There comes a time in the life cycle of any business when you, as an entrepreneur, will need to choose between selling or doubling down. It’s never an easy decision to make — selling may bring with it an eventual payout, but you could be leaving money on the table. Doubling down, meanwhile, requires extra resources that are sometimes hard to generate. What, then, is a business owner to do?
As with everything financial, it’s crucial to take the emotional charge out of any potential decision-making processes. In this article, we’ll walk you through key processes that will empower you to make the most informed choice.
What is Doubling Down?
If you’ve ever walked into a casino or played a game of online blackjack at a digital platform, you’ve probably come across the phrase “doubling down” before. While the phrase itself means to commit to a decision, it’s also utilised as an effective approach during certain situations that can arise during a game. For example, if a player holds a “soft” 16 hand, they’d implement doubling down to potentially hit a stronger hand.
Of course, in a business situation, you’re not going to be faced with card games or dealers, but it’s still good to understand just how this concept is applied in its original context.
When you “double down” in your venture, you’re essentially committing to focus more resources — be they financial, human or strategic — with the intention of maximising returns. For example, you might increase marketing efforts, launch new products or services, or even scale up your existing production.
The Factors that Affect Your Decision
As touched on above, deciding to double down or sell your business at the height of its existing profitability isn’t an emotional decision. There are several factors that you simply must take into consideration before committing to a direction.
Firstly, it’s imperative to look outwards at the conditions in your industry. Perform an analysis of the market/s you operate in: Are conditions fragmenting? Is the market growing or in a state of decline? How competitive is your sector, and what are your market share projections? Affirmative answers could indicate that doubling down would be a beneficial strategy to take.
Making this high-stakes choice isn’t just a case of analysing the conditions outside your business; you’ll also need to reflect on your own position as an entrepreneur. How are your motivation levels? If you operate in a highly competitive industry and are susceptible to burnout, exiting the race might serve you better in the long run.
Signs to Sell or Double Down
The decision to sell or double down certainly isn’t a one-size-fits-all scenario, and it requires a careful systemic approach. After you’ve gathered sufficient information to analyse both the external and internal factors involved in making this decision, looking out for the following signs can give you a strong indication of which way to turn.
1) Positive growth in your industry: If your sector is growing and isn’t on a high-speed train towards consolidation, prospects for your business are bright, and you should consider doubling down.
2) Strong financials: Being able to afford reinvestment isn’t just about having spare cash to hand; you also need to consider your financial position. If your long-term personal finances are strong, meaning you won’t be dependent on a sale, or your net worth isn’t tied to your company, you can afford to double down.
3) Declining revenues: An eroding value proposition is a strong indication that it’s time to sell your venture.
4) Increased acquisitions: Although it’s not an airtight measure, an “acquisition frenzy” in your sector generally spells that conditions will become much tougher for independents, therefore making it a good time to sell.
What are the Alternatives to Selling?
There could be instances where you don’t want to sell but don’t have the resources to hand to double down on your business. In such situations, it’s worth considering two alternatives to selling: raising money and recapitalisation.
1) Raising money: As the name suggests, when raising money for your business, you’re looking at other avenues to secure revenues. This could come from creditors, such as bank loans, or take the form of equity from angels or venture capitalists.
2) Recapitalisation: Alternatively, undergoing a recap involves a partial sale of your company, typically to a private equity group or corporate venture fund. Recapitalising your business brings in gains while still allowing you majority control.