“How many of you want to be a billionaire?” Charles F. Goetz, serial entrepreneur and senior lecturer in organization & management, asks his students. “How important is it for you to be mentioned in the same group as Steve Jobs, Bill Gates, and Mark Zuckerberg?” If you are an entrepreneur or are planning on being one someday, Goetz says it’s important to ask yourself now, “Just how much money is really enough?”
According to Goetz, an entrepreneur’s “enough” figure is the amount of money you need in order to never again have to work for anyone you don’t want to. It’s enough that the earnings cover your annual expenses now and for the future. If you are running a business and plan on selling it someday, not knowing that number can cost you dearly.
Starting and running a business is a process fraught with unexpected challenges. Even the best of companies can face nearly insurmountable problems, and many an entrepreneur will throw in the towel. But when times are good and business is booming, a company founder can, all too often, believe the tough times are behind them and it’s only a few more years of hard work before they can reach their dream selling price.
“Before you get caught up on how to spend your money, you need to first understand one very important concept,” says Goetz. “Businesses don’t go from one day being worth $10,000 and the next $1 billion. Their value grows in a step function. Maybe you can grow it from $10,000 to $100,000 in a year and then maybe from $100,000 to $1 million in another year and then from $1 million to $10 million the next year. But here’s the problem: Every day you go to work to grow that company’s value, you’re putting your proverbial chips on the table.”
Every day, entrepreneurs bet the value of their company on what they hope will be a better value tomorrow. In reality, says Goetz, they could actually be risking it all. Technology shifts or a new competitor enters the fray. A change in governmental regulation impacts the trajectory of a company’s growth strategy. This overconfidence sometimes makes successful entrepreneurs delay a sale, dreaming of bigger fortunes, he says, betting they can hold out for more money as the business continues to grow. But by then, says Goetz, the market could take a turn for the worse or an unexpected lawsuit just might hurt the sale price or even tank a deal completely.
According to Goetz, business owners often forget the hard reality of just how difficult it can be to keep a business in the black and continually growing. As they say, past performance is no guarantee of future earnings. He believes that entrepreneurs need to consider their exit strategy early on in the development of their business. “Every entrepreneur has to know their ‘enough’ number and what it would take to simply walk away from the business,” Goetz adds. “Think about the amount of money that’s right for you, and cash in your chips when the time comes.”