Dr. Sherry Walling previous gave a talk about how entrepreneurs view their businesses as their children, which has been validated by research. This means you tend to be less critical and more sensitive to reward with both your children and your company.
What this means is that you're not thinking clearly or critically about your startup. Similar to raising children, if you do a good job eventually your business will outgrow you. Inevitably your relationship with your business will end one way or another.
Assuming you don't end your relationship with your business by dying it will be an emotional process requiring focus over a long period of time.
Exiting doesn't have to be horrible but it will be hard.
How might you prepare yourself and your sense of identity and meaning for this messy process of exiting?
There are six factors that shape the psychology of an exit:
- motivation: be clear about whether the motivation for an exit is coming externally or internally (ex: from burnout)
- tolerance for uncertainty: business is frought with unceratiny, but uncertainty is heightened in an exit
- stamina: even with a perfect buyer the process of exiting will take longer than you expect
- relationship with the team: your relationships and sense of responsibility to the people you work with can have an emotional impact on you
- identity merged with business: founders with an identity that's not entirely tied to their business will find exiting easier than founders whose entire lives center on their business
- the big question: what's next? A go-cart school? Doing duck boat tours?
Case Studies
Founder #1 was running an automated profitable business with about 10 contractors. This founder wasn't sure it made sense to sell because it only took about 25 hours per week of their time. As an intermediate step to selling the founder tried hiring an interum operator for a year to test if their vaguely negative feelings about their business were temporary or permanent. During the interum the founder realized they'd suffered from burnout and were ready to sell independent of their burnout 18 months later.
After the sale this founder had a mental health crisis. They felt lost, listless, and uncertain of their identity. Their internal motivation, tolerance for uncertainty, stamina, and team were well aligned but their identity fusion was high and they hadn't seriously considered the big question of what's next. They had a strategic and intentional sale with financial success but it caused a personal crisis.
Founder #2 had a team of 60-80 people in a company doing well. They were motivated at the idea of a big payout to buy a McLaren, a pony, or a McLaren-driving pony. They had a low tolerance for uncertainty and wanted to count on the sale as a sure thing and didn't have much stamina for patiently waiting through the process (they started another company during the sale). Their team relationships were strained. It was a financially successful scale but the relationships were chaotic and stressful.
Founder #3 was running a fast-growing team of 20-30 but there was some risk that future growth would be possible. The founder was externally motivated to sell before the business became completely unsusatainable. They had good tolerance for uncertainty, strong stamina, communicated clearly with their team, weren't tied to the business. This fire sale had a high degree of relational cohesion and emotional satisfaction.
Tips before exiting
Focus on external motivations for an exit. It's a business decision that should be driven by metrics. Your internal state is of course important but it's useful to put your emotional world in check to counteract your uncritical attachment bias.
On the flip side, it's of course alright to sell if you're not feeling good about running the business anymore.
Proactive plan for uncertainty by proactively lining up a broker, a lawyer, a therapist, a mastermind, and anyone else you think would be good support for you through this process. Even if you don't sell you'll be helping your business operate without you.
Think about your ultimate goal. Are you willing to move to Mineapolis to get a higher exit?
Prepare for an unpredictable timeline by simulating what it's going to be like after the sale. This is complex because you still need to be running your day-to-day.
Connect with your inner stoic to increase your tolerance for uncertainty and unpredictability. The deal isn't done until the money is in your account. Don't start spending money you don't have yet so you walk away from the table or bounce back if the deal falls through.
Be clear about your attachment to your team by thinking through your responsibilities to them. Does it matter to you if your team is let down or feels like their expectations weren't met?
Most identity formations happens in your teens and early 20s. You'll always be associated with your company but your identity is going to change. Don't rely on your business to be your sole source of identity; invest in other parts of you.
Remember that exits involve grief and that's okay. You might have a memorial service for your business to recognize and honor that it was a big and important part of your life.
In thinking about what's next it's okay to just take the win and celebrate the success. You don't need to prove that you could do it again. Stillness is the key; it's alright to just take some time to read books and build model trains. Take some time off to reset.
Perhaps you might backwards plan
*Dr. Sherry Walling is the author of Touching Two Worlds and Keeping your sh*t together.*
Question
What are the pros and cons of telling your team about a sale?
Some parts of the team might need to know, like those preparing financial documents. It can be destabalizing to tell the team before a sale is certain. It's probably best to tell them when they need to know.
