Byline: SARAH A. KLEIN
Most entrepreneurs want to turn their creations loose and cash out at some point. And selling to a larger outfit with more resources may be the best way to keep a business growing. That's especially true for a product with a limited life cycle in a fast-growing industry like software. Getting to market before interest wanes or a competitor steals marketshare requires fast footwork that might be better handled by a more experienced firm.
The same holds true if sales growth requires a radical shift in operations, say from research and development to large-scale manufacturing. You may be better off selling or licensing your product to a company with manufacturing and sales expertise and moving on to your next enterprise.
Once an idea has been commercialized, it's not hard to let go, says Michael Sarlitto, president of Chicago-based Summit Point Management LLC, a business advisory firm.
"It gets boring,'' Mr. Sarlitto says. A sale "is a liftoff point for their next venture.''
Meet three business owners who picked the right time to sell.
Alexander Seropian
Bungie Studios
Alexander Seropian was already a success when he sold Bungie Studios, his video game development business, to Microsoft Corp. in 2000. The company he and a college friend started in a Hyde Park basement had scored multiple hits, including the game Marathon, which sold 500,000 copies.
But it wasn't easy. "Every product we did was sort of make-or-break,'' says Mr. Seropian, 35. He and his team would pour all the profits from the preceding game into creating the next one, which cost $5 million to $10 million to develop. Each had to be bigger and better than the last. That required more sophisticated software and a larger staff.
To lessen the risk, Mr. Seropian went looking for partners. He approached Redmond, Wash.-based Microsoft, which offered to buy his company outright.
"We weren't really looking to sell the company,'' he says. But it was too big an opportunity to pass up. His company's game Halo became a launch title for Microsoft's new game console.
The games his team developed with Microsoft under the Halo brand did well, selling 10 million copies and generating $500 million in revenues. But 21/2 years after the sale and a move to Washington state, Mr. Seropian was bored.
"For me, the excitement of business is problem-solving,'' he says. So, he moved back to Chicago and started a new video game company, Wideload Games Inc., in 2003.
David Demirjian (c)
ThermoGen Inc.
David Demirjian always knew he'd have to sell his first biotech company or partner with a large chemical company to ring up more than a few million a year in sales.
To tap the biggest market for the enzymes that ThermoGen Inc. developed for food and pharmaceutical businesses, he'd have to produce the enzymes by the ton, not by the gram.
That would require elaborate and expensive manufacturing facilities, sales staff and technology. So, in 2000, he sold the 12-year-old Chicago business to Woodridge-based MediChem Life Sciences Inc. for $30 million in stock. The move gave the company access to manufacturing facilities and new customers.
"We were a biology company selling to chemical companies. They had all the contacts to chemical companies,'' says Mr. Demirjian, 44. He stayed on as vice-president of technology strategy at MediChem, which went public, but left after it merged with Iceland's deCode Genetics Inc. in 2002.
Mr. Demirjian's latest biotech venture, ZuChem Inc., develops sugar derivatives used by food companies and as pharmaceuticals.
He expects he'll have to sell parts of the new company, too, as they mature and require greater manufacturing horsepower than he can offer. But that's something he's used to. "What I love is building companies,'' he says.
James "Jamie'' Crouthamel
Performics Inc.
Being at the forefront of a new industry can be dangerous. When the rest of the world realizes you're on to something and capital starts flowing into competing ventures, your front-runner status can disappear overnight.
That's what happened to James "Jamie'' Crouthamel, 40, whose advertising agency helped make links for retailers like L. L. Bean and Target Corp. pop up in Internet searches. His venture is the reason an L. L. Bean ad appears when you type "hiking boots'' into Google.
When his niche idea suddenly became mainstream, Mr. Crout-hamel quickly had to decide whether to pair up with a partner, raise more capital or sell out to a larger company.
"We saw a lot of large companies become interested in the search engine market,'' he says. To compete, Performics Inc. accepted a buyout offer in June 2004 from DoubleClick Inc., a New York-based company that specializes in online advertising.
The $64.5-million cash deal gave Performics access to DoubleClick's roster of clients, which was larger than Performics'. It was good for customers and good for his employees, Mr. Crout-hamel says. The only casualty was himself, he jokes. With DoubleClick's CEO, Kevin Ryan, at the helm of the merged companies, Mr. Crouthamel is taking time off to decide what to do next.
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