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Don’t Sell Too Early

June 2022

This writing is specifically directed at young entrepreneurs (18-25) running promising businesses for whom a major liquidity event would be enticing & likely life-changing.

The Backstory

In August of 2020 I was probably clinically depressed. I had grinded myself down from 2 years of maniacal focus on my company. I was having ownership & time-investment struggles with my co-founder who was a minority owner and had taken up a rapidly growing role as CMO at another startup.

The business was still small. We were not doing enough revenue to justify either of us going full-time to grow the company. I knew the unrealized value we had yet to tap. We were just hitting the start of an exponential growth curve in online traction I had fought 2 years to secure. We had the highest quality content, we just needed to effectively capture the value we were (I was) creating.

I was starting to be recognized any time I entered the Iribe Computer Science building. Even in 2019 in San Francisco I was being recognized by strangers in public. Students in entry-level & advanced algorithms classes at Maryland were using my videos to study (without me even knowing it). I felt like we were on the verge of something massive, but things still felt small.

I was going to graduate soon. I was a rising Senior at this point in time and my future was unsure. I felt like I was out of gas, but I wanted the mission I had worked so hard for to continue. I was between a rock and a hard place. Running a company is hard.

One August night after shooting a video, I sat outside of Iribe. I called my co-founder and basically had a panic attack. I hung up and sat alone. I felt like I was battling the world by myself. We were chasing competitors that had a 2-year headstart over us, and much better organic distribution in the algorithms teaching ecosystem. How would I as a college student win this race, working part-time?

Aside: In retrospect, I should have reinvested 100% of the company's profits back into hiring more teachers, programmers, and staff to systematize the business. Instead, we took money off the table, and the burden for running the whole business continued to rest on my shoulders. This was enticing because I didn't really have much personal wealth as a 20-something.

The right course of action would have been to raise money, hire myself out of the teacher role, hire a software engineer to rewrite all of our systems w/ me alongside, negotiate my co-founder out of the cap table, & step up into the CEO role to direct the next phase of the company's growth (but this is getting ahead in the story).

The pressure was crushing. I was trapped by my business. Customers who pay for a product do not take days off when they need help, you are on the hook.

I had the crazy thought, “What if we sold the company?” If we could find another entity to continue the company, I would have some liquidity, and the project would not die from my burnout. It seemed possible.

I discussed this with my co-founder and he agreed to sell the company if a buyer could be found. I spearheaded the efforts to find a buyer. Eventually we began fielding calls (most coming from a site called MicroAcquire which had just started).

It was a long, drawn-out process. Operations suffered, it was very hard to live in two worlds.

In one world, the company had to grow and I would be running it for the next 2-4 years, in another, I would not be running the company in 3 months. It is a bizarre feeling that you only truly understand when in the thick of it.

Eventually, we received a reasonable offer from a venture arm of an Indian hotel booking site that invests in technology companies. We took the offer, and in November a majority of the company was acquired (I would maintain a minority stake until December 2021).

I provided the top-level backstory just so the following would make more sense and resonate more. There is much more to it than the above, but now we can continue to the main topic.

Why To Not Sell

As with anything life-changing, you only realize the full implications of the happening in the longterm, years later. Events like that have a large ripple effect you cannot foresee.

I have had roughly 2 years to reflect on events and here are a few things to keep in mind before you sell your company:

Unrealized Wealth

Wealth is an intangible descriptor for what you have on your hands. If your business has found product-market-fit and is producing revenue, with a promising future for growth, you have a machine that will continue churning for you in your sleep to accrue more and more resources.

No matter what anyone offers for your business, there are different theoretical projections of value untapped to show you what you really have on your hands. The wealth is invisible.

I believe I was one of the best in the world at the very specific thing I was doing, and I never figured out the business mechanics to create offerings to capture more of the value I was creating. I never built a team around me, a machine to take us to the next level.

I had created wealth. Those that watched my content were getting jobs & getting higher compensation from increased interview performance (I imagine $10-30k more per offer). A ratio of the value captured to the value created would be striking.

If your business is at this stage, where the intrinsic value of the business has yet to be unlocked, it is not a good time to sell your business. You will be short-changing yourself. No one can tap that invisible value but you who see the vision, and no acquirer will pay you for where you know the business will be in 2 years. You will be paid for the current financial performance (plus fair projections).

We sold at the exact point when the business was picking-up steam in the online search algorithms and things were only at the start. By selling, I gave up my (mostly passive) income stream (which was a fight to earn and certainly not passive to build) and an asset that I know with the right team I could have 10x'ed.

By taking the sure path, liquidity, you cut things off. You take today's quote, and lose the quote that would have been 10x in 2-4 years.

I choose the easy route, the safest route, the most enticing route, given that I had very little money at the time and didn't deeply understand what wealth really meant.

If someone offers you X for your business, they are only giving you a quote on wealth you already possess. You must understand the cost of taking that offer, taking the liquidity, and where your tipping point is to make a deal worth it (this is entirely up to you and your life-situation, it is a complex decision because when you reason these things out you will already be exhausted).

The financial costs of losing the wealth you possessed can be steep.

Professional Identity

What you do gives you a strong identity in people's minds. When you first meet people professionally, they will index you as "Founder of X". When you no longer are running your company, you step into an identity void.

When you do interesting things, interesting people tend to fall into your life-path. I met so many interesting people on my path, whether they were customers or other builders doing what I was doing. I met designers, developers, other technical educators, entrepreneurs.

When you are doing interesting things, interesting people want to learn more about you and connect with you. Your network grows and your resourcedness grows.

Having a nice car is not interesting. Having a nice house is not interesting. Strangers doing interesting things want to see creations, creativity, skills, intelligence, craftiness.

When you sell your company, you go from "Founder of X" to "prev X, Y, Z". You lose your professional identity. You become "the guy who ran a company but not sure what it did".

Maintaining a strong professional identity in peers' minds is important for your professional network to continue growing. By selling you cut this growth vector off.

A Purpose Void

Having a profitable business you are working on that keeps you occupied and creative is a gift. Having customers that love your products that you can talk to is a gift. You do not realize this until you lose these gifts, and stand scratching your head asking "what's next?".

"What's next" is a very hard, tiring question to have to solve. It is better to avoid it altogether if you are working on something promising.

This is very hard to describe to you if you are in the thick of operating your business and want out, but, you do not want to sell your business to do nothing. You very quickly will realize that a lot of happiness in life comes from creating meaningful things and reveling in your creations.

A professional vacuum for creators does not last long.

The sale of your business will be very anti-climactic. The day that you receive the proceeds (whether a wire to your bank, or stock in a brokerage account), you will pause and then ask yourself "now what?".

Well, now you get to sit on your hands indefinitely until you find another hidden need in the world interesting enough for you to address, and someone capable and compatible enough with you and the problem for it to be worth a try. This can happen soon, or it can be years away.

You will enjoy the newfound freedom - maybe you will buy a home, a new car, or whatever other esoteric thing you had in mind, but at the end of the day, nothing you can buy can replace what you had, emotionally, financially, etc.

These things just don't matter, but you have to go through it to empirically learn that. They peak you, then you realize what really matters in life.

When you were building the business you were in it for the game. In it for the customers. In it to the death for building what you were aiming to build. Money just acted as a barometer for value creation & capture.

You will miss the game.

Going 0-to-1 Is Much Harder Than 1-100

It is much harder to prove traction for a new service or product in the market than to take an existing business with healthy margins and scale it with proper systems in place.

When I first started Back To Back SWE, my first 3-6 months of instructional videos each got 0-100 views. I was making content for myself and a few dedicated fans at that point.

Then the internet found what I was making and traction took hold.

That phase of silent building is excruciating, when you find traction it is like finding an oasis in a desert. You collapse by the water.

Once you start making revenue and growing, you become default alive. Asymptotically your business, your creation, will survive.

When you start something new with a new group of people, the clock is ticking. Talented individuals who could be paid a lot to do something else can only work so long on an idea before the morale reaper knocks at the door (you have ~3-9 months).

On the other hand, if you have an existing company, with existing revenues, your attention is directed at how to grow a plant that has already sprouted. This is a replicable skillset.

It may be less exciting and fun than to have planted the seeds of something new in the world, but it is much more reliable of a path to not end up empty-handed.

You must take note that if you have a post-PMF business, you have a diamond on your hands. If you lose it, you will have to go digging again.

Non-Closure & “What If”s

When you are operating your company, you have a 1, 2, 5, 10-year vision in your head of where the business will go. You don't even have to force this, it just occurs naturally when you are thinking creatively.

When you move on, that vision you had for the business does not go away. It stays in your head.

Even when you have no operational control or power remaining, you still will know exactly where the business should be moving. If the new owners choose another trajectory, a dissonance is created.

You will always wonder "what if I had ran the business 1-2 more years?"

This question can always be recursively asked, and the answer will always be "the business will be larger, more impactful, and make more money" (if it is being run properly). This is a hard thing to get over.

When you depart your customers will miss you (if you were a prominent figure in operations or customer support). All of the promises you had made to customers cannot be directly acted on by you anymore as you will have moved-on.

It is important that you consider how much closure you have with your vision and where the business is at today.

Does your story still have more chapters left to it? Or have you reached a good point where you will be content moving-on with proper closure.

The New Owners Could Be the Wrong Choice

The new owners could not be structured to run your business well given its current state. Back To Back SWE was 1-2 years away from being operationally stable with a staff and clear workstreams that would each grow impact and subsequently revenue greatly. When the company was sold, it was just a staff of contractors, and 2 business partners (one of whom was burnt-out to the bone).

The year after a majority of the company was acquired, no new products shipped to customers. The company & product was not rebranded and the v0 site was not rewritten to a polished v1 site (as I had delineated in a 1-year plan I had written before acquisition talks even started). The company was just held as a cashcow income-statement item.

The firm that acquired us was not structured to creatively run a company this nascent.

Teachers still needed to be vetted and hired, the whole software needed to be rewritten into a high-quality site with community features & better design, customer support needed to be streamlined. Additionally offerings like resume reviews, live interviews, and career coaching needed to be launched.

An engineer from HackerRank was planted in as a COO of sorts and it just wasn't feasible that this huge body of work could be taken on by outsiders. I had to run the company for 1-2 more years and reach this point of systemization myself.

So the product stagnated. The business stopped growing and it lives in a frozen state now.

Looking back 2 years later, I can't say that I would have done anything differently given my reasoning (& mental health) at the time. I knew we had to keep going, but I sought out a sale because I knew the business could die.

So when you are seeking out an acquirer, make sure that your business is even in a state where another entity can run it, and that that entity has the expertise and hiring prowess to operationally excel in your industry.

Ultimately, there is no right answer as to what you should do. Having sold my company, I can say from experience what you should expect ahead of time so that you can factor these costs into your decision process.

Running a company is very hard. It is very tantalizing to want to cash out your chips, but with that comes many life costs (beyond financial costs).

As a general heuristic, you want to take the harder path. You want to work on your business as long as humanly possible (even if you have to take long spans of time off to recenter yourself).

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