I have a friend who sold his website for $2.8 million some years ago. He offered to share what transpired, what he would have done differently, and why he wished he would have held on. The numbers and timing have been slightly modified to protect his privacy as well as his non-disclosure cause.
In 2003 I started a website for $1,000 and in 2010 I sold it for $2.8 million. A 2,800X return is better than practically every single angel investment ever, but I still regret my decision.
At the time, I thought it was the best move I could have ever made. I was 30 years old and like Sam, had just started a family of my own.
By selling the site, I thought I would free up some valuable time to take care of my young boy and it did. But after six months, I wasn’t satisfied with only being a stay at home dad after working so hard on my business for so many years. When our boy turned one, we decided to send him to daycare so I could go back to my old routine of building a business. At 2.5 years old, we decided to send him to preschool. My wife worked a full-time job.
I also thought that by selling the site, I would feel much happier cashing out. In 2010, there was still a tremendous amount of uncertainty in the economy. I thought I was smart for selling because my site survived the downturn while so many other businesses went to zero.
Despite having a nice payout, I wish I never would have sold. Here are the reasons why.
Selling A Business For Millions And Regretting It
1) Felt like I had lost a child. Years before the birth of my son, I birthed my website. Selling the site made me depressed that I no longer had my baby to nurture. For almost seven years, I looked forward to working on my website before work and after work. When I got laid off in 2009, I spent 60 hours a week on the website.
Sometimes I spent way more time on my business than I did on my biological child. But that’s not a surprise because many working parents spend more time at work than raising their children too. I loved my business as much as I could love any child. When I sold the website, I felt like the worst father ever.
Selling something you love for money is a horrible feeling. You will only realize how much you love something until you sell it. If you feel nothing after you sell, then that is how you know you made the right decision.
2) Gave me a sense of purpose. I underestimated how important it was to look forward to having something to do every day. My business allowed me to reach the top of Maslow’s Hierarchy Of Need’s Pyramid. Once I sold, I could not recreate a similar site because I had a non-compete for one year. I could have created a new site in a different genre, but I was only passionate about the genre I was in.
Having no purpose led me to drink heavily and use recreational drugs much more often. I gained about 30 lbs over the next couple of years and constantly felt depressed. My relationship with my wife suffered and I began to resent my son for taking up so much of my time. It was bad for a couple years until I went to get some counseling.
3) Lost a creative outlet. When we were kids, we’d always create something new in school – whether it was paper machete, clay figurines, or drawings, we were always using our minds to create. Once I sold my site, I tried to pick up guitar, but that didn’t last. I should have known because I’ve had my guitar gathering dust next to my bed for the past eight years.
Then I tried painting, but that was too messy. After a couple “works of art,” I gave up. All I wanted to do was write what I had been writing for the past seven years, but couldn’t for the first year.
4) I left so much money on the table. After I sold my site, I looked longingly at other sites in my space that kept on growing. I was envious for other people’s passion and endurance to keep on going. I was also in awe that some were not so easily tempted by money to sell. Make no mistake, selling out is predominantly about the money.
It turns out, selling in 2010 was close to the bottom of the stock market, real estate market, and the economy. What a mistake!
The site had an operating profit of about $600,000 a year. At the time, I thought $2.5 million plus a $300,000 earnout was a good price. But some of the sites that were smaller than mine kept on going to the point where they started making $1 million a year by 2019 and some as early as 2017. Not only that, valuations for websites went up too, along with the valuations of the S&P 500.
Even if my operating profits had been flat at $600,000 a year, if I had just held on for five more years I would have not only made $3,000,000 more in operating profits, I also could have sold my site for closer to $4,200,000 + a $600,000 earn out due to higher valuations.
If I was able to grow my operating profits to $1,000,000 a year like many of my peers, then I would have been able to sell my site for closer to $7,000,000 today versus $2,500,000. I would have also collected all those years of profits as well.
In essence, I left at least $5,000,000, and closer to $11,000,000 on the table if I could have just hung on until now!
Sam has told people in his post on doing retirement all over again, that life is long and to not be overly in a rush to retire early. He is right. Nine years later, I remember the day I signed the sale document like it was yesterday.
5) I wasted my time trying to recreate a successful business. During my year-long non-compete, I started three new businesses in different fields that failed. After my non-compete was over, I tried starting a couple other websites similar to the one I had. They also didn’t gain any traction.
All told, I wasted three years of my life trying to get back what I lost. It infuriates me to know that I could have spent those three years working on the site I sold and made even more money.
6) My baby was finally killed. Four years after my site was purchased, the acquirer redirected my site to land on some other business they owned. Essentially, they killed my site and all the time I had put into it. I was foolish to think my site would live on forever once it was out of my control. Now, all that shows up are crappy articles that haven’t been updated in years.
As you get older, you start thinking about leaving a legacy for your children. Unfortunately, I cannot proudly tell my children this is what dad built because what dad built is gone. Creating a family business would have been a wonderful.
7) I started taking shortcuts that made me feel ashamed. After about six years, I finally started gaining traction with a new site. But I have to admit, I’m not proud of the way I got here.
First of all, I did a lot of scammy link-building to try and game the search engines. Second, I started taking the ideas of many established sites and just copying their articles with my own spin. I even copied the way other established sites wrote their author bios with the same affiliate copy.
No longer was I trying to create something original. I hired a bunch of writers to pump out as much search-engine-friendly content as possible to make as much money as possible.
I also put a lot of advertising dollars behind my content even though I knew they were boring as sh*t because I had figured out a way to make more than my advertising costs. My modus operandi was to copy what was already successful. It felt icky.
8) I became irrelevant in my community. When I had my site, everybody gave me the time of day. Journalists would ask me for a quote. I would be asked to come on podcasts or TV. Other bloggers would say nice things about me or my site. My offline friends would refer to me as a successful entrepreneur to friends.
Once I sold my site, I lost contact with many of my peers who I had thought were my friends. They were outwardly congratulatory about my sale, but behind my back, they stopped caring. I could no longer help promote their work so they stopped giving me any love. The podcast and interview requests stopped as well.
Once you lose what makes you valuable, you can recognize who your true friends are. I’m not one to need constant accolades, but it felt depressing to go from lots of respect and attention to nothing.
I decided to buy myself back into the conversation by sponsoring various activities in the community. I feel better now about getting recognized, but deep down I’m sad to not have more organic friendships in the community.
9) I didn’t fully reinvest my proceeds. I sold my business in 2010 because I was glad my business still had value after the devastating crash. I thought there was a good chance the market would crash again. Sam said he felt the same way in 2012, which is why he put his house on the market.
Given my fears of a double dip recession, after selling, I just held onto my proceeds in cash. It was not until 2016 did I invest about 50% of the proceeds. By then, I had missed out on a very healthy rally that probably cost me more than $500,000 in lost gains. Talk about adding salt in the wound after already missing out on $5,000,000 – $11,000,000 if I had just held onto my site until now.
When you are presented with a windfall, it is much harder to reinvest these proceeds than you think. You are more afraid losing this money versus the money you invest every month from your paycheck.
10) Taxes took so much away. Although I sold my business for $2.5 million (excluding the $300,000 earnout a year later), I only ended up with about $1.75 million after paying federal and state taxes. $1.75 million is still a nice chunk of change, but by selling your business, you are essentially surrendering yourself to the government.
When you are operating a business, you have a lot more flexibility to spend money to reduce your taxable income. You expense your flights and lodging to a conference in Paris. You can even buy an SUV or truck for your business and deduct the cost.
I calculate my average effective tax rate when running my business was closer to 20% versus the 30% I paid when I sold. Over the long term, this 10% effective tax rate difference really adds up.
Don’t Ever Sell Your Profitable Business
Maybe I’m being too hard on myself. Sure, the business could have imploded if I didn’t sell. But if you’re doing things the right way and can clearly see a path to continued growth, there is no way you should ever sell a profitable business.
As Sam says, cash flow positive businesses greatly increase in value during a declining interest rate environment because it takes more capital to generate the same amount of risk-free return.
It’s definitely tempting to sell a business for a lot of money, especially in a really strong economy. But if you think about the biggest businesses in the world, they’ve been around for decades. For example, Coca Cola was founded in 1892. Mars Inc, a $60 billion company that makes M&Ms and pet food, was founded in 1911. The list goes on.
Many of the world’s largest companies have been through multiple down-cycles. But they kept on going and kept on reinventing themselves to make greater fortunes. Downturns are what made these companies stronger with new inventions, new strategies, and new ways of doing things.
When running a business, start thinking about creating a multi-generational business for your children to run. The longer-term you think, the better your business should turn out.