Bill Flagg | Crain's Denver

In this ongoing series, we ask executives, entrepreneurs and business leaders about mistakes that have shaped their business philosophy.

Bill Flagg

Background:  

Bill Flagg is a lifelong entrepreneur based in Boulder, Colorado. In addition to co-founding Sovereignty, a new community for self-funded companies, he is also a co-owner of SurveyGizmo, SnapEngage, PosterBrain, StickerGiant, and Avid4 Adventure.

The Mistake:

I sold a company too soon.

It will be 10 years this fall that I sold a company that makes event registration and management software. It was a great, profitable and growing company in an industry with plenty of room.

When I got involved and became a co-owner of the company, it was doing about $4 million in revenue per year. We quickly grew it to $10 million per year, with a 40 percent net profit margin.

In those years, we spent a lot of time building a really great culture. We had a lot of people churn through that weren’t a great fit, and that resulted in us having a really great core team of 70 or so people who loved working there.

It was going really well, and we thought, “Hey, maybe now that we’re on top, it’s time to sell.”

We lost a lot in the process of selling. The company doesn’t even exist in Colorado anymore. It ultimately went sideways and got sold off to a private equity group that broke it up into little pieces.

While the software still exists, customers don’t get that heart and soul that they used to get from us. They certainly aren’t getting the kind of technological innovation that we were doing.

Us, as owners, lost in a lot of different ways. On a big picture level, we had this dream team of employees that we effectively broke up. We thought we’d just create new things and bring them with us, but there’s only a handful that we’ve worked with since.

Selling was a huge hit for my partner, the founder of the company. He tells me that he regrets the sale every day.

All that stands without touching on the economic piece. The company was doing really well, and we had no outside investors. We had good cash flow too. Fast-forward to now, it took me close to 10 years to get back to the kind of money I was making then. That doesn’t even take into account the company’s potential growth.

Selling was a huge hit for my partner, the founder of the company. He tells me that he regrets the sale every day.

The Lesson:

My advice to entrepreneurs who have profitable, growing companies with a future is simple: Never sell. Of course, there’s a couple layers to this.

A lot of young companies take on outside investment and that forces the owners into an exit. You’ve got to have a liquidity event to satisfy your backers. So, in that situation, I’ll tell young entrepreneurs to go ahead. Take the money and go start another company. That path is set.

For entrepreneurs who are mostly self-funded, I’d ask a few more questions: Is your company profitable? Is it growing? Does it have the potential to be 10 times the size than it is right now?

If the answer to those questions is yes, then I ask what the probability is that the company will exist in three, five, or 10 years. If the chances are 80 percent or higher that it will exist in 10 years, I think you’re much better off not selling.

If the probability of being around in five years is much lower, you’ve got to take that into account.

I tend to advise against selling much more than I advise selling.

As a part of going through this whole process myself, I was approached by so many independent companies. The problem was that they were living in relative isolation. There’s a lot of buzz about VC-funded companies, and they tend to have their own community.

I had been talking about how special it was to have an independent company, and I wanted to create a community around that sense of pride that you share with others.

This is how Sovereignty came about. The idea was to pull more stories like my own together into a community, to give people the tools they need to be independent longer. I think it benefits society overall to have more companies stay independent longer – in most cases.

Bill Flagg is on Twitter at @billflagg and his businesses are at @SurveyGizmo, @stickergiant, @snapengage, @posterbrain and @Avid4Adventure.

Photo courtesy of Bill Flagg.

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