We’ve seen it more times than we can count – a startup bursts out of the gates and looks incredibly promising, only to slow down, reach a point of stasis, stall, and ultimately fail to reach where they want to be. So what makes startups stall, and how can we learn from their failures to avoid getting stuck in the same place?
It might be logical to think that many startups simply run out of new customers to reach or lose some of their market share to competitors, but oftentimes it is not so simple. The biggest reason that startups end up stalling may be more surprising – the founders are scared of going all in.
When starting a business, it is common knowledge that the assets outside of your business will probably exceed the worth of your business – in the early days of a startup, the company itself is generally worth next to nothing. But as a company grows, and especially if it grows quickly, the business will become a more significant part of your wealth, especially if you’re keeping your profits in the business in order for it to grow. Indeed, the company can ultimately become your greatest asset, and it can become such a large part of your wealth that it constitutes a great risk every day you decide to hold on to it longer.
An illustrative example is provided by the case of PCO Innovation. In 2000, Etienne Borgeat and Olivier Letard co-founded PCO innovation, an IT consulting firm. The company grew rapidly and, by 2016, PCO had 600 full-time employees and offices around the world. The startup had achieved massive success.
However, as the business grew larger, Borgeat and Letard started to become uneasy about how much of their wealth was tied up in the company. Notably, by 2015, the shares Borgeat held in PCO represented 95% of his wealth.
Around the same time, aerospace giant Boeing came calling. Boeing wanted PCO to take on a very large project and Borgeat and Letard turned down the opportunity reasoning that the project was so massive it could risk their entire company if it went wrong. In the early days, the partners would never have turned down a chance to work with Boeing, but the partners had changed.
That’s when Borgeat and Letard realized the time had come to sell.
They agreed to an acquisition offer from Accenture of over one times revenue.
Indeed, the success of your company is probably driven by your willingness to put all your eggs in one basket and go all in. However, at some point, you may find yourself starting to play it safe, which is about the time your business may be better off in someone else’s hands. If you’re no longer comfortable taking on the risk of having all of your assets tied up in the business, you will either stagnate, or find the right time to sell.
If you’re looking for an exit strategy and are no longer comfortable with the risk of being all in, we invite you to contact us today to see how you can improve your business’s value before considering a sale!