% ~= 225k operating profit per year. Is this before or after you and your co-founder's salaries? Is there any ongoing capex you need to continue to run the business? Is the cash in the company's bank account growing month after month?
bitbotbit
This is after our salaries (ie pre-salaries 375K operating profit per year). No short-term capex (serving upgrades to future proof 2-3 years recently completed). Cash in back account growing monthly.
KezBradley
Sounds like you're both just done with it and it's time to hand over the reigns. Selling seems like the best way forward given you want capital for a new venture.

I can't find the thread but there was one on here about how someone exited their business.

I believe they sold their business through FE International so might be worth talking to them about your exit plan.