Wednesday, November 07, 2007

Selling your IT Business

Like many people in software, I have cycled between large, established companies and startup opportunities. In recent years, I've focused more on large scale projects in bigger companies, but I've always tried to stay in tune with what's happening in the startup world. My interest in managing young software businesses was sharpened when I co-founded a company, which as ultimately unsuccessful, at the bottom of the crash. The thing I realized then was that I really did not understand much about valuations and financial measures. Over time, I've found that many other entrepreneurs struggle with these issues, so my first piece of advice to early stage companies that are looking to sell or raise capital is always: make sure you get a good finance person to help you. It can be hard to get a CFO involved at a very early stage, so this may have to be a board member with some knowledge of finance. Any capital of quality will have a huge advantage over the entrepreneur in this area, so this is one of the most important areas to manage, since it impacts the value entrepreneurs will realize from their venture. (Ironically, finance has changed for me from something of a weakness to an area in which I am much more comfortable, but this took a lot of time and pain.)

Anyway, there's a book I want to recommend for entrepreneurs that I just finished reading: Bob Chalfin's Selling Your IT Business. This is a very readable, easy to understand guide to the many of the legal issues involved with doing a business, including valuations. I don't think it can be a replacement for assistance, but it's a great overview for anyone thinking about selling a smaller business and wants to understand many of the core issues involved in the process. I know Bob from an investment project I've been involved with, so I can also say that he lives this stuff.

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