Most people think of starting a business as risky, but unless you invest a significant amount of start-up cash in your venture, you’re not really risking much other than your time.
That changes if you’re lucky enough to get your business off the ground. As your company grows, you start to risk more and more of your wealth because the business you’ve built is actually worth something. The longer you hang on to it, the more you have to lose.
This phenomenon makes owners become more risk averse as their business grows, potentially squeezing off growth to avoid risking what they’ve created. This can mean the owner goes from a company’s great asset to its biggest liability.
Craft Beer Brewing Company
For an example of how growth can impact an owner’s appetite for risk, let’s look at the case of J.Redner. He was the founder of a craft brewing company. Redner’s operation started in 2009 with the longer term goal of selling 5,000 barrels of beer per year.
His brew quickly proved to be very popular with the local market and was able to sell 1,000 barrels of beer in the first year of business.
It continued to grow but was thirsty for cash, eventually forcing Redner to take on a loan. Redner quickly surpassed his 5,000-barrel goal. By 2015, had scaled all the way up to in excess of 50,000 barrels per year, at which point he had maxed out his capacity in the company’s existing brewing facility.
Getting to the Next Level
To get to the next level, Redner would have had to find another $20 million for a major expansion. That wasn’t an attractive option as he was tired of the feeling of being “all in” at the poker table. He had built something successful and wanted to enjoy financial security. Instead, with the expansion, he would have to roll his winnings into even more debt that he would have to personally guarantee with the bank.
Redner decided to sell. Even with the knowledge his business was still growing and he had built a brand the local market loved.
And therein lies one of the hidden reasons owners decide to sell. They are tired of shouldering all of the risk. Most of us have a limited appetite for risk, and as the Bob Dylan song goes, “When you ain’t got nothing, you got nothing to lose.”
Start-ups aren’t risking much, but that all changes when you build something successful. Every day that you decide to keep it is another day you have all (or most) of your chips on the table. No matter how strong your hand, eventually we all decide to cash in.
Contact us if you’re thinking of cashing in, we’ll help you maximise your business’ value when it matters. Alternatively, if your thinking of starting a business, we can help you with that too.