The optimal time to sell your business is when someone wants to purchase it. While this may sound like a commonsense concept, the allure of pursuing growth might be compelling. Oftentimes, there is substantial downside to this decision, as illustrated by the cautionary tale of Rand Fishkin.
Fishkin embarked on his entrepreneurial journey when he joined his mother’s marketing agency as a partner, where he recognized the challenges clients faced in getting Google visibility. This realization led him into the realm of Search Engine Optimization (SEO), prompting the creation of the SEO Moz blog and subsequently an SEO consulting and software company. In 2007, with $850,000 in annual revenue, Fishkin shifted Moz’s focus exclusively to a software business.
By 2010, Moz’s revenue soared to approximately $650,000 per month, attracting the attention of Brian Halligan, co-founder of marketing software titan HubSpot. Halligan proposed acquiring Moz for $25 million in cash and HubSpot stock, an offer of almost five times Moz’s $5.7 million revenue in its previous fiscal year.
However, Fishkin, driven by the belief that a rapidly growing Software-as-a-Service (SaaS) company was valued at four times its future revenue, declined the offer. Confident that Moz would reach $10 million by year-end, he countered with a $40 million proposal, which HubSpot rejected.
A Change in Course
Unwilling to sell Moz at what he believed to be a discount, Fishkin instead secured venture capital and expanded Moz’s offerings beyond SEO tools, venturing into a broader spectrum of marketing services. The more Moz deviated from its core focus on SEO, the more financial challenges ensued.
By 2014, Moz faced a full-blown crisis, and Fishkin, grappling with depression, stepped down as CEO, describing his departure as a “lot of sadness, a heap of regrets, and a smattering of resentment.”
Fishkin found himself a minority shareholder in a company he no longer led, where venture capitalists held preferred rights in a liquidity event.
The Lesson Unveiled
In the aftermath, Fishkin’s liquid net worth stood at $800,000, much of which he intended to use for his grandparents’ elder care. The value of Moz stock remains uncertain, given the preferred return for venture capitalists.
In contrast, Fishkin estimates that the value of HubSpot’s original $25 million offer, considering the surge in HubSpot’s stock value following their IPO on the New York Stock Exchange, would now surpass $100 million.
Fishkin’s tale serves as a poignant reminder of why seizing the opportunity to sell your company when interest arises is crucial—an insight shared in his book, “Lost and Founder: A Painfully Honest Field Guide to the Startup World.”
Consider this: If an offer materialized for your business today, would you be prepared to sell? Would you regret declining the opportunity? Would you like to chat? Please contact us.