Why some owners sell sooner, not later

When Sam Hogg went into business for himself, he probably never really expected the company he founded to take off as fast as it did. Launched in late 2008, his Michigan-based, a provider of eco-friendly e-gift cards, hit gold during the holidays, racking up 10,000 new customers in a mere 3 weeks.

But just 24 months into his e-business’ life, he cut ties, biting the sell bullet well before most around him expected. He sold his baby — which ranked among Entrepreneur magazine’s hottest start-ups for 2010 — to gift card behemoth — SVM. Why did Hogg bail so soon on what appeared to be a successful enterprise with great prospects ahead of it?

It all boiled down to math, which not a lot of start-up types are particularly skilled at, Hogg noted in a 2011 Entrepreneur piece. In his case, he happened to be trained in finance — with an M.B.A. in finance and venture capital industry experience under his belt — before venturing into the Internet world. There comes a time when most successful Internet business owners must face the music. The earlier they see the writing on the wall the better.

“What I realized is that basic principles of financial analysis evaporate when founders need to decide whether to sell or compete. Maybe it’s the hype and egos associated with the acquisition environment, which is a place where dreamers chase big numbers and losers go unnoticed. But it’s more likely that nobody really does any math,” he wrote.

Running a growing and more corporate ecommerce business is hardly as exciting as launching a new start-up. When the adrenalin high wears off, some Internet business owners just want to get a life after 3 to 5 years of constant working focused on one goal.

So-called “human considerations” factored heavily into Picnik and Phatbits founder Jonathan Sposato’s decision to sell both his companies to Google, where he’s an employee now.

In a 2011 Geekwire blog post offering unconventional reasons to sell an Internet business, Sposato suggested the following.

  • You want to free up money to invest elsewhere. In Sposato‘s case, he wanted to try his hand at the real estate and stock markets in 2010 when both were at rock bottom.
  • You’re bored and want new challenges. “Certainly, there are times when you need to hang in for the long haul (for your shareholders, for your team, your family),” Sposato wrote in Geekwire. “But, if those factors are largely absent and you’re getting an awesome multiple on your seed money/time, then you should follow the advice of my hero Warren Buffett who says it’s far better to hit a double or triple every few years than to go for the home run every 10.”
  • You’re burned out. It goes without saying that when the thrill is gone, the thrill is gone.
  • Your spouse wants you to sell. A board of 1 actually has 2 members all of whose opinions must be factored into any decision.
Manish Shah
Manish Shah
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