Transcription
One of the coolest things that's happened since I sold my startup is it's really leveled up the rooms that I now get access to. I find myself regularly hanging out with people worth hundreds of millions, if not billions of dollars. And I just got back from breakfast with one of those people. He's had three successful exits and his companies have done well over $und00 million. And I had three big takeaways that I thought don't just deserve to stay between me and my friend. So, I want to share them with you.
See, there's a lot of conflicting advice about ideas. Are ideas valuable or are they worthless? Is it really all about the execution? Well, during breakfast, we talked a lot about ideas. And let me share my biggest insight around ideas and how to come up with them for your own business. So, the first insight is that ideas actually are super valuable, especially in this modern age now that we're getting into where AI is making building apps and building companies very quick and easy. The thing that people are lacking and actually relying too much on AI for is ideas. And so as this pattern just plays out over time, the ideas and insights, especially about problems and large markets that you can actually solve problems in, those will become actually the most valuable IP. The products that you build to solve them, become less of your IP because AI just makes it so easy to build products. And so he's actually very secretive about ideas to the point where in the early stages, he didn't even let the spouses of employees come into the office cuz he didn't want them to see everything that was going on. Now, I don't take it that far, but I do believe that ideas are increasingly important as AI becomes more prevalent, which brings me to my second insight, which is how to find ideas. Him and I both agree on this. When it comes to ideas, don't reinvent the wheel. Take existing ideas and make them better. In fact, he confessed to me his biggest exit was actually an idea that he saw on Shark Tank. He saw it and he thought, hm, great idea, but so so execution. And so, he took it and built a much better business that he went on to sell very successfully. And so if you're building right now or you're thinking about building, recognize that ideas, insights about products and markets are valuable and maybe be cautious about who you share it with because it's going to become easier to build.
Now, my second big takeaway was really about when to sell a business. We talked a lot about exits and timing. How do you know when it's the right time to sell? What if you sell too early? What if you leave money on the table? And it turns out this decision of when to sell is one of the most important decisions you will make as a founder because there's this narrative that you can always keep playing for a bigger prize. And so even for me, I sold my company for 110 million. I have friends that have been like, "Oh, but if you just stayed at it for a couple years, it could have sold for 250 or maybe a billion." And there's this always temptation to keep playing for a bigger and bigger prize when you have the opportunity to take money off the table. So what do you do? Well, here's what he said. And I actually agree with this because I've had a number of wealthy friends say this to me. Best time to sell a business is not when you get to a specific dollar figure, but it's when you're playing the momentum game. when the business is trending up and to the right in the positive direction. And at that point, acquirers are actually likely not to give you a valuation based on what the business is worth today, but what actually can happen is they will say, "Listen, the momentum is so good, we're going to pay for the business as if it has perfect execution for the next three years." And so, they're kind of freeing you to not run the business for three years and giving you a much higher valuation. And I've had numerous friends that have done this and they all agree it is way better to take the money off the table when you're getting these sort of momentum premiums than to bet on yourself and say, "No, I think we can execute perfectly and beat that figure." And so my advice to you as a founder is when there is life-changing money on the table, it's wise to take it, especially during those momentum moments because it actually goes to my point three, which is how to build real wealth.
See, as I mentioned in the beginning, my friend has done more than $100 million in his businesses, but actually his exits are a little bit smaller than mine. We didn't discuss exact specifics, but I don't think he's ever sold a company for $110 million or more. And yet, his net worth is way bigger than mine that I'm quite sure of. And the reason for that is actually just the way that he plays the game holistically. He's not looking at how do I get the highest valuation? How do I get the biggest exit so that I can end up on the cover of Forbes? He plays the game differently. He's looking at what is the highest probability of reaching life-changing money that can compound over time. And so his very defined strategy when he builds businesses is to build a business, get it to scale, and exit what some would call relatively early, maybe for tens of millions of dollars. because he knows that if you can get that exit quickly, it gives you time to invest in the markets like the S&P 500. And the S&P 500 roughly doubles every 7 years. And yes, you could try to tough it out, try to double your business revenue over those seven years, or you can sell, put that money into the market and then use the next 7 years to do it again. And by getting this sort of cycle going where you get a business to critical mass, exit, let the markets compound and double it while you simultaneously build another business that you can sell and keep piling onto your critical mass. That is how you build real wealth. This is not the first wealthy friend that I've seen do this pattern. And so I could be an idiot, but I'm smart enough to recognize, hey, there's something going on here that a lot of my very wealthy friends have done. And I think it's something you should consider, too. And so as you're playing this game of entrepreneurship, just recognize that there's two ways to play the game. Yes, you can swing for the fences and try to hit the big home run, but you can also hit a double or a triple. Use that to compound and work on your next thing. And actually that game of playing for doubles and triples often actually also builds a larger nest egg overall than the swinging for the fences every time.
Now, if you like insights like these, I also just did a video on a week I spent with Richard Branson and all the takeaways I had from hanging out with him. I'll put a link over here.