Selling vs. Doubling Down

Should you sell your business or double down? The answer depends on both you and the state of your industry. You must look both inward to yourself – and outward to your industry – for the answer. In the section that follows, I show you how to look both ways and create a framework to help you decide how to navigate this difficult decision. For this framework, I’ve separated my advice for each section into three topics – your business, your industry, and your competition. Each of these topics is important to examine internally and externally to ensure you make the most reasoned decision. 

Look Outward – To the State of Your Industry

Knowledge is collecting information – wisdom is simplifying it. First, collect the necessary data, then step back to simplify it.

Step 1: Collect Information

Start by gathering information. Remember to withhold your judgment when you’re in the information-gathering stage. Stick solely to the task at hand – gather data without the need to weigh the facts or assess their impact. Once you’ve compiled the necessary information, you’ll have the opportunity to analyze and synthesize it.

Start by asking yourself the following questions about your business, industry, and competition:

• Your Business
  • Are your revenues stable, declining, or increasing?
  • Are your gross margins stable, declining, or increasing?
  • Is your net profit stable, declining, or increasing?
  • Is your value proposition still competitive?
  • Are you gaining or losing competition?
• Your Industry
  • Is your industry fragmented and run by small, independent businesses? Or is it slowly consolidating?
  • Is your industry growing, or is it in decline?
• Your Competition
  • Are your competitors stealing your market share? Is your market share slowly eroding?
  • How strong are your competitors? 
  • Are there any new competitors in your industry that are backed by institutional money, such as venture capital?
  • Have any competitors introduced a new value proposition that has the potential to change your industry and make your business obsolete?
  • Will you continue to remain competitive if you only innovate incrementally, or are dramatic changes needed to stay competitive?

Step 2: Simplify Information

Once you’ve gathered this information, analyze it at a high level. Be honest with yourself in assessing the state of your industry – don’t let your heart fool your intellect. Synthesize your information and look for trends in the following categories:

• Your Business: Is your business growing and staying competitive, or are you in a slow decline?
  • If your business is in decline, ask yourself why. Is it due to your inabilities, such as lack of skills, or unwillingness, such as lack of motivation? Is your competition simply stronger than you? If you lack the skills or motivation to compete and your competition is intense, it might be time to sell. 
  • If your business is strong and your value proposition is still relevant, it might be worth doubling down.
• Your Industry: Is your industry growing or in decline? Are competitors slowly consolidating?
  • If your industry is in decline or your competitors are consolidating, it’s time to sell, especially if you lack the ability or motivation to reinvent your value proposition.
  • If your industry is growing and competition isn’t actively growing stronger or consolidating, doubling down might be your best option.
• Your Competition: Is your competition strong and likely to put you out of business?
  • If your competition is getting stronger by the day and you lack the skills or motivation to compete, selling might be your best option.
  • Lack of direct competition might be a reason to double down and extract more value from a business.

Knowledge is collecting information – wisdom is simplifying it. 

Look Inward – To Yourself

“I’d rather regret something I’ve done than something I wish I had done.”

– Lucille Ball, American Actor

Once you’ve examined your business and industry, it’s time to look inward. While analyzing your business involves your mind, looking to yourself involves your heart. As American essayist Anaïs Nin once said, “We do not see things as they are, we see them as we are.” 

Give careful thought to each of the following three areas. 

Step 1: Assess Your Skills

Do you have the skills to continue to compete in your industry? If not, are you sufficiently motivated to acquire these skills? Is your competition so formidable that you won’t be able to acquire the skills fast enough to compete? This last situation is most common in innovative industries that require a high degree of technical knowledge, such as software. If that’s the case, it’s time to sell.

In circumstances in which you lack the skills to compete, and you’re having trouble keeping up with the competition, you have two choices: 

1. Double Down: Carve out a niche for yourself in the industry or raise money to enable yourself to compete.
2. Exit the Race: Sell your business.

Step 2: Assess Your Motivation

Do you have the energy and motivation to commit to your business? If your industry is highly competitive and the sharks are slowly eating away at your market share, you must have an unusually high degree of motivation to remain competitive. On the other hand, if competition is weak, you’ll likely be able to get by with an average amount of energy and motivation.

Are you burned out? If so, why? Are you burned out because you haven’t had a break in 10 years, or are you burned out because you hate your industry? As they say, only dead fish swim with the stream. So if you’re burned out and the competition in your industry is getting stronger by the day, you must realistically assess your ability to compete – and swim against the stream.

While analyzing your business and industry involves your mind, looking to yourself involves your heart. 

Step 3: Consider Your Dreams

Do you love your business? Do you really love your business? Knowing what you know now, would you get into your business again if you had to start all over? What are your dreams for 5, 10, or 20 years from now? Are you ready, emotionally and financially, to retire?

The answers to these questions first require that you know yourself. What makes you happy? What gets you excited? What does your ideal day look like? Does your business align with your dreams, or is your heart elsewhere? If your heart is elsewhere, perhaps it’s time to exit gracefully. If you aren’t sure, your objective is simple – get to know yourself.

Many entrepreneurs are so busy that they have little time to truly get to know themselves. Introspection requires a significant amount of time and exploration through journaling, talking to others, and reading. Many business owners don’t have the time it takes to fully explore themselves. 

One of the best methods for learning more about yourself is traveling. We travel not only to see the world, but to also see ourselves. Travel helps us see what’s possible. As French social philosopher and activist Simone Weil said, “Attachment is the great fabricator of illusions; reality can be obtained only by someone who is detached.” Travel is a powerful tonic for detaching us from our illusions and allows us to gain perspective so we can more clearly see the reality before us.

The better you know yourself, the easier it will be to make your decision. If you feel you don’t know yourself enough to be confident in your decision, take a break to self-reflect before making one of the most critical decisions of your life. 

Signs You Should Double Down

Now that you’ve taken a deep dive into both your industry and yourself, it’s time to weigh the results of your exploration and make a decision. Below are guideposts to help you decide if you should double down or sell.

These are signs you should double down based on your gathered information:

• Your Business: You’ve realistically determined that your business will remain competitive. Your business continues to grow and your competitive advantages will remain attractive, even with only incremental innovation.
• Your Industry: Your industry is growing, and you’re optimistic about the prospects for your business. And your industry isn’t quickly consolidating – independent operators will continue to be successful in the long run.
• Your Competition: The competition in your industry isn’t strong, and it’s unlikely your competitors will put you out of business anytime in the near future. There haven’t been any new entrants backed by institutional funding, such as venture capital, or wildly attractive value propositions that have been introduced recently.

Beyond your business, industry, and competition, there are several additional signs you should double down: 

• Financial Variables
  • Net Worth: Your net worth isn’t concentrated in your business. Your retirement isn’t dependent on the sale of your business.
  • Reinvestment: You can afford to reinvest cash back into your business if doing so is required to remain competitive.
• You
  • Skills: You have the skills and ability to remain competitive.
  • Motivation: You love your business – you have the drive, motivation, and energy to continue.
  • Dreams: Doubling down on your business aligns with your dreams.

Signs You Should Sell

Let’s re-examine each of these same categories for signs you should sell:

• Your Business: Your revenue is declining, and your value proposition is slowly eroding. Incremental innovation won’t be sufficient to survive. If you don’t double down, your business will likely fail. 
• Your Industry: Your industry is in decline. Or, there’s an acquisition frenzy in your industry – and large competitors are quickly gobbling up smaller ones to fight to become the dominant player. Note that acquisitions in your industry can be an ideal time to sell because many buyers come out of the woodwork and aggressively protect their turf. But in many industries, there’s a limited window of opportunity – critical mass must be established as quickly as possible in a “winner takes all” market. If your business is in such a market, and you lack the capital, skills, or motivation to compete, it’s time to sell. 
• Your Competition: The competition is strong. If you don’t compete, you’ll be out of business soon. Several new venture-backed competitors have entered the market with enticing value propositions. Good ideas are often being pursued by dozens of competitors simultaneously, frequently without them having knowledge of one another. If so, carefully scan your industry to see if any such competitors are quickly gaining market share. If they are, sell before a competitor dominates the market and your business or your product becomes obsolete. Smaller, agile competitors can also quickly out-innovate you. Be on the constant lookout for competition that has the potential to unseat you.
• Your Financial Situation
  • Net Worth: If your net worth is concentrated in your business and your retirement depends on the sale of your business, these are both signs you should sell. If you’re uncomfortable with how much of your personal wealth is tied up in your business, selling might be a good option.
  • Reinvestment: If you can’t afford to reinvest cash back into your business and doing so is required for you to remain competitive, it’s probably time to sell.
• You
  • Reason for Sale: You have other hobbies, passions, or businesses to pursue. Your business isn’t your life, and your life isn’t your business.
  • Skills: You lack the skills or ability for your business to remain competitive.
  • Motivation: You’re burned out – you don’t have the drive, motivation, or energy to compete.
  • Dreams: You hate your business, and it doesn’t align with your dreams.

Be Flexible if the Industry or Economy Changes

Once you’ve decided to sell, you may have to adjust your timing based on market or industry cycles instead of establishing a definitive time frame. For example, if you decide to sell once your business hits $100 million in revenue, you should be prepared to unload it at any time if an acquisition frenzy starts in your industry and multiples quickly rise. 

The sale process can take from 6 to 12 months, or more. In most cases, you’ll need to assist with the transition for one to two years. If this is the case in your industry, then it may be necessary to begin the exit process several years before you want to fully exit your business.

You should also be prepared to change your game plan if you obtain new information about your industry or discover new truths about yourself. Remember the English proverb – “Time trieth truth” – truths may be slowly revealed to you at the most unexpected of times. So be prepared for the unexpected.

Once you’ve decided to sell, you may have to adjust your time frame based on market cycles instead of establishing a definitive time frame.