Building to Sell
You run a business for the shareholders and for increasing shareholder value. If that means that the company gets sold and somebody walks in one day and says “this is something I want”- then great. But, you make the right decisions for shareholders to increase their value. Do not run a business to sell it. If you run a business to sell it- it will fail
Said Andrew Austin, energy entrepreneur in a recent In the Company of Mavericks interview. This mentality of building a business to increase its value and not to simply sell has been a consistent message of his for well over a decade now, and it is something I wish more took to heart. (For a contrasting philosophy of building to hold forever, see:Constellation Software and RockRose Energy)
Sometimes it is clear when a company puts the “for sale” sign up. Maybe they created a “strategic alternatives” committee. Maybe they hired “outside consultants”. Or maybe the CEO plainly says that they are looking for a strategic buyer in a conference call. Either way, I come across way too many companies that have one thing on their mind- an exit.
All of the above examples are from operators who typically have to be underhand about their desire to sell the company- lest they undermine hardworking employees. Investors, on the other hand, are more than free to talk about selling. Investors at all levels often seem obsessed with selling at the first opportunity! Who cares if the company is firing on all cylinders? Who cares if the company is creating more value for customers than anybody else? These questions are overshadowed by the big one: when can I sell?
I have talked to some investors who make it a point to position the company to sell from Day 1. The most blatant I have heard was one investor explaining that every board meeting- the first question they ask is “how are we going to sell this business”. This may seem like a shrewd question, but is that really the way a business should be run? Yes- this investor has limited partners that want a high return- but is making yourself “attractive” to a strategic buyer from Day 1 the best way to improve returns? From my perspective, time is better spent improving the product and finding new customers.
It is one thing to sell your company after building it for years and years- and finally a trustworthy buyer comes along and offers an attractive price. Sometimes selling the company is the right choice- but nobody can control if Google offers to buy you out. Instead of focusing on selling at the first opportunity, investors should be focusing on letting these operators build! If you ever catch me pushing a company for a sale- remind me to focus on what matters.