When is a Good Time to Sell A Business? | Lessons from a Selfish Entrepreneur

This is a story with an unhappy ending about when is a good time to sell a business.  I heard this story from employees who worked for a company many years ago.  I knew the company well and as far as I know, this is the truth.

The owner (Jerry) had all the right credentials:  undergraduate and law degrees from prestigious colleges, and a big ego.  He had bought a small company with his brother and built it into a multi-million dollar company over many years.  We’ll call it Smithco.  The brothers built a company with a sterling reputation and many prestigious customers.  Twenty years go by and they wanted to take some money off the table.   A giant international player wanted to add Smithco to their portfolio to “create synergy” with similar type products of another subsidiary.  One brother would leave to head up the leading industry trade association; Jerry got a 5 year contract as CEO of the business, now a wholly owned subsidiary.

It started out great.  The parent firm brought in resources to build up IT systems, staff, marketing and more.  Business blossomed.  People were happy.   Five years went by.  Then, the CEO of the parent felt that they needed to sell off non-core business lines.  The synergy wasn’t adding value.   Smithco was in play.  Other industry players wanted Smithco’s brand and key customer relationships.  Jerry was not about to see “his” company be absorbed by an “inferior competitor”, so he made a bid to buy the company back from the parent.  Being secretive by nature, Jerry sought to keep most management out of the loop.  People were unhappy when they found out.  Some   left, but not enough to hurt the business.  Jerry was successful in buying back his company and now owned a bigger business than the one he had sold earlier.  He had an office with a spectacular view of a world class skyline.   He offered all three of his kids a stake in the business, but only one joined the company.  Life was good.

Now is his late sixties, Jerry pondered what to do next.  The internet was just starting to explode and he saw young inexperienced companies making a killing.  Then, he was approached by a Private Equity group (PEG).  Jerry was told that he could sell for many, many millions, if he could show the PEG a path to do so.  Jerry doubled down and went after products that were riskier.  It started to pay off.  Sales exploded, Jerry made many more millions.  People were very happy.  But Jerry miscalculated.  The market for the new products collapsed.  Sales nosedived, profits disappeared.  The PEG went away.  There were $millions in dead inventory.  His son was not up to the task of turning things around, neither of the other kids had interest either.  Even a key executive turned down the CEO role.  Top talent left.  More desperate efforts failed to make a difference.  Jerry spent hours staring out the window at that skyline.  His assistant would prod him, “You have to make a decision, what are you waiting for?” He would just sigh.  Months went by.

Then he made a plan, it would save himself, but ruin almost everyone else.  Jerry didn’t care anymore.  He wanted out, and to keep his millions.  He would not save the business with his personal wealth.  What happened?  A once “inferior competitor” bought key assets, then the weak assets (and all debts) were spun into a separate company that went Chapter 11.  Ninety-five percent of the employees were laid off, many without notice or severance (the buyer offered Jerry money to give everyone a few weeks’ severance – Jerry said he wanted that cash for himself).  Many employees showed up for work one day and found the doors locked with a note saying “out of business” and to contact the company attorney for further instructions.  Creditors sued.  Suppliers went bankrupt.  Employees had to get in line for money owed to them.  His brother was forced to resign from the industry association.  Jerry was persona non grata in the industry.  He didn’t care.  He even landed an adjunct professorship at an MBA program, where he cast himself as a success story.   Pathological, don’t you think?

The competitor that bought the assets was in turn bought by a larger firm and promptly ran the brand into the ground.  In a few short years, a once great company and brand simply ceased to exist.

So what is the lesson?  I guess if you’re greedy by nature, then you’ll agree Jerry did just fine, and probably sold too late.  But if you are like me, you shake your head and wonder how Jerry lives with himself and his delusions of grandeur.  His former friends and colleagues want nothing to do with him.  What is the price you can put on that?  Sometimes you simply have to know when “enough is enough”.  And that taking an extra bite of the apple just isn’t worth it.  What do you think?