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Rich vs. King in the Real World: Why I sold my company

I sold my company, Smart Bear, in December of 2007. I haven’t talked about it at all on this blog, and it’s time I spill my guts about the whole affair.

You’d think selling a company would be a glamorous, exuberant experience, but I was surprised at the reactions I got. These are actual quotes:

  • “How could you sell your baby? I’m shocked.”
  • “I thought you said things were going well. Hmm.”
  • You’re such a sell-out! You used to be one of the few cool people I knew.”

Interestingly, 100% of the negative reactions were from people who had never started their own company. But that doesn’t make them wrong, and it doesn’t make their words sting less, especially when they’re your friends.

Now that almost two years have passed, I can relate exactly why “selling my baby” was right for me. Hopefully this thought process is interesting to you and possibly useful in the happy event that you’re faced with the same choice, but the truth is I just need to get this off my chest.

I need to explain to those who still consider me a sell-out.

You’ve probably heard about Noam Wasserman’s “Rich or King” choice: Company founders are either in it for the money (“Rich”) or in it to build a lifestyle and personal identity (“King”). FogCreek and 37signals are built to be “King;” all venture-funded companies are built to be “Rich.”

Noam says that successful founders make the “Rich or King” decision up front, and that though it doesn’t matter which path you take, you must be consistent in your actions. You can’t mix “be king” tactics with “get rich” end goals.

Except I did mix “Rich” and “King,” and it worked.

See, it’s good to be “King,” but what do you do when you’re at Trudy’s “North Star” Tex-Mex Restaurant tucking into a chile relleno (with salsa verde, black beans, and the ground beef filling), and the guy across the table looks you in the eye and offers you enough money that you never have to work again?

I was always in it for the money, especially in the form of acquisition. Everyone who came to work at Smart Bear was indoctrinated with this attitude in no uncertain terms; on more than one occasion I had put it:

“We’re simple country whores — we’ll do anything for money.”

Profit was the rule behind every choice we made. Although the end goal was always acquisition, my attitude was (and still is) that the best way to get yourself acquired is to be profitable. Profits prove the business is operating well. Profits validate the market. Profits make minimum valuation easy. Profits mean the buyer converts balance-sheet money into bottom-line profit-and-loss money — a trade every large company wants to make.

Most of all, profits mean you don’t need to sell, which gives you the ability to walk away from a deal. You have little negotiating power in any deal unless you can happily walk away.

On the other hand, I knew I would only be happy building a genuine, great company, where the product solves a real pain, where customers are given white-glove service, where “tech support” is the only sales force, where we leave the world a little better than we found it, and where every employee is smart and gets things done and is trusted with any decision.

And I wanted the ego-inflating trappings of running a company. It’s cool at parties to say “I run my own company.” I wrote a book that got so popular (in my little corner of the world) that people would bring it up to me to sign. (We gave the books away for free so the joke was that by signing I doubled its value.) When I walked onto a tradeshow floor it was like Norm on Cheers — I knew everyone and they knew me. I got to present at cool venues like Joel and Neil’s Business of Software Conference.

And I write this blog, shamelessly exploiting the fact that Smart Bear (and two other companies) were successful to convince you that I’m worth reading.

In short, although the goal was “Rich,” I achieved it by behaving like the goal was “King.” I don’t know why people find this contradictory; after all, acting like “King” means building a long-term, sustainable business, and that’s exactly the kind of business that gets acquired.

Still, because “King” was enjoyable and Smart Bear was profitable, I still need to explain why becoming a “sell-out” was the right choice.

The first thing to understand is the non-linear relationship between “cash in personal savings” and “financial freedom”:

There’s a line you cross where your savings alone will fund a reasonably lavish lifestyle. At the risk of sounding like George Bush, this is a Freedom Line — freedom from restrictions about what you can do with your life, family, and career.

My observations:

  1. A movement from left of the line to right of the line changes your life fundamentally, giving you the freedom to do whatever makes you happy, forever.
  2. If you’re crossing from left to right, it doesn’t matter how far to the right you go. (Sure, $100m is a different lifestyle than $10m, but it’s not as critical to lifestyle or happiness as just crossing the line.)

#1 is what was offered to me at Trudy’s Tex-Mex. #2 means it almost didn’t matter what the offer was, so long as it was big enough.

Some people gave me a hard time about #2. The typical argument was:

Your company is growing 100% year over year. It’s profitable and throwing off cash. Why not wait another year and let revenues double again, which will make the company six times more valuable (assuming 3x revenue valuation, a reasonable ballpark for a growing software company).

Here’s the best analogy I’ve come up with to describe why this is flawed logic. It’s called the Box Game:

Imagine I have two opaque boxes. Box A contains $10. Box B has a 50% chance of containing $20, and a 50% chance of containing nothing at all. You pick either box and take whatever’s inside. Which box do you pick?

Of course statistically there’s no difference, so this isn’t a question of math or economics or intelligence; it’s a measure of your attitude towards risk.

Most people pick box B. After all, the difference between $10 and $20 is trivial and it’s more fun and exciting to pick B.

But what if the numbers were different?

Now box A holds $5,000,000. Box B either holds $10,000,000 or nothing, 50/50 chance. Which do you pick?

You pick box A. Of course! Because it moves you from the left of the line to the right. And because a “chance of moving even further” isn’t worth giving up the certainy of that life-altering event.

This is my argument in favor of #2 and against “wait and see.” This is why I sold.

In my case, the correctness of my choice was made painfully clear by the economic crash in 2008. Had I held out for “another year and far more money” — box B — I would have found an empty box.

I know this for a fact — another company (can’t say who, sorry!) was offered a deal at the same time I was. This founder wanted to roll the dice (box B) and delayed the buyer. Two quarters passed and revenue failed to grow; the buyer nixed the deal. Months later with the recession in sight, the founder approached the buyer again, this time willing to accept a low offer. The buyer refused; that ship had sailed.

There are those for whom this calculus doesn’t apply because they want to be “King” no matter what. I’ll bet Jason Fried wouldn’t sell 37signals for $100,000,000; neither would Joel Spolsky sell FogCreek. Are Joel and Jason being irrational? Of course not. But neither was I.

As of December 2007, I have the freedom to work on any project I want for the rest of my life while simultaneously providing for my family, never again worrying about bills, debt, having a place to sleep, or sending our daughter to any college she wants.

I can stay home with my wife and new baby girl for as long as I want, having all the precious time and experiences and memories that they say money can’t buy.

But, in the sense of securing that freedom, it can.

And by crossing the line, I did.

Are you disappointed? Am I a sell-out? Comments welcome.


  • http://www.alicesbiscuit.com Yahel

    Hi mate,

    So basically, you achieve what you wanted to achieve and what everyone of us is trying to achieve and you feel what ? Guilty ? Shameful ? a Sell-out ?

    Well I’ll take the guilt, the shame and a few other bird name and the ??k$ of you then :D

    You played well, you won what you deserved, good for you, you should only feel pride and let the jealous where they are.

    I’ll see you on the other side of the line because i’m far on the left for now :D

    • http://blog.asmartbear.com Jason

      I don’t feel shame, but when your friends are disappointed it’s hard not to take it personally.

      The Mint founders might have shrugged off Jason Fried’s statement that “The next generation bends over,” and surely they’re laughing all the way to the bank, but still…

    • http://www.guitarin60seconds.com Robben Salter

      I’ve never heard of smart bear before in my life, or you.
      But I have to say that this post made a lot of sense.

      I always wondered, at what point would it make sense to sell your company instead of keep it.

      And the answer is, when box A is so substantial, and box B is so unclear.

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  • http://adamcovati.com Adam Covati

    Jason, thanks for a great overview of what happened. I think you hit the nail on the head with your first comment, these people haven’t started their own company.

    While I haven’t either, I’ve been early in few startups and considered the leap enough times to know that you have to have goals for a business. Running it forever isn’t really a goal, but getting acquired an excellent one.

    You, sir, have won. You reached the point and got where many of us want to be, and I applaud you for that. And I appreciate that you have been willing to share a lot of thoughtful and useful blog posts after the fact.

    Keep up the good work!
    Adam @covati
    .-= Adam Covati’s latest blog post: Fitting Content Into A Twitter World =-.

  • Dan D

    Your post reminds me of another that show the statistics of founders and their reasons for doing a start-up in the first place. I find that much of what I read promotes the idea that founders should only work on projects that are cool and that they like and not worry about the money side of it but the stats of the blog showed that many entrepreneurs do get into it specifically to make money and be financially free. That’s not to say they work on projects they don’t like or think with make a difference, but instead that they’d like to do this while also having the option for a payoff later.
    I can say without remorse that I want to make money like this and that there is nothing that drives me more than the financial freedom that you spoke of. Along the way, however, I’d like to be king for a while and enjoy the benefits of owning my own business so your example that I can have both is very appealing.

    Thanks for the great post.

    • http://blog.asmartbear.com Jason

      I think that’s the right attitude. If it’s money-only to the exclusion of things like morality or leaving the world worse than how you found it, it’s hard to justify.

      But getting a business profitable is hard enough; if money isn’t your primary concern, it’s hard to see how you’ll get there.

      Tricky balance.

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  • http://susops.blogspot.com/ Maintenance Man

    You sold the company a few years ago. But you are still posting on the company blog. I assume this means you did not walk away, but switched from owner to employee. Is that right?

    • http://blog.asmartbear.com Jason

      This is my personal blog. The company blog is here, and I haven’t been posting there since July.

      But yes, I switched from owner to employee and stayed until a few months ago. Leaving is another story, which I’ll tell as well…

  • http://pupeno.com J. Pablo Fernández

    Very interesting post Jason. I feel I knew this information consciously but when I had to explain it to my wife I couldn’t. Now I have a pretty graph to point her to. Thanks!
    .-= J. Pablo Fernández’s latest blog post: Are dynamic languages just a temporary workaround? =-.

  • Andrew

    If by selling “your baby” you can buy “your freedom” only idiot will stay with “baby”!

    There are much more interesting things in the world no matter what your “baby” is.

    Congratulations!

    • Andrew

      More of it – if you have family to provide – there is no doubt at all what to do…

    • http://pupeno.com J. Pablo Fernández

      I think it wasn’t really his baby. There are very few things that can be “your baby” other than a real baby. A company, no way… you sell it and build another one, better, faster, cooler. People sometimes overvalue stuff. Specially ideas. My mantra is that ideas are worthless, execution is the important part, but even then, if my current idea is sold, destroyed, stolen, whatever, tomorrow I’ll have another one.
      .-= J. Pablo Fernández’s latest blog post: Are dynamic languages just a temporary workaround? =-.

    • http://blog.asmartbear.com Jason

      It seems to be a matter of personal taste. For some (Jason Fried, Joel Spolsky), the idea was to build a company you’d want to work at for the rest of your life, so it is your baby, your family, your life, so of course you wouldn’t sell. Just depends on your goals.

      • Anonymous

        I agree Jason

  • Bernie

    The problem is that you leave behind the people that helped you build your company. How are they all doing? Are they now dealing with big corp management that’s driving the company into the ground? You seem to imply that the company isn’t doing as well (box b). Is this related to the fact that you are no longer there? Sure it’s your right to sell out but is it the right thing to do? The fact that you’re feeling guilty seems to indicate the answer.

    • Cesar

      I don’t think he feels guilty, nor should he. Its a dog eat dog world. If you don’t like the company after the buyout, start your own, or move on. Nobody is responsible for your well being but yourself. Surely, not the previous company owner. He made and took his risks, his reward is his to keep.

    • http://blog.asmartbear.com Jason

      Bernie- Collectively my employees made over a million dollars in the transaction.

      In fact, my advisors were surprised when I told them how much of the company I gave away, and also surprised at the terms. For example, everyone had single-trigger 100% vesting, even people who had been around for less than a year.

      Today Smart Bear is still profitable and growing, even in this extended recession, so you’re wrong about that as well.

      I think your misconception is this: It’s not that the company “isn’t doing well,” it’s that company valuations depend on rate of growth.” Therefore, although the company is impressively healthy, I wouldn’t have gotten the same multiple.

      Finally, where did you read that I feel guilty? I simply wanted to explain what I did to people who don’t understand why anyone would want to sell a healthy, bootstrapped. company.

    • Roy

      I’m one of those employees. I can tell you that we didn’t want Jason to sell, but mostly because our piece of the pie didn’t put us to the right of that magical line. However we all recognized that we would have done exactly the same thing had we been in Jason’s place, so there were no hard feelings at all.

  • http://www.missinglinkprojectcenter.com Kevin Moore

    Jason,

    Great article, I am definately envious as I sold my previous mISV but didn’t get to the right side of the line. I started again and it is a long haul but I’m working on getting there.

    Cheers,

    Kevin

  • http://shejustgotmarried.com Denee

    I feel kind of silly even posting a comment because I am still such a newbie! But, my point is – just a few short months after our business launched I was speaking to the president of a national company and, in my naiveté actually proposed that our two companies should consider, at a minimum, cross promoting. After about a half hour of discussions she asked me….”What is your exit strategy?” I was shocked and appalled and in obvious need of some business education. I said “I have no intention of selling this business”. I’ve learned a lot since then. I’m not looking to sell at this point (I only say that because NO ONE is offering! HA) but have come to discover that what you shared is EXACTLY the mindset with which I am building this business. GOOD FOR YOU!!

  • http://blog.locut.us/ Ian Clarke

    I like and agree with your concept of a non-linear relationship between monetary wealth and actual benefit (“reward”).

    I have a similar hypothesis about why gamblers gamble. Clearly, if you assume a linear relationship between money and benefit, then gambling isn’t rational.

    But if you accept that this relationship can be non-linear, then gambling could potentially be a rational pursuit under some circumstances!

    Better still, if you can model someone’s money-reward curve, then you could potentially come up with the perfect game of chance to extract money from them!
    .-= Ian Clarke’s latest blog post: A good pretty-printer for Google Gson =-.

    • http://blog.asmartbear.com Jason

      I think folks in M&A actually do play exactly that game.

      If you look at smaller acquisitions like mine (i.e. not like the $170m Mint acquisition), valuations like “N times revenue” or “N times profitability” is less correlated with sales, where as “N times number of founders” is closer to what happens.

      I have a friend at Borland M&A (I know, it doesn’t exist anymore) who confided that this was exactly their policy with these sort of transactions. They know founders think like this…

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  • Cujo

    As far as I’m concerned, if someone offers you enough money that you’ll never have to work again, and you don’t take it, then you are an idiot. Period. Be King, if you must, with your next idea.

    • http://blog.asmartbear.com Jason

      You put it better than I could! Yes exactly, there’s always a “next thing.” I neglected to mention that, but it’s a key point.

  • http://janprog.blogspot.com Mike

    This kind of reminds me of Gene Simmon’s response to be a sell-out. “Damn right. We sell out every night we play.”

    Good for you.

    I don’t see any guilt or shame in your post. I wonder if people are projecting what they think you should be feeling. And if they think you should be feeling those things, why?

  • http://lotusmedia.org Ruby Sinreich

    I’m no capitalist, but I think I would have done exactly the same thing in that situation. It’s not like you turned your back on the people or principles that were a part of the company.

    This situation will never happen to me because I chose a very different career path from my similarly smart and technically-inclined cousin. ;-) I feel good about my decision to work in the nonprofit sector, but now that I also have a child I can see the wisdom of Jason’s approach.

  • http://yoavshapira.com Yoav Shapira

    Great post, Jason! Thanks for sharing with such candid commentary. Makes total sense to me.

  • Knox Harrington

    Who exactly chastised you for selling a company so that you and your family would be financially secure and comfortable for life? The only wrinkle I could imagine is if your former employees got a raw deal from the new owners (change in remuneration, benefits, working conditions). This would make it a selfish decision, but not necessarily an evil decision.

  • Manny

    Your thought process about selling IS interesting. It’d also be educational to hear your process of finding a buyer in the economic climate a year ago.

    • http://blog.asmartbear.com Jason

      Short answer: They came to me, I wasn’t shopping. But thanks for the suggestion — I’ll write about that too.

  • http://www.kevinblanchard.com Kevin Blanchard

    I don’t think you sold out at all. I not only fully support your choice but would have done the same myself. You now can live life happy and enjoy being able to be there for your family and live life on your terms. I only hope that in my future I achieve half the accomplishments and financial freedom you have achieved. Plus you are a nice, down to earth person to boot.
    .-= Kevin Blanchard’s latest blog post: Wizards Gone Wild! Spring Break Edition =-.

  • http://www.skmurphy.com/ Sean Murphy

    Who acquired SmartBear in Dec-07? Was there a synergy between your firm and theirs or was it purely a financial analysis? Who is the current CEO? What advice would you have for other CEO’s navigated a similar situation, in this post you have focused primarily on your inner psychological landscape, I would be interested in other aspects of the deal:
    how did you prepare employees, who did you pick and why to help you with the negotiations (e.g. attorneys, accountants, sell side M&A, other entrepreneurs, other advisors), how did you manage the two year transition. Knowing what you know now, what are one or two key things you would have done differently, what are one or two key things that you feel really made this decision a success?

    • http://blog.asmartbear.com Jason

      Great questions! Answers:

      1. AutomatedQA acquired Smart Bear.
      2. We are both in developer tools, but we sell to developers and they sell to the QA department, so it’s not an exact fit.
      3. Current CEO is Derek Langone, who has left Smart Bear operations more or less alone. No “installed hires” for example.
      4. Preparing employees: As said in the article, everyone was told even before they were hired that this was the goal, so there was no surprise. The main thing was that post-acquisition there would be no personell changes (hire or fire).
      5. Picking advisors: Everyone I could find! M&A folks at companies, an M&A guy at the local bank who had lots of data to query against, acquaintances who had already sold software companies, and then the people those people recommended. It’s actually easy to break into the “sold my company” clique if you have a term sheet in your hand because (a) everyone in that clique knows each other, at least in Austin, and (b) they’re happy to help you along because it’s wonderful and fun, and (c) they know you’ll do something next so it’s good to know other people who are successful in that way.
      6. The transition (1-year) was easy because AutomatedQA was fantastic. They basically didn’t change anything except add four sales people. The Smart Bear office (Austin) continues to run everything from product direction, product timing, tech support, marketing, tradeshows, you name it.
      7. Key things: Be completely honest during the acquisition. Seasoned M&A guys can smell BS a mile away. Another deal (besides the one in the text) fell through because the seller waffled on a term sheet item they previously argued for. Another advantage: Having perfect books. Meaning: Perfectly balanced every month since the company started. Finances were never a problem as a result. Otherwise they wonder what’s lurking — not even that you’re being dishonest, just that you don’t know! Regret: Should have argued for more upside post-deal, because otherwise the drive to stay and see it through to the next step wanes. They could have said no to that of course, but I didn’t push it.

      • So True

        You are spot on regarding keeping books up to date and I hope that young entrepreneurs take notice.

        I spent 5 years working on a startup, 100% focused on sales and driving growth.

        We promoted our original company bookkeeper who was a friend, and not a qualified CPA, to be our CFO as we approached $15m in sales.

        We received a “right side of the line” type of offer on the company when I was 27 years old.

        After the due diligence began we realized what a mess the books were, and not only had the buyers walk away but wound up with a 1.5 year IRS audit that same year that required a %150k investment in getting competent CPA help.

        During this period the stress on the founders (myself included) massively fragmented our focus, and ultimately led to a “fire-sale” of our company which left us all well off, but nowhere near the original offer.

        A friend of mine always says “education is expensive” and boy is it!

  • Manny

    Sorry, I meant 2 years ago. Wait – you did solicit buyers, right? Otherwise your elaborate explanation sounds like a rationale for taking the only offer.

  • http://www.corporatepreneur.com Dale

    I’m glad someone believes that the best way to make your company more valuable is to make your company more profitable. I just came back from a trip to Silicon Valley, and it really irks me that companies have the “hype us until Google buys us” mentality.
    .-= Dale’s latest blog post: Why you owe it to the world to run with your ideas =-.

  • http://www.celebeter.com Celebter

    You’re right man.

    Now you have money and time to live a calm life.

    And you can create a new company and roll the dice.

  • http://www.getthebee.com Scott

    I am on venture #3, having two successful exits. Thank you for a great post that helps me crystalize my thinking for my new business….am I going for Rich or King? I am wondering how much thought you gave to turning over the day-to-day operations and some strategy to your existing employees? If successful, you retain your equity, it grows, and you get annual cash flow via distributions. However, if your folks tank the business you are left with nothing.
    Your thoughts?

    • http://blog.asmartbear.com Jason

      I only thought about that after the acquisition, since the deal (which I can’t talk about in detail of course) was such that I don’t get continuing distributions.

      But everyone at Smart Bear is very capable of running the company without me, so besides being better at documenting and recording things in Wikis and shared drives, it wasn’t hard. But typically it is harder, that’s true.

  • http://richtaur.com/ richtaur

    Sell-out is pretty much synonymous with “huge success” and I don’t think a lot of people get that. Also “How could you sell your baby? I’m shocked.” is a bad argument, because if some of you are like me, you’ve got TEN babies and you wish you had time to work on them all. Lots of money affords you the ability to do that!
    .-= richtaur’s latest blog post: Official Word Truncation =-.

  • http://improvingsoftware.com John Fuex

    Good for you Jason.

    It’s encouraging to see a local Austinite techie make good. Sure Michael Dell did it, but on a scale that is a little hard to realistically strive for.

    The idea of taking an idea to market and making just enough to support your lifestyle without having to spend another day in a cubicle farm against your will. Think about it this way, you have a longer deadline to work on your memoirs than most. =)

    Don’t listen to the “sell-out” crowd, it’s just sour grapes.
    .-= John Fuex’s latest blog post: Quickly Link SQL Server Tables in Access =-.

  • http://www.RegScheepers.com Reg

    At the end of the day it seems to me that you put family first, and to hell with anyone who thinks that’s the wrong choice to make.

    • http://www.RegScheepers.com Reg

      To clarify: You put your family first and anyone who thinks that that’s not a worthwhile choice is wrong. Period.
      .-= Reg’s latest blog post: How to Become a Make-It-Happen Person =-.

  • http://www.productprinciples.com Lisa Wells

    My grandfather used to say that “Money can’t buy happiness, but it gives you the freedom to pursue it.” I have always thought that advice was dead-on. Here’s to the pursuit!

  • http://fogcreek.com Michael Pryor

    $100,000,000? I’m pretty sure I can convince Joel to go for $100,000,000.

    I’m going to imagine the FUD you’ve been spreading regarding this is the only reason this offer has not yet materialized. Now that I’ve cleared that up, where do I sign up for the private jet?

    • http://blog.asmartbear.com Jason

      Ha! :-) BTW I know the folks who bought Smart Bear have called Joel, so apparently it’s not on the table…

      • http://fogcreek.com Michael Pryor

        That’s because they didn’t say 100,000,000! Tell them that’s the password next time they call! (and don’t have one of their intern associates call us either).

        I’d be surprised if anyone actually spoke to Joel on the phone anyway. We have a series of tests, passwords, and hurdles to keep the cranks away. It doesn’t always work, as you can tell. Jeff still gets through every week.

  • http://www.slaughterdevelopment.com/ Robby Slaughter

    Great post, Jason!

    SmartBear was famously founded on a cheap bet and was entirely bootstrapped. But an interesting question is, how far would you be willing to go into debt based on what you know now? There’s always bankruptcy, right?
    .-= Robby Slaughter’s latest blog post: Murder Writer Methodology =-.

    • http://blog.asmartbear.com Jason

      It’s a good question, but of course I did go into debt, just to myself instead of a bank.

      Almost no revenue for two years means eating a ton of savings, and even more loss if you consider opportunity cost! Had to make that back before I was in the black.

      Better than paying interest to a bank but still debt.

  • http://www.straysoft.com Stray__Cat

    As usually you express clearly what I confusely try to realize.
    I know that now I have a king attitude.

    Yes.

    But also a bit rich.

    Yes

    A mix …

    Oh well, I go back to work….

    :o)

  • Your Mom

    I’ve got a feeling your friends just liked the idea of you as the business owner. When you cashed out, they lost their conception of you. It doesn’t really go very deep beyond that. How could it?

    Is it not tacky to suggest the amount of money you received for selling your business. It’s fascinating from a stranger’s point of view. But your friends are probably reading this, thinking you’re a vainglorious sell out!

  • http://www.siliconvalleywatcher.com/ Tom Foremski

    This really is not that hard of a problem. People figured it out centuries ago: “A bird in the hand is worth two in the bush” :) Box A all the way…
    .-= Tom Foremski’s latest blog post: Pubmatic And The Rise Of The Second Channel Of Advertising =-.

  • cak

    What a load of drivel. I doubt very much most people would pick $10 over a chance at $20, and anyway that analogy is flawed to your example. It would be more like $10 to $60. All through you article you keep making these leaps of logic.

    And I have never heard this king or rich choice before, pretty sure you made it up. Most people want a bit of both. You are a fucking tool.

    • http://fogcreek.com Michael Pryor

      Maybe you haven’t heard of rich vs. king because you live in a hole, troll.
      http://founderresearch.blogspot.com/2008/07/rich-vs-king-around-world.html

    • http://blog.asmartbear.com Jason

      Hmmm, sounds like you didn’t read the article. Just skimmed it and then started cursing?

      I agree most people would pick $10 over $20, that’s what I said.

      You say I made up “rich versus king” although I linked to the source, a well-known saying that’s all over the Internet. I even had the pleasure of hearing Noam speak about his research on this topic.

      Ah well, you probably won’t read this either….

    • Reg

      Cak, he may or may not be a tool, but I’m willing to bet my house he’s happier, more fulfilled and richer than you are. I’d be a tool anyday in exchange for being just plain cak.

      You have to wonder why some people have nothing better to do with their time than criticise. I for one found the post insightful and interesting and I read it to the end – and with so much good blogs to read and so little time, that’s saying a lot.
      .-= Reg’s latest blog post: How to Become a Make-It-Happen Person =-.

  • Kelly

    Another great post – thanks for the insight. I’m totally behind you, like everyone else sane. It irritates me to no end when people pretend that money isn’t a ‘virtuous’ goal for bootstrapping a startup. Growing a company out of # of page views is just the 21st century’s version of snake oil.

    So I’m wondering if you weren’t ‘across the line’ already, would you still start a company in the situation you’re in now (new baby and all)? Or do you think it’s too much to manage now that you’re out of your 20s and have more responsibilities? Would you consider the option of working for someone else?

    • http://blog.asmartbear.com Jason

      All options are on the table now. I feel like my personality is such that I’d have a hard time working for someone again, but there’s a big universe of options.

      There’s a new venture altogether, there’s helping other startups, there’s just writing more on this blog (it’s a blast!), there’s continuing to stay home, there’s big-dollar, low-time consulting, …

      My attitude right now that time == choice, so I can look at different things and not have to jump at something just because a clock ran out.

      • Roy

        Jason, you misread Kelly’s question, which is a good one:

        if you weren’t ‘across the line’ already, would you still start a company in the situation you’re in now (new baby and all)? Or do you think it’s too much to manage now that you’re out of your 20s and have more responsibilities?”

        • http://blog.asmartbear.com Jason

          Thx Roy!

          Yeah without money in the bank it would be impossible. Maybe with co-founders PLUS side consulting to make sure the lights (at home) stay on, but then there’d be no time to be at home, so then family is out.

          Family is a full time job. So is your full-time job. So there’s no room left for startup.

          (I could do it with VC money; then I have a salary. In fact, that’s one of the best arguments I’ve ever heard for taking VC…)

  • http://www.marcgayle.com Marc Gayle

    Jason,
    I think you did a fabulous thing. It was the fiscally prudent and responsible thing (this is ofcourse based on your recollections and assuming that the buyer never got shafted). You had a responsibility to be able to financially secure your family, which is one of the reasons I am sure you were building it in the first place.

    I know how difficult it can be with your friends being ‘disappointed’, but I can assure you that if they had that choice, they would be hard-pressed to look deep down within themselves and their situation and realize that regardless of the decision you make (to sell or not to sell) is a difficult one and not something they should be particularly upset/disappointed about (unless they are shareholders and got shafted).

    Kudos to you, you have a duty to look out for your family.

    I am happy for you!

    Maybe next time around, you can build to hand down. I wonder if Jason Fried plans to hand down 37S to his offspring, since he is so adamant about not selling.

    • http://blog.asmartbear.com Jason

      That’s funny about handing down to kids. I wonder if it’s “kids” anymore or handing down to other employees, keeping more of a financial stake for the kids rather than controlling. Would have to ask them!

  • http://twitter.com/stevenkane Steven Kane

    Hi Jason

    Great piece, thanks for posting it.

    I have started and run 4 startup companies. 1 disaster. 1 home run. 1 double. 1 TBD (still alive and kicking but I am no longer active management.)

    two points I would add to your post:

    1. if one ever gets the luxury to choose to “sell out” one should consider the old cliche — when you are lying on your death bed, what will you regret not doing? spending more time at work? making better technology products? providing better customer service? or climbing mount mckinley? coaching your kids team? studying art history by visiting the world’s museums? seeing the ruins at petra and angor wat up close? etc. some people have to work 66% of their waking hours. some people want to do so and love it. but some people don’t want to. very few people don’t have to. which are you?

    2. if one ever gets to have the truly thrilling and daunting experience of creating a new startup business, what is the ultimate goal? having a satisfying, financially stable self-employed lifestyle of solid but not wildly rich rewards? or being truly “rich”? or being “king”?

    sometimes you can have all three (the google guys, bill gates, sam walton, oprah, john mackey, phil knight etc) but really, that is exceedingly rare

    most common is failure (the vast majority of startups fail)

    next most common is barely stable, modestly rewarding financially

    and so on

    so when starting, know what you want to achieve and work at that, not at anything else.

    plan the work and work the plan.

    to make your roadmap, start at the end and work backwards.

    which doesn’t mean shoot for the stars.

    and it doesn’t mean don’t shoot for the stars.

    all it means is, align your interests… with yourself.

    • http://blog.asmartbear.com Jason

      I completely agree. It’s about you. Unfortunately, “know thyself” is one of the hardest things to do. Fortunately, it’s worth the effort. :-)

  • John Lipinski

    Good post…so now would you like to start playing tennis? The weather is pretty good. Congrats on the bambino!!!!!!!

  • http://www.dennisgorelik.com Dennis Gorelik

    Jason,
    It’s a very reasonable explanation and I think you’ve made a right choice.
    Do you know what the buyers are thinking now about Smart Bear acquisition? Was it a smart move for them?

    • http://blog.asmartbear.com Jason

      As far as I know everyone is happy. Smart Bear doubled both revenue and profits in the year following the acquisition and continues to grow (slower of course!) in this weird economy. So at least financially there’s not much to be disappointed about.

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  • http://socialgrow.com Marsh Sutherland

    Jason,

    Found your post from @rseanlindsay of Viximo this morning. Few articles completely absorb my focus. This one did.

    I completely agree with your graph. Buying a house and car and other staples in life to be comfortable tend to be fixed costs with moderate inflation over time. The ability to cross the Freedom Line is definitely my goal.

    I’m old school. Business is about making profits. My dad was a stock broker. “Earnings per share” is what I was taught in my childhood. Companies that launch free services with zero revenue and build a large userbase and add to staff only hasten the increase in their costs and survive on VC funds. I just don’t get that business model.

    The co-founders and I of SocialGrow are in our 40s. We all agree that Rich is the end game, but are able to bootstrap ourselves cheaply due to Microsoft’s BizSpark startup program and Ken’s amazing ability to build brand awareness through free social media marketing. One great thing about SocialGrow is that users will be able to objectively value how we’ve made their lives better.

    One of our first conversations was about whether we plan to sell or plan to hold on and distribute profits between us. Our decision was plan to sell so we can live comfortably for the rest of our lives and provide for our families. Then once we have money in the bank, we can go do startup number two if we want. We are firm on taking only a round of angel financing and using it for software development, marketing, and continued IP protection. But given our minimal operating costs and immediate acquisition of niche customers quickly, we may not need financing at all!

    Smart Bear was in essence “your baby”. You nurtured it at untold hours of the day and night and helped it grow. You brought on support to grow it and make it bigger. But eventually all kids leave the nest to go out on their own. Parents need to learn to let go and let their kids experience life for themselves.

    Now you are on to baby number two and are now a father. Hey, you’ve already got experience from Smart Bear! But as a fellow father, I can tell you that this baby really counts and will bring joy to your life. Wait till your child gets older. My 3 and 5 year olds are the light of my life. Working from home gives me the luxury of spending lots of time with them.

    If and when I can cross that Freedom Line to spend all my time with them while they grow up and help them grow into great people, I will happily do so.

    Kudos to picking the correct box.

    Marsh Sutherland
    President | Co-Founder
    SocialGrow.com

    • http://blog.asmartbear.com Jason

      Thanks for the insightful commentary. I really like your analogy about “yeah it’s your baby, but kids leave the house and parents need to find other things.” Never heard it put that way.

      Sounds like you’re building SocialGrow the right way — only just enough investment and an eye to profits. After all, even if it doesn’t sell, profits be profits!

  • http://www.aleksanderhouse.com Nancy Hinchliff

    Looks to me like you did exactly the right thing. I’ve had a small business for nearly 16 years and am now in the process of selling it. I wont make as big a profit as you did, but I will be able to do all the things I’m passionate about and didn’t have time for when I was running the business.

  • http://www.greenr.com David Fox

    I took Box A 10 years ago. Based on my experience, and many of my similarly fortunate friends, your next challenge is to hang onto the pot of gold. I always used to wonder why folks who had made enough money to avoid investors in their next business took in outside funding. Now I know – the temptation to continue funding your own baby can be overwhelming. Then of course there are the many good causes you can fund and angel investments to make. Keep a very close eye – $50k here, $100k there and soon the pot may become a cup. Good luck!

    • http://blog.asmartbear.com Jason

      It’s true that you can invest in your own stuff — and perhaps unwisely.

      But here’s the biggest reason to take outside investment next time: I get to choose the investors. If I wanted to swing for the fences with VC, I have a much better chance of raising with better terms because of this success. If I just wanted angel, I now know a bunch of people who might be up for that and who would actively contribute to the success of the company.

      It changes the investment game.

  • http://www.leds-consulting.com Lori Denny

    Jason, one thing I don’t understand is why your friends are disappointed. You are happy, healthy, and successful. I would suggest that if they are your friends, they would be happy for you in being happy with your decision, which was obviously a good one. Those friends who remain unhappy need to find someone else to live vicariously through. My husband and I have a business that has suffered through the recession, but we are still here. We are left of that line and working to build our business and its value for possible sale in the future. I congratulate you on your success, and your family is extremely lucky to have you and your good business judgment!

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  • Craig Masters

    This is the first time I’d ever even heard of “SmartBear”, so forgive me “your majesty”. So… um… let me get this straight: someone combines “chat” with a code diff program — and THAT is work MILLIONS?? Dear Lord, what is this world coming to. Did the buyers bother to realize that the moment some kid in his bedroom goes and creates a free browser addon to do the same thing, your company valuation is back to zero? Now there’s a blog entry for you.

    • http://blog.asmartbear.com Jason

      Craig- Don’t worry, it’s not the IDEA that’s worth millions, it’s the fact that people give us millions of dollars for the software that works.

      In fact, several people already did what you suggested — create free software to do the same — and yet our customers don’t care.

      If you can’t see the difference between supported software that integrates with 15 development tools, customer’s in-house authentication systems and databases, scalability to thousands of users, reports that contracts and regulations and managers need, integration with bug-tracking….. and a browser plug-in, then I suppose you don’t know why any company is able to make money, right?

      After all, if none of that is valuable, what software is worth money?

      • http://www.andybrett.com Andy Brett

        Jason – great article, and great reply to this comment, which I just happened to land on while scrolling through. I think the difference between Jason/Joel and you (and many others who sold their ‘babies’) is that even though Jason/Joel could cross the freedom line at any time, afterwards they would still be back working on the project that got them to that point, because that is exactly what they want to be doing. That trait, of course, is what helps get them to the point where it would be easy to cross the line at any time. Not too bad if you’re lucky enough to have found a career like that!
        .-= Andy Brett’s latest blog post: Rails Rumble 2009 – Vote For Your Favorite App =-.

  • Kristen

    If you have time, I’d love to read a blog post on how you use “tech support” as the only sales force. For example, how did you get people to give you a try in the first place so that they called the tech support line? And then when they do call tech support, then what?

    • http://blog.asmartbear.com Jason

      You bet! Although those two questions each deserve a post.

  • http://blog.maysoft.org/ Frank Paolino

    I am interested in how you use the tech support group, too. I was playing around and decided to use some simple equations. I ended up with “Customer Satisfaction is improved with the square of the Skill Level of the tech support person”.

    I wrote a blog about it a while ago, called Three Laws of Customer Support It started as a sort of inside joke but turned into an interesting exercise.

    I always like to say that many organizations are schizophrenic. Sales people have customers who won’t talk to them and their tech support group won’t talk to customers. We only put people in tech support who understand that every customer interaction is also an evaluation of the company. It sounds like that was your approach, too?
    .-= Frank Paolino’s latest blog post: Comment =-.

    • http://blog.asmartbear.com Jason

      Ha, I like your laws. Probably however your variables like “skill level” are non-linear. It’s well known that talented people are 10x more productive; I think it’s deeper than that. Specifically, that one really talented person can do what no number of average people can accomplish. Not sure how that gets factored into the equation (no pun intended.)

      (OK, the pun was intended. :-) )

      • http://blog.maysoft.org/ Frank Paolino

        “Talent” is an interesting area, too. I often say that three “C” students are not as good as one “A” student. But for me, talent is a lot more than brainpower, it is often defined more by willpower. The person who really wants and tries to do well in daily work generally does. That willpower means that they have bothered to learn their craft. In tech support, they learn to take the customer’s side and resolve the problem as if it were their own.

        In programming/development, they know their tools (and keep them sharp) and anticipate user usage patterns while doing development, significantly reducing errors (iterations of user acceptance).

        I am always amazed when I interact with people who have not “learned their craft”, and then complain about how difficult it is to advance or how they are not noticed, or how they are not appreciated. Yet they perform badly and like to blame others.

        My favorite example is when I had some wine shipped from Italy. FedEx called me and said “We have some wine for you”. I said “Bring it over”. They said “How?”. I replied “Do you really want me to explain to FedEx how to do shipping?” (They shipped the wine back to Italy).
        .-= Frank Paolino’s latest blog post: Comment =-.

  • shan_dark

    Great post! Thanks for sharing so frankly.

    The decision is just to be satisfied with what one has reached – at the right time. To “have the antennas” at what time one should take a risk or not.

    Box example worked very well. I’ll keep it in mind.

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  • http://loggly.com/ Kord Campbell

    Technically that’s an arc tangent plot! Maybe you have to think different to achieve freedom! ;)

    Great post dude.
    .-= Kord Campbell’s latest blog post: Three for the Win =-.

    • http://blog.asmartbear.com Jason

      You get extra credit for the Wolfram Alpha reference. :-)

      And you’re correct! I generated the curve by plotting arctan() in Excel and stripping out all the usual chart stuff.

  • MikeB

    Nice explanation of your thoughts and motives.
    I really liked the “Freedom Line”, it reminds me
    of something that I tell myself from time to time.
    “I want to make it so attractive that you can’t say no,
    otherwise you can say no, can’t you?”

  • http://www.redcort.com/timeclock Keith DeLong

    Jason, I read your post last week and had to sit on it before responding. I found your defense against ‘selling out’ interesting because it would have never occurred to me to think of selling your company as a sell out. Perhaps (as you mention) that’s because I started and run a company too.

    As I’ve pondered your post I think you’re simply explaining that your business is just a part of who you are and what you’re pursuing in this life. Said another way, I wonder if it’s not so much wanting to be king vs rich as the question is if your business shapes you or defines you. I could never sell my software company if it defined me. If it is merely (but oh so significantly) shapes me, then a sale is weighed against the other parts of life where I aspire success. So it seems that the opportunity to secure your financial future to invest in your marriage and family is a good and proper decision. It takes courage to let something go that has shaped us. I think it shows balance and maturity too. Congrats and best wishes.

    • http://blog.asmartbear.com Jason

      Thanks Keith, I think your analysis is spot-on. Great insights.

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  • Chris

    Why sell a company is a great question, but my question is *how* does one sell a company? Do you get introductions from VCs to investors? Did someone seek out your business after hearing about it? Any help is appreciated.

    • http://blog.asmartbear.com Jason

      It depends on whether you were first approached or whether you’re running out to sell it. Very different tactics once you have an LOI or term sheet.

      This is really too long of a discussion for a comment; I’ll try to write about it in future.

      Short version: The way to get a good valuation is to “be bought, not sold,” meaning you don’t need to get bought and probably aren’t even looking to get bought. Profits + Growth = good valuation, no matter what the company or economy.

      To answer your direct question: (1) no introductions needed — once you’re as big as Smart Bear you get calls all the time from VCs and investors, (2) Yes they sought me out.

      • Chris

        Hey, thanks for the quick response. One issue is that this site has grown outside of the usual angel/VC startup channels. It’s an inspiration for bootstrappers. It’s loved by it’s customers, but unknown to the usual startup crowd. Maybe a bit of PR in those circles could get some calls going.

        And I would LOVE to read a post from you on how the selling process happened for you and your insights for the rest of us.

        • http://blog.asmartbear.com Jason

          Maybe, but that depends on who you’re expecting the buyer to be.

          If it’s a late-stage VC or holding company, you don’t need PR, you just need to make some phone calls, or possibly hire an investment banker (although most of those guys are rip-offs).

          If you expect to be bought by a competitor, consult with someone who’s done that before. There’s always a way to approach them, usually through a 3rd party.

          If you expect to be bought by a larger company who isn’t a competitor but wants to enter the space, the best way to start is a partnership where someone is cross-selling the other’s customers, so both can see that the combination company would be profitable.

          And if you expect my scenario to happen, take out ads everywhere. That’s where they saw me — our product ad in Dr. Dobbs.

  • http://prosperityextreme.com/index.php/turningpoint/ Brad West

    I see nothing wrong with doing what you see as the right thing to do. I do understand having your feelings hurt, being in question of your move, or second guessing your moves. But if you had a reason to respond with to satisfy them and reinforcing to yourself that you were making the right move.

    More freedom to me is the best reason in the world to make any kind of move.
    Great post I think you helped me look at another facet in life as it rolls along.
    Brad West ~ onomoney
    .-= Brad West’s latest blog post: 5 Points to a Successful Mind =-.

  • http://qapacity.com Ina

    As a note, I don’t think you need to explain anything.

    But since you did, I must say that this kind of trasparency and honesty is surprising. I think lots of people think about this exactly the same way, yet no one goes out and says it. With a graph :)

    So thumbs up.

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  • http://www.dancingbison.com Vasudev Ram

    Great story, and I think, good decision. I like the example of the 10 vs 20 dollars and then the higher amounts – really brings it out. People forget that probability (in the mathematical sense) is just that – something more or less probable – not at all certain (unless the probability value is 1 :).

    - Vasudev

  • http://schlingel.soup.io Martin

    You selled your company because of monetary reasons and you didn’t think a minute about something else. Hey, basically you just admitted that you’re a sell-out.

    So if somebody is disappointed because you left your baby behind just out of life style reasons, they are right. If you’re happy with your decision, you’re right too.

  • http://www.victusspiritus.com Mark Essel

    Epic decision theory, enjoyed the rational and can relate to the why. You can always take another shot at business or hop on the other side of the table with angel investing.

    I’m blinded by searching for long term value at the moment, revenue and acqusitions aren’t in my light cone… yet.

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  • A Nony Mouse

    I worked at a small company where the owner turned down about 3 million for the company, with a product that was rapidly slipping into obsolescence and follow on that was progressing very slowly.

    Fast forward three years. Now the old product is almost dead, and the new one hasn’t made too much progress. He ends up selling for about 500K.

    This was around 2001 to 2004. So the general economy had improved vastly while this was all going on.

    So I think you made the right choice.

  • http://gregkilwein.com/ Greg Kilwein

    One point I didn’t think I saw mentioned in the comments regarding valuation: a fair valuation should consider the value of future company cash flows discounted to the present. If the valuation does take this into account, then selling now versus one year from now would provide little additional benefit other than risk unless the rate of growth predicted in the valuation turns out to be significantly skewed.

    I work for a 100% employee owned S-corp company, and every year the company is valued by a third party appraiser to determine the stock price. This appraiser takes into account the present value of future cash flows and predicts a certain rate of growth based on past history and management’s expectations.
    .-= Greg Kilwein’s latest blog post: Fine Print and What Makes A Good Programmer — or Attention To Detail =-.

    • http://blog.asmartbear.com Jason

      Good point. Of course it’s difficult to know how to compute the discount rate with companies generally, and with this economy. There’s the discount rate the SELLER thinks and the one the BUYER wants, and rarely are they similar…

      • http://gregkilwein.com/ Greg Kilwein

        Also a very good point. The discount rate has changed over time for the better for my company as our growth rate has been fairly steady. But of course, any buyer will be saying, the growth is at risk in this economy and so the discount rate needs to change in the buyer’s favor.
        .-= Greg Kilwein’s latest blog post: Fine Print and What Makes A Good Programmer — or Attention To Detail =-.

  • http://www.jennyweber.com Jennifer

    I don’t know from line-crossing of that kind and likely never will — more’s the pity — but I refuse to accept people’s “disappointment” in me.

    I simply resist it. I answer for me; they answer for themselves. End of story. It’s the only way to roll.

    Fantastic post. I learned a lot. Thanks.
    .-= Jennifer’s latest blog post: A Very Dixie Thanksgiving =-.

    • http://blog.asmartbear.com Jason

      You’re right of course, but I don’t have quite the fortitude you have. Envy!

  • http://www.petermichaud.com Pete Michaud

    There are actually two ways to achieve the “never work again” goal: One is your line. The other is diversified streams of passive income.

    I had been fighting to get to that magic line for years with no luck. I went with option two to achieve “never have to work again,” and do you know the really ironic thing, after all those years of banging my head against the wall? Going with option two is pushing me straight for the right side of that line anyway. Short of Mad Max hitting the Thunderdome and Kevin Kosner growing gills, I’m golden.
    .-= Pete Michaud’s latest blog post: Incoherence =-.

  • Jason

    Landed on this website by mistake but am intrigued and in similar situation.

    Corp life to current Entrepreneur looking to sell down the line (waaay down). To put a little perspective and maybe play some Devil’s Advocate, in these situations, aren’t there always 2 winners and 1 loser?

    2 winners = you who cashed out and moved to right of graph, and private equity firm or broker who handled the transaction (assuming it was large enough to need one) and collected their fees.

    1 loser = buyer who placed just a tad too much premium (noted by you moving to the ‘right’ of the graph).

    Understood that SmartBear is still profitable to the new owners but the new owners would need to invest further (whether marketing, tech, talent) to make up for the premium paid in acquisition which would take a couple of years to make up for said premium.

    By that point, you may have already finished nurturing your next company to spitshine and sell, and the private equity boys have done several deals in the interim, which leads to an overall thesis that the King (in this case buyer, assuming he holds) is always the sucker.

    In Hollywood (based on true events) terms, Barbarians at the Gate, the movie comes to mind.

    (There actually is a second group of losers, and that’s the fired employees of the company who are still on the left side of graph. But I left them out as there are caveats, ie early Google stock-comped employees who landed on the right side, etc.)

    • http://blog.asmartbear.com Jason

      Thanks very much for the counter-arguments! I love a debate. However, I need to argue with your points. :-)

      Your statement that “there are always 2 winners and 1 loser” cannot possibly be true, otherwise it would be irrational for anyone to buy a company. Your statement that the buyer necessarily paid “too much premium” is not true.

      You’re right that lawyers and go-betweens always win because they get paid a fee. But that’s like saying accountants and graphics design consultants always “win.” They’re not involved really, they’re contractors. So let’s ignore them.

      Sometimes the sellers win, sometimes they don’t. What if the company explodes in popularity after the sale? What if the company is flipped again in 12 months for 5x the price, proving that the sellers sold short? What if the sellers took some cash instead of lots of public stock, and then that stock soared?

      What if the sellers took stock in the other company, and then that company failed? Then the sellers lose everything.

      Buyers are in an analogous position in that in time they can win, lose, or draw. Perhaps the company wasn’t as valuable as they thought. Perhaps Google comes out with a free competitor and suddenly it’s impossible to make sales. Or perhaps they have great insight or luck and the company is massively successful.

      Also your statement that the new owners “would need to invest further.” Because Smart Bear is growing and profitable, they invested $0 of additional capital. Instead they just directed how we spent our profits.

      Your statement that they have to “make up for the premium paid” is also wrong. What premium? They already take into account things like the time-value of money, odds that the company can continue to grow, and their ability to monetize the company later.

      Of course it’s a gamble for them! But that doesn’t mean it’s a premium, because although there’s a chance it’s a loser, there’s also a chance for a big winner. That’s not a premium, that’s a calculated risk.

      It’s also incorrect to say that because I could start another company that this puts me “ahead” in the money game, because another company represents yet more risk. You say by then some new company is ready to sell, but it’s more likely that I’ve put 100′s of 1000′s of dollars into it and it’s a failure. Then am I “ahead?”

      No, any new deal is a new deal with new risks and rewards. If you just mean that I have time to work on a new thing, that’s just opportunity cost and it’s built into the sale of the company already.

      Now I agree that those who are fired without due compensation are big-time losers, however it’s simply the responsibility of the seller to make continued employment a condition of the sale. If the seller isn’t willing to do that, it’s the seller’s fault for not protecting his employees.

      In Smart Bear’s case no one was fired. In fact, two years later still no one has been fired. So I agree with this idea but it’s clearly possible to avoid it.

      Thanks again for this good rebuttal! These kinds of discussions are what make the arguments stronger for both sides! Cheers and I look forward to more arguments about this and other topics.

      • Joseph

        This is a great blog and series of comments. Jason (author), your responses evince a well-developed understanding that was no doubt instrumental to your success. To followup on this comment, the original poster alludes to what academic economists (like myself) refer to as the “winner’s curse.” While auctions can produce such results, they often do not.

        Beyond the lifestyle utilities of your sale, the transaction also represents a valid risk management proposition. Much like buying insurance, the sale of the company represents a risk transfer mechanism in which you exchange a potentially higher outcome (high mean, high variance) for stability (low variance). The owners of the purchasing company can certainly win as well you if they are in a better position (for personal or financial reasons) to tolerate that risk.

        Your anecdote about framing a risk proposition with different values ($10 & $20 vs. larger amounts) is valuable. Often, people see money as directly proportional to utility. A more appropriate view is that money is highly correlated with utility, but this correlation is heteroskedastic and context-specific.

        Thanks for the great read. People like you who share this sort of closely-held information facilitate economic growth.

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  • Bob

    The calculus that drives fee-setting in most creative endeavors is simple:

    greed minus fear equals fee.

    I keep looking for a better Occam’s razor than “Hollywood” but have found none yet. Clint Eastwood still makes movies at a year shy of 80. I don’t see him hanging up his director’s shoes yet. Why should you? He just chooses his projects carefully. So should everyone.

    Just start your next effort when it is clearly there.

    Or, to quote my fellow drinkers with a running problem in the Hash House Harriers, “…ON, ON…..!”

  • http://akosmos.com Jeffrey Luke

    You are not a sell-out. You chose freedom. No one can ever be slighted for that.

  • Manny

    I’ll take no answer as to whether you solicited other buyers as a resounding no. Wow! You didn’t consider other any other buyers at all? I don’t understand. Without any context your reasoning here sounds very deliberate and analytical, but considering this it’s reduced to your own machinations for jumping at at the first buyer to come along. Out of curiousity, what was your rationale in that? Surely this wasn’t your plan all along. Did the buyer have an open offer where you and they negotiated the amount, or did they just have their own number that (for whatever reasons) you found too attractive to resist? If the latter, you do realize this is a common (and often successful) MO, right?

    Given this, in retrospect, can you articulate a strategy for the rest of us if we were to end up in the same position?

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  • http://bizbrain.tumblr.com Elmer

    I have a very contrarian view about personal wealth. I would propose it is usually the opposite of the pop ideas and as expected. I work with very wealth people and some celebrities and mainly I see them severely confined by their wealth. Not good or bad, just remorselessly confining.

    This is a much longer topic but a few ideas:
    - Time is real wealth, money uses up time in most cases or can falsely capture time, stuff we can buy with money REALLY takes up time!
    - Freedom to do exactly what we want leads to no more or less “good” results than chance
    - Most behavior is unconsciously triggered, so I find usually the best things sort of come on by accident and are often things that are uncomfortable

    I usually get bored just, or even mainly, doing stuff I want to do or am “passionate” about. BORING! I’m an apostate on the whole “passion” craze. Our client’s don’t want anything to do with our passions, they want hard-nosed expertise and skill.

    I know a lot of really skilled folks who aren’t very passionate about what they really do best. It’s too easy for ‘em.

    As for my wife and kids, they do a real good job of taking care of themselves. Imagine that!?
    .-= Elmer’s latest blog post: Compounding Bad Mistakes for Good Reasons – Going Along to Get Along =-.

    • http://blog.asmartbear.com Jason

      Wow, terrific insights. Thanks for writing this.

      I like that you brought up that money doesn’t necessarily fix anything important, i.e. make you happy. People don’t say that much because everyone else just thinks “Yeah yeah, stop your complaining.”

      Or as I say: “I just want a chance to prove that money won’t make me happy!”

      I especially like your point that “time” is more valuable than anything. I see what you mean about money eating it, but if used correctly it can create it, in the sense that it can eliminate things that occupy time. This is essentially Tim Ferris’s argument.

  • asdf

    “which will make the company six times more valuable (assuming 3x revenue valuation, a reasonable ballpark for a growing software company).”

    This is a minor point, but wouldn’t the company be twice as valuable, not six times?

    If your revenue was 1 mil, then the company is worth 3 mil, then a year later the revenue is 2 mil, then the company is worth 6 mil, right?

    Also, I disagree with your interpenetration of the non-linearity of the value of money. I think it is simply the law of diminishing returns, each extra dollar has a smaller and smaller effect. If you have 10 times as much money and just use it to buy a luxury house, car and clothes, then you have ripped yourself off. For example if one pair of pants costs $20 and you buy the pair that costs $200, you are spending 10 times as much, but only getting maybe 1.2 times as much value out of the clothes, because either way its basically the same, and your skin can barley tell the difference in thread count.

  • asdf

    I decided to post a couple things I have been thinking about which are somewhat related to your post:

    I realized that when you think about it, life is easy, and all this “get rich or die trying” mentality is bogus and self destructive. If your only view of the world was watching TV you would think that we lived in a cruel harsh world were 75% of people die before they reach age 20, because all you see on TV is people constantly struggling.

    But I believe that this “get rich or die trying” menality is a holdover from our animal ancestors. For animals, “get rich or die trying” is really true, either a given animal becomes the alpha male, and gets to impregnate all the females, and pass on his genes, or he gets nothing. So basically everyone alive was decended from an apha male, and alpha males have it programmed into their DNA to be aggressive, because for them, it was either make it to the top of the heirarchy, or not pass on your genes. During Roman times when 3/4 people died before age 20, it may have been the case that either you made your way to the top through aggressiveness, or you died, and you lost the game of life, but in the western world, this is not the case.

    In reality, if you live in a western country, winning the game of life is very easy, this is empirically demonstrated by the fact that almost everyone does it. Most people die of old age or health related reasons of one sort or another.

    This led me to come up with the idea of “winning” at life. Basically, the difference between your life being shit, and having bills piling up, and problems that are coming from all over the place, and having basically no real problems, comes down to about $1000 a month. All you need is about a $1000 a month and if you are single, you can live the rest of your life like that and never have to worry about food shelter, and be as lazy as you want in your free time.

    I organized winning into a level system:
    Level 1: having a steady amount of money coming in so that you survive with pretty good probability. (This game is very easy, almost everyone wins it, as proven by the fact that the lifespan is limited primlary by health, and not by starvation.)
    Level 2: same as level 1, except never having to work again, or only having to do minor work (about 5 hours a week). (This isnt that bad, it only means you have to make $40 an hour to reach $1000 a month, and you are basically retired, the rest of your time is free time.)
    Level 3: same as level 2, except with increased comfort, there are many kinds of comfort, such as basic creature comforts, (better air conditioning, better food, better house) entertainment (video games or travel), financial comfort (knowing you have savings (which can extend up to millions or billions of dollars))
    Level 4: you are cryogenically preserved using future technology which ensures you will not age until your safety can be completely ensured, using future technologies, also your bankroll will expand dramatically while the interest balloons exponentially over decades or centuries.

    Janitors and similar laborers can have an IQ of 80 and manage to win the game of life by making $1200 a month or so. If this is the case you would think that for someone with an IQ of 120+, they should be able to achieve the same income as the 80 IQ janitor, except with only a few hours of work, and therefore basically be retired, even though they are not rich. However this is slightly skewed because there are far more janitors employed then need to be, because of overtime laws and working condition laws, and minimum wage. If these 80 IQ people were paid what they should be paid from pure capitalism, the majority would be unemployed because the ones who were employed would be forced to work 4 times as hard and twice as long, thereby accomplishing the same amount of work, even though they are far less people.

    This means that actually making $1000 a month in a competitive environment rather than a welfare supported situation as most janitors do, is harder than you would think, but it is still not that hard even then.

    • http://blog.asmartbear.com Jason

      Thanks for your considered comments — you bring a fresh and useful perspective into the picture.

      I agree completely that “money will make you happy” isn’t true for many (most?) people. Same with “money should be your goal.” Of course nothing in this article says the contrary; indeed I specific make the point that many entrepreneurs want to create a business that’s big enough to sustain them in the lifestyle they like, and no more, and that I think that’s great.

      I disagree with you that “$1000/mo is good enough for everyone.” It’s enough for your minimalist needs, and that’s awesome, but how can you speak for everyone else?

      Furthermore, I don’t think you’ve accounted for the real expenses that life brings. For example, in your budget there’s no space for health care, especially if you have a severe disease. As another example, having children is not in your equation, nor is financially supporting a partner who is taking care of the children.

      Of course I’m not saying this is invalid for you, but clearly it cannot be valid for everyone, or quickly we wouldn’t be dying of old age as you put it, nor would we be procreating.

      But your larger point is great, which is that we often chase after goals which really won’t make us happy, and what’s the point in that? After achieving a base level of money, shelter, clothing, food, etc., it’s not necessarily true that what we need next is more money.

      Still, for some people, yes it is. Some people love books, some love cars, some love big families, and yes, some love money. How can you say any of it is invalid for any given person?

      • asdf

        Sorry if that post was kind of incoherent, I didn’t want to spend too much time typing it so I didn’t write it very clearly.

        I guess what I am saying is that having that basic level of income and lots of free time is key. Once you achieve this (Level 2) everything else is a game, rather than a matter of necessity. Then you can relax and take your time and treat your goals as a game and experiment, rather than feeling like you are in a do or die situation and everything seeming impossible.

        I am saying that people should stop putting stress on themselves by convincing themselves that being rich is necessary for survival, and realize that becoming rich is a game. You can survive and live nicely with very little money, people should realize that a large reason that they want to be rich is so they can satisfy their human desire to have more then other people. Because, just like if they were playing a game, everyone wants to be at the top of the scoreboard. But then they confuse themselves into thinking that becoming rich is a matter of life or death.

        And I have heard several billionaires say that they view money “as a scoreboard” or as a “game”. Point being, that lots of people are stressing themselves out, and killing themselves over a game, over not wanting to be at the bottom of the social heirachy (not money necessary for survival, but becoming rich). They don’t realize that their animal instincts telling them they need to be at the very top of the social heiracy are outdated, and that they are taking unnecessary risks, because in the western world, pretty much anyone can survive. Of course, ignoring your animal instincts is a difficult thing.

        Anyways, my point is that becoming rich should be approached as a game, and that people should analyze if their reasons for becoming rich are actually just their animal instincts telling them to get to the top of the social heirachy.

  • http://www.caseyschorr.com Casey Schorr

    Excellent article, even better comments. One of the best blog posts I’ve read in a long time. Like you, I’ve bootstrapped and we’re just becoming profitable. This gave me a new perspective on selling my company, should the opportunity present itself someday down the road. Thanks for your wonderful writing and insights.

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  • AnonoScott

    I stumbled across the article “Why I feel like a fraud” and clicked over to this one. These articles gave me a lot of things to think about and a little hope for myself.

    I took a life route of marriage and buying a decent house (for our area ~$100k) out of high school. College is still a part-time aspect that I’m working on to this day. My job didn’t pay great but it gave us a sagging middle class life style and I handled the money earned fairly well with definite mistakes over the years.

    Now that I’ve hit 30, forced to change jobs that, and use up a lot of savings to get by in this crazy economic era – life is getting awfully closer to the economic floor for my family. Even though we’re in one of the most affordable areas of the country. I’m thankful I have the full love and emotional support from my family but I feel like I’m letting everyone down.

    I’m not an entrepreneur but I’ve had what I thought were great ideas in the past with not quite enough seed money for the start-up aspect to make them realized. I feel like I’m probably going to be one of those guys working until he reaches 80 years old just to make ends meet.

    I have no idea why I’m choosing to share this here and now. I just want to say thanks for being here and posting these informative thoughts as it gives me a little dab of hope for myself.

    • http://blog.asmartbear.com Jason

      I admire you for opening up to everyone. It’s hard to write things like that, but hopefully cathartic.

      As you probably know, having a good idea by itself isn’t enough. But what a good idea and indomitable spirit can sometimes yield is external seed money, which might be your ticket out.

      It sounds like the usual advice won’t work for you. One is to “save until you can leave work,” but with a family etc. that’s not possible. Another is “Do a startup on the side” but with a family and a job there’s no time.

      One that might work for you is to try consulting work. You can typically charge 2x – 3x the going salary rate, so the idea is that you have time to also pursue an idea, and/or build up some savings.

      But in the end, if the idea is really good raising money might be the best option. Sure you give up some or all control of the company, but if you’re chasing your own idea than who cares — it’s better than a regular job right?

  • Stephan

    Hi Jason,

    thanks a lot for this post!

    First of all, as entrepreneur you should act as one and selling out the company should always be seen as one of the possible choices you have to take into account. As history shows today you made the right decision at the right moment. I know company owners which kept to their company so long that they doomed their whole family with their crash.

    Second, the personality of an entrepreneur has to include that he is able to identify real opportunities and take them and this cannot be restricted to his company business life. In my eyes this has to be in your character or otherwise you should think about what you are doing.

    And third, if your friends are dissapointed about you taking the right decisions I would ask myself how good do they really know me and how deep their friendship really is.

    For myself, I look up to people how are able to make the right decisions because that is in the end what its all about.

  • http://officialbuziness.com/ Sparagi

    Non-attachment is a good thing. In my opinion, you start the business and you sell it. Hopefully, you had fun in between.
    .-= Sparagi’s latest blog post: Can you learn business in school? =-.

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