Should You Sell Your Startup, or Install a New CEO? (Case Study)

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0:43Here, Maggie. Ready? Go get it. Oh, Broccoli, you're my guardian, aren't you? You're still our baby, though. You know that, right? Baby number one, baby number two. Baby number three? Yep, and baby number four. Matt, I need to figure this out. Can we walk and talk? Sure. Two Proud Pups is Elena's small business, selling all-natural dog care products. She launched it because she hadn't liked any of the existing dog shampoos. They were full of chemicals that irritated her puppy's skin. So she invested her own savings and created a product she felt good about using on her own dogs. Before long, she had devoted retailers, and over the next six years, her staff and product line grew.

1:34Two Proud Pups products are now carried by more than 1 ,000 independent pet stores nationwide. I'm so proud of myself and this business. I managed six years of growth on my own, investing my own money and taking out loans. But now I have a big decision to make. My beloved products are selling well, but revenues are flat. I'm also pretty burned out. Plus, with this one coming soon, I need a break. And we've been talking about buying a bigger house and getting a college fund started. Exactly. It's just time for a change. And honestly, just because I'm the founder doesn't mean I'm the right person to take the company into the future.

2:12True. So what do you see as your choices? Okay. Option one, hire a new CEO. Or option two, sell the company. For the CEO search, didn't you say the applicants from the small business listing you posted were not amazing? Yeah, the best so far is Christine, a young, smart MBA with glowing references from her startup and consumer products experience. She has a growth plan that includes targeting Amazon, Chewy, and Petco. This could be promising from a financial standpoint, but it just isn't the same as my vision for two proud pups. Christine is okay with a modest salary and accruing more shares each year, but she's only ready to take a 40 % equity stake, and I feel split about this.

2:54If she took a larger stake, that would give us more cash up front, but being the majority shareholder and not having to deal with the day-to-day operations is also appealing. Does Christine have much of a proven track record? Not really, and it could get messy if we don't see eye-to-eye or if she doesn't click with my vendors. I worry I may need to get more involved than I can or want to be. Hmm, maybe you should keep the CEO search open until you find a better match. Remind me about option two. Option two is selling to a competitor. It would be easier and less personal, but selling is complicated too.

3:30I've been talking to Doghouse Lux, the luxury dog food company that makes these treats our dogs like. Doghouse's philosophy is similar to ours, but they sell mostly to consumers directly through their website. Their website could be the perfect niche market for two proud pups. Your products could reach a whole new base of pet owners and their pets. Exactly. I love that part. And the offer of a cash buyout and 10 % of the merged entity is tempting. It would be a cleaner break from the company for me. It also means a much larger payout as well, which is good for us. And they seem to have an impressive track record of rolling up small businesses like mine into larger, more successful ones.

4:07But how are you going to feel if you have little or no influence over Two Proud Pups brand or products going forward? Very mixed. And how can I ensure they won't change ingredients to cut costs? Or what if they don't make sure my employees are taken care of? What if I want to return to the company when our kids are older? And companies like Doghouse may put small independent stores out of business, like all my vendors who I adore. What if the merger doesn't go smoothly? Hmm, sounds like neither option's perfect. Nope. What do you think, pups? What's the best option for the future of our little company?

4:43What do you think Elena should do? Try to find a new CEO or sell the company? Does she have other options?

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