Sinking with the Ship: The Perils of Loving Your Business

Falling in love with your company or asset can be a perilous affair, my friends. We're all trapped in our ways of thinking, and sometimes, it's to our detriment. This deep affection for one's asset can spell doom for its employees, stakeholders, and equity holders. Let's dissect this.

You had a vision, a dream, and you began with nothing. You nurtured it and poured your heart, soul, and creative essence into it. Sacrifices were made along the way, but you persevered.

Against all odds, you built something from the ground up, something that now thrives, whether it's a business, a property, a ship, or some other enterprise.

Then the storm clouds of conflict gathered, and your initial instinct was to hunker down, lock the hatches, and protect your assets at all costs. Why? Because a part of you is intertwined with this entity. Shielding it feels like a noble quest; after all, it's your brainchild. But is this a sound business strategy? Not necessarily, and I witness this mindset daily, even among accomplished business professionals.

Allow me to share an example from Patrick Bet-David's Miami business conference, which I attended and thoroughly enjoyed, called "The Vault." Picture this case study:

A forty-five-year-old guy founded a software company at thirty. He's married with two kids. Fifteen friends invested $25,000 to $50,000 each. By year three, the company generated $100 million in annual revenue with $15 million EBITDA and a 10 percent annual growth rate. A private equity firm expresses interest in investing with the intention of gaining control through board seats and, if comfortable, buying the entire company.

The founder doesn't see the need for new capital, but for further growth, he'd require it. Half of the initial investors want out, and he believes the company's value lies between $150 million and $180 million (10x-12x EBITDA). He hasn't cashed out much personally, owns two suits and his home, and feels stretched due to family commitments, board commitments, and other interests. He feels a touch of business fatigue.

Should he sell, stand still, seek investment, or continue as is?

In group discussions, the prevailing sentiment was that the company was viewed as sacrosanct, a fortress that nothing could harm. The thought of selling was unanimously met with resistance as it was seen as the founder "selling out." Most attendees were infatuated with their businesses, past or future, and seemingly forgot that numerous disruptors lurk in the business world's seas, capable of sinking a company overnight.

Remember Kodak, the film and photography empire? The digital camera arrived, smartphones followed, and boom, game over. Bankruptcy and liquidation ensued. Disruptors are all around, and they are like unpredictable waves in the sea. Consider these examples: legislation and regulations, technological advancements, competition, economic downturns, natural disasters, global events like pandemics, geopolitical conflicts, changes in consumer preferences, cybersecurity threats, cyberattacks, data breaches, security vulnerabilities, environmental and sustainability concerns, or disruptions in the supply chain.

Every business must factor in these variables when calculating its viability all the time. If they see a storm coming, quick thinking and adaptability can save them. But what are they saving?

If they're blindly in love with their company and believe it's immune to all market disruptors, that's double trouble, and they'll likely go down with the ship when faced with a formidable challenge.

Divorcing yourself from excessive affection for your company, asset, or enterprise is crucial. Focus on why you started it in the first place: the enhancement of your life and freedom that comes from making money. Concentrate on securing your financial interests, even if it means parting with your business, a division, or its assets for the sake of maximizing a cash payout, as the business you cherish might not be there tomorrow.

In Patrick's case study, not a single audience member recommended selling the company because they saw it as invulnerable and everlasting. I was astounded. I automatically include potential disruptors in my evaluations because I see businesses and (now formerly) financially successful people crash almost daily. Many in the audience were in love with their businesses, even a case study business, as if they were living beings rather than considering them as a means to an end.

The conflict of litigation is no different from these disruptors. It can be just as destructive to a business, asset, or individual as the list of disruptors mentioned earlier. A total loss can happen swiftly. The initial injury of a lawsuit may seem minor, but if not assessed wisely, it could cost you dearly.

Once you find yourself in or approaching a formal conflict, it's vital to explore the potential costs of this tumultuous moment. No venture or asset is invulnerable or impervious to changes in its value.

Acknowledging that your company, asset, or portfolio is not infallible and is susceptible to risks is the first step. Your agility in making significant decisions, such as divesting from a division or sacrificing beloved assets, may ensure your financial survival through the gauntlet of litigation.