THE CASE AGAINST SELLING OUT
Entrepreneurs should think twice before cashing out. Sticking with it is often better for everyone
George Stephen was not a man who thought small. A shrewd and opportunistic Scottish immigrant, he launched a series of successful steel, wool and dry goods businesses and ran the Bank of Montreal before leading the syndicate of businessmen that formed the Canadian Pacific Railway Corp. Even if his personal interest in nation-building didn’t go far beyond its ability to benefit his bank account, he never wavered in his commitment to seeing a transcontinental transportation artery to completion. He was the kind of guy for whom the descriptor “captain of industry” seems to have been invented.
If Stephen had been running a business today, odds are good he’d have sold to a U.S. hedge fund lured north by the cheap loonie, leaving behind a halffinished construction job stalled somewhere in the Manitoba muskeg. Grandiose ambitions have fallen out of fashion, replaced by a desire to get in, get paid and get out. Last year, PwC surveyed the CEOs of growing tech firms in Canada, and found that few are in it for the long haul: 63% intend to sell their company. The vast majority have no plans to be part of their businesses in five years. For entrepreneurs burned out by the slog of growing a business in a tepid economy, the temptation to take the money and run must be enormous.
But selling early isn’t the only option. In most cases, it’s not even the best option—not for founders, not for investors and not for our national economy (especially since many earlystage Canadian companies benefit from generous government i ncent ives issued w it h t he assumption that they’ll stick around). Which is why it’s encouraging that many prominent voices in the entrepreneurial community are taking an aggressive stance against early exits.
Take Tony Lacavera. The erstwhile Wind Mobile head has just launched a $100 million VC fund dedicated solely to helping Canadian companies bridge the awkward adolescence between the startup and established phases— all because he’s tired of seeing great homegrown enterprises slip away under foreign ownership. Or John Ruffolo of OMERS Ventures, who, in a recent op-ed, bemoaned the tendency of Canadian businesses to sell early or to stag nate after the heady startup days have passed.
Even The Lean Startup guru Eric Ries is thinking long term— so much so that he’s currently launching a new public equities market called the LTSE, or LongTerm Stock Exchange, that rewards companies that stick around. “I believe that most of the problems in the entrepreneurial ecosystem have their origin in the philosophy of short-termism that infects our companies, our investors and our public markets,” he told the crowd at a recent event in Vancouver.
What these people know—and what more Canadians need to understand—is that truly innovative companies tend to create more value as time goes on, as they shed the hype and tumult of the startup phase and gain the customers, experiences and processes needed to become global businesses. And they’re especially successful when founders lead the way: Studies show that founder-run firms tend to outperform others by a considerable margin over the long term. Look at some of Canada’s entrepreneurial darlings: Hootsuite, Shopify, Vision Critical, D2L. All made it through the startup phase without succumbing to the instinct to sell, and all are doing their most innovative—and lucrative—work yet under the guidance of people who’ve been there since Day One.
There is another way. That’s to follow the lead of Vancouver’s Nurse Next Door—a successful franchisor specializing in inhome care. The company not only rejected a recent acquisition bid from a giant U.S. hospital conglomerate, it flipped the offer by selling the would-be buyer 26 new franchises instead. In so doing, a thriving Canadian company retains its ownership and sets itself up for even greater growth in new markets. It’s the kind of long-term thinking guys like Stephen used to enrich our economy 130-odd years ago, and that smart leaders would do well to emulate today.
For plenty of entrepreneurs, the temptation to take the money and run is enormous. But selling your company isn’t the only option–or even the best one