After selling Tatango last year, the number one question I get from business owners still in the trenches is whether they should sell their business, and when. And with everything happening in AI, the question comes more often, and with more angst, after every new AI model release.
The common wisdom has always been that the best time to sell a business, in order to get maximum value, has two conditions:
The business's revenue and profits are up and to the right, and there's nothing inside the business that would stop its ascent.
There's nothing outside the business, like regulation, disruption, or innovation, that would stop its ascent.
Most of the calls I get are from business owners whose businesses are doing well. Revenue and profits are up and to the right. So why the recent angst about when to sell? Two words: Artificial Intelligence (AI).
Over the next few years, I believe AI is going to decimate most businesses in almost every industry. Think of AI as video streaming, and what that technology did to the thousands of movie rental businesses, big and small. It didn't just change the economics of the business. It completely clobbered the entire movie rental industry. Don't believe me? In the year 2000 there were about 28,000 video rental stores in America. Today the number is effectively zero.
And to make matters worse, especially for existing business owners, not one of those 28,000 video rental stores became Netflix. Why? For a business to essentially put itself out of business in order to survive, it means dismantling its own cost structure, headcount, and business model, and most businesses don't have the stomach for that. A new business can build the new version from scratch without any of that baggage.
If you want the full theory of why incumbents can't usually disrupt themselves, read The Innovator's Dilemma. It's one of the books I recommend most to business owners.
I say "can't usually" because sometimes it happens. Look at my bet on Tesla and robotaxis, where Tesla is essentially putting its original business, selling cars to consumers, out of business. That being said, do you see many other traditional automakers launching robotaxi services? No. I rest my case.
The art of timing
If you're wondering how soon your industry is about to be disrupted, you're asking the wrong question. If you're trying to sell your business for maximum value, the right question is: when will the rest of the market realize your business will eventually get disrupted by AI? You want to have sold your business, and finished out the earnout, before that date.
I think we'd all agree that if you have a beachfront home that was hit by a tsunami, that's the worst time to sell that home. The second worst time to sell was when the tsunami was visible on the horizon but hadn't actually hit your home yet.
We'd also all agree that the best time to sell was before the underwater earthquake occurred. But that time has passed. In business terms, the earthquake was the launch of AI, and it already happened. You can't sell into a world that doesn't know about AI, because that world is in the rearview mirror. So the next best time to sell is between the earthquake occurring and the tsunami reaching the shore.
That's where we are right now. An underwater earthquake has occurred (the launch of AI), and a few people like myself are on the beach, running house to house (or business to business), telling people to sell their homes (or businesses) now for top dollar, before buyers even know about the tsunami. And most homeowners (or business owners) are saying they're going to wait until they actually see the tsunami (or AI disrupting their industry) before putting the house (or business) on the market.
To be very clear, so the analogy above doesn't trip anyone up: the best time to sell your business is now, before the rest of the market sees the massive tsunami that is AI coming for your industry.
Don't think you're exempt because your business is physical
If your business runs on human labor in the real world (construction, manufacturing, trades, logistics, landscaping, restaurants), you might be reading this feeling relieved. Don't.
Humanoids are coming. Maybe not in the next few years, but sooner than most can imagine. And similar to AI, the humanoids don't even need to actually arrive in your industry. The market simply needs to see a future where they arrive to make your business irrelevant and impossible to sell.
To make matters worse for businesses that run on human labor: AI is speeding up the development of robotics. Every improvement in AI accelerates the robotics work, which means the humanoid timeline isn't fixed. It's speeding up.
So when do you sell?
If your business is successful, there are only two windows:
Before the market believes your industry is going to be disrupted by AI or robotics.
After.
In window 1, you get paid maximum value for your business. In window 2, good luck even selling your company. You want to buy the last Blockbuster still standing?
Most business owners are waiting for proof of disruption from AI or robotics before they look for an exit. Proof is the thing that destroys your chances of selling your business.
You've been warned.