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

Smart Bear M&A story for founders: http://bit.ly/48Bthw

1 month ago by runako on Twitter

I agree Jason

1 month, 2 weeks ago by Anonymous on Wordpress

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 They don't realize that their animal instincts telling them they need to be at the very top of the social heiracy are outdated, and that they are taking unnecessary risks, because in the western world, pretty much anyone can survive.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. ... See all content Hide content

2 months ago by asdf on Wordpress

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. ... See all content Hide content

2 months ago by asdf on Wordpress

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. ... See all content Hide content

2 months, 1 week ago by Jason on Wordpress

[...] review software and subsequently sold the business to AutomatedQA.  In his article Rich vs. King in the Real World: Why I sold my company, he talks candidly about his decision to sell his company and in particular about the non-linear [...]

2 months, 1 week ago by What kind of founder do you want to be? on Wordpress

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

2 months, 2 weeks ago by Jeffrey Luke on Wordpress

Great Article on Motivation to Sell or Hold Onto your Business http://ow.ly/ONoa - you want money or glory?

2 months, 3 weeks ago by KenBurgin on Twitter

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.....!" ... See all content Hide content

2 months, 4 weeks ago by Bob on Wordpress

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. ... See all content Hide content

3 months ago by Jason on Wordpress

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 ... See all content Hide content

3 months, 1 week ago by Pete Michaud on Wordpress

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

3 months, 2 weeks ago by Jason on Wordpress

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

3 months, 2 weeks ago by Jennifer on Wordpress

Great read: http://bit.ly/1TGsNa

4 months ago by heyclement on Twitter

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.

4 months, 1 week ago by Martin on Wordpress

[...] is whether you want to keep a lifestyle business or attempt to cross the chasm and maybe even get rich. (Cartoon by Andertoons) Assuming you’re really in the market for another pair of hands to [...]

4 months, 2 weeks ago by Hiring Employee #1 « Austin Entrepreneur Network on Wordpress

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.

4 months, 2 weeks ago by Ina on Wordpress

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. ... See all content Hide content

4 months, 3 weeks ago by Jason on Wordpress

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.

4 months, 3 weeks ago by Chris on Wordpress

ath의 알림...

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

4 months, 3 weeks ago by rath's me2DAY on Wordpress

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

4 months, 3 weeks ago by Jason on Wordpress

@travelfish Did you see this? http://bit.ly/Uh7Wq

4 months, 3 weeks ago by myeggnoodles on Twitter

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?"

4 months, 3 weeks ago by MikeB on Wordpress

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

4 months, 3 weeks ago by Kord Campbell on Wordpress

[...] Here’s a discussion about “Rich v. King,” which should follow as advice related to why you ought to sell your business if you’re offered a decent sum. [...]

4 months, 4 weeks ago by Benjamin A. Shelton | Blog » Blog Archive » Links of the Week: October 21st on Wordpress

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.

4 months, 4 weeks ago by shan_dark on Wordpress

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. :-) )

4 months, 4 weeks ago by Jason on Wordpress

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 ... See all content Hide content

4 months, 4 weeks ago by Frank Paolino on Wordpress

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 ... See all content Hide content

4 months, 4 weeks ago by Reg on Wordpress

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. ... See all content Hide content

4 months, 4 weeks ago by Craig Masters on Wordpress

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! ... See all content Hide content

4 months, 4 weeks ago by Lori Denny on Wordpress

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!

4 months, 4 weeks ago by Jason on Wordpress

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.

5 months ago by Nancy Hinchliff on Wordpress

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).Is there not a basic math error here?

My math: valuation a year from now == 3 times revenue a year from now == 3 times (2 times revenue today) == 2 times (3 times revenue today) == 2 times valuation today. ... See all content Hide content

5 months ago by sielskr on Hackernews

[...] Read it. 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? [...]

5 months ago by DYSPEPSIA GENERATION » Blog Archive » Twitter this post Rich vs. King in the Real World: Why I sold my company on Wordpress

Rich vs. King in the Real World: Why I sold my company - http://blog.asmartbear.com/rich-vs...

5 months ago by Fajar Nurdiansyah on Friendfeed

His chart has log scale on the x axis. I suspect it would be in fact close to linear if we stretched the axis.

5 months ago by lkozma on Hackernews

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.

5 months ago by Robben Salter on Wordpress

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.

5 months ago by Jason on Wordpress

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...) ... See all content Hide content

5 months ago by Jason on Wordpress

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

5 months ago by John Lipinski on Wordpress

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. ... See all content Hide content

5 months ago by Marc Gayle on Wordpress

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! ... See all content Hide content

5 months ago by So True on Wordpress

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.... ... See all content Hide content

5 months ago by Jason on Wordpress

@marklittlewood I remember, first time we met, you asked me "Rich or King?" - http://bit.ly/1dLGQQ

5 months ago by covert on Twitter

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.

5 months ago by Michael Pryor on Wordpress

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.

5 months ago by cak on Wordpress

"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." ... See all content Hide content

5 months ago by Thomas Brox Røst on Friendfeed

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! ... See all content Hide content

5 months ago by Your Mom on Wordpress

Mint sale controversy is people playing two entirely different games: http://bit.ly/2XTsxghttp://bit.ly/48Bthw

5 months ago by tottinge on Twitter

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)

5 months ago by Stray__Cat on Wordpress

I agree, but I don't have to like it.

5 months ago by Alex Scoble on Friendfeed

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.

5 months ago by Jason on Wordpress