You don’t have to sell your company

24Jul08

Signal vs. Noise

You don’t have to sell your company to have financial security and the freedom to do what you want

Paul Graham thinks that startup founders need to sell their companies to get freedom and security:

They want enough money that (a) they don’t have to worry about running out of money and (b) they can spend their time how they want. Running your own business offers neither. You certainly don’t have freedom: no boss is so demanding. Nor do you have security, because if you stop paying attention to the company, its revenues go away, and with them your income.

I think he’s wrong in general and I know he’s wrong for me personally.

Fallacy #1: Owning a profitable company is like earning a salary
Getting your company to the point where you can pay yourself a decent salary is a great milestone. You created something sustainable that doesn’t rely on spending other people’s money. You deserve to pop a bottle and celebrate!

You certainly shouldn’t curb your ambitions because of that, though. The real economic pay-off for taking the risk of starting a business is what comes after this. That the company starts making enough money that you can take some and put away. After a while, that coveted financial independence you thought would make your life perfect should be achieved (and you’ll realize that it didn’t make it perfect).

But I can see how this line of thought would arise. If you’re building to flip, then profits aren’t really that interesting. If you can just get to break-even, you’re probably doing better than the majority of other companies in your made-to-flip space. So instead you focus on getting more eyeballs, more sign ups, or more of whatever you think an acquirer would place the highest premium on.

I would want to sell a company built like this too. But there are other ways to build companies. Lots of self-made millionaires made their money selling products for a profit.

So let’s strike out the security claim. Most successful business owners could walk away from their business tomorrow and still live very comfortable lives off the money they put away.

Fallacy #2: There’s always something you’d much rather do
You don’t have to work 60, 80, or 100 hours per week just because you run your own business. Many business owners do that, but if they’re successful, it’s usually because there’s nothing they’d rather be doing. Look at the top tech CEOs. None of them need to work, many of them are billionaires, but still Steve Jobs, Jeff Bezos, and others continue to helm their companies for decades because they love what they’re doing.

I don’t personally like to work 60 or more hours per week. Even 40 hours is pushing it. At 37signals, we all try to work just four days a week. That’s a perk in addition to the fact that we don’t count vacation days (I probably spent 4 weeks last year) and many of us often attend conferences and other out-of-the-daily-rhythm activities.

But when I actually do sit down to work, it’s very often that there’s nothing else I’d rather do. And I don’t think that’s really an uncommon phenomenon. I think lots of people really like what they do and for bursts of the time consider it the most interesting thing they could be working on.

If you’re building a company to flip, though, and feel like you have to put in endless hours to please investors and potential acquirers, I can certainly appreciate that there’ll often be something you’d much rather do. And that it can feel like you’re trapped trying to chase a prize that keeps moving. I don’t personally think that’s a rewarding way to live, but to each his own.

For me, the secret has been to do many other things besides work on 37signals. I enjoy working on Ruby on Rails and pursue a lot of hobbies. When you work less than 40 hours per week on something you actually like doing, it doesn’t feel very much like work at all. It feels like I’ve already retired and get to do a little of many things that I like so none of them really gets boring. There’s what I perceive to be healthy balance instead of a constant sprint.

This comes back to the earlier topic of early retirement as a false idol. I’ve talked to many entrepeneurs who’ve thought that they could just sit back and live the sweet life of no work after selling out. Most of them were right back working another idea after six months. Often times, the second idea wasn’t as good as the first one.

Bottom line is that you really should try to find something to work on that at least for substantial amounts of time constitutes that “nothing I’d rather do” feeling. I think it’s hard to be truly happy if the only reason you work is to win a paycheck. Whether it’s as an employee or a business owner.

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