Selling My First Startup: Lessons Learned
Creating My First Company
I started a company eight years ago. We grew sales for the first five years, and then it plateaued or I got bored. I kept hitting road blocks with partners, I should have been more adamant on my vision, lesson learned. It’s probably the first feeling I get when I know I need to change something or refocus on the vision. I get bored.
I started two more companies, one of which I still have. When I took my eye off the ball, it slowed sales quite a bit. What did I learn from selling my first company?
Three years ago, it was a very tough time. There was some government laws that changed, and it cut our revenue almost in half. We had to lay off a couple of people. We had to cut another person back to part-time. I started working 80 hours a week, six days a week, just like when I started the company.
We (my partner and I) also had to make up the difference between the revenue and our expenses, and so that came out of my pocket and my co-founder’s pocket. We took on a bunch of debt, in other words, we both held notes to the company.
There are many more lessons that I will be writing about soon.
Selling My Startup: What I Would Have Done Differently
When I sold the company, it was based on net income. Looking back on it, we spent the last two years before the sale paying off the debt which lowered the net income.
If I were to do it again, I would’ve left the debts on the book, financed it at 5% or 6% with a bank, taken our capital back out of the business, had an interest write-off, and would’ve had net income of four times what we had over the last two years, because of all the debt we paid down.
This was a SaaS company, software as a service. These type of companies usually sell for a multiple on revenue. During negotiations, I did not add back in, or think about, all the debt payments. These should’ve been added back in over the last two years. As a result, it would’ve accounted for “net income” or cashflow. Consequently, I should’ve taken a multiple on that, which I did not. So, another lesson is in the books.