I am going to deviate from my usual musings on mergers and acquisitions and focus today and ask a question.  Have you ever wondered why many companies stop growing? Do they run out of potential customers to sell their product or service to or are they losing market share to a competitor?  Does the bank stop providing them capital to grow? All of these things are often cited but honestly, its been our experience that there is one more fundamental reason: the Founder(s) lose the stomach for it.

When you start a business, the assets you have outside of our business likely exceed those you have in it – especially if you are older, because in the early days, your business is worthless.  As your company grows, it starts to create value (hopefully) and becomes a more significant part of our net worth -especially if you are reinvesting earnings into growth.

For most business owners, their company becomes their largest asset and eventually its becomes such a large portion of their wealth that they realize they are taking a giant risk with every major decision.  They become paralyzed and stop taking risks and the business stagnates.

Here is a story that I came across that may resonate:

In 2000, Etienne Borgeat and Olivier Letard co-founded PCO innovation, an IT consulting firm. The company took off and, by 2016, PCO had 600 full-time employees and offices around the world.

As the business grew, Borgeat and Letard started to become uneasy about how much of their wealth was tied up in their business. By 2015, the shares Borgeat held in PCO represented 95% of his wealth.

That’s about the point that aerospace giant Boeing came calling. Boeing wanted PCO to take on a very large project and Borgeat and Letard turned down the opportunity reasoning that the project was so large it could risk their entire company if it went wrong. In the early days, the partners would never have turned down a chance to work with Boeing, but the partners had changed.

That’s when Borgeat and Letard realized the time had come to sell. They agreed to an acquisition offer from Accenture of over one times revenue.

I just came back from a business trip to rural Texas and a friend and successful entrepreneur that I very much admire said this to a Private Equity firm we were meeting with (I am paraphrasing).  “I have always believed that if you don’t keep growing, in any way possible, and to accept the risks that come with it, that’s the only path forward.  The only other option is the death of your business.  There is no middle ground.”

That point really hit home – the success of your startup is probably driven by your willingness to put all your eggs in one basket. You’re all in. However, at some point, you may find yourself starting to play it safe, which is about the time your business may be better off in someone else’s hands.