Get big or sell up

Most business commentators have been waiting for years for the rush of baby boomer entrepreneurs to sell up and hit the beach in retirement mode.

It was supposed to happen prior to the GFC, but the pesky global downturn got in the way. As the economy slowly recovers, talk of a mass baby boomer exodus is now underway again.

But as we’ve seen in the last three days, it is a very different type of entrepreneur making their exit.

The sales of app development house Firemint, education provider Franklyn Scholar and payments company Envoy Services saw three Australian business owners under the age of 40 sell their businesses to larger, better placed rivals.

In all three cases, the thinking behind the deals seems to have been the same – the current state of ultra competitive markets means you need to get big, or sell your business to someone bigger.

There are other reasons for the deals of course.

In the case of Firemint, founder Rob Murray says he wanted to focus on making games rather than running a business. Franklyn Scholar founder is a serial entrepreneur who has run several businesses and may well be looking for a new challenge.

But Envoy Services’ London-based co-founder Phillip McGriskin summed up the challenge facing many fast-growing, early-stage businesses.

“We think that scale is going to play a vital part in this market and, by tying up with WorldPay, we’ve immediately given ourselves scale,” he told The Times.

While entrepreneurs in even the most competitive niche can enjoy explosive growth as they build their businesses, there does come a time when it becomes crucial to build scale if you want to keep building market share and, most importantly, profits.

It appears this is especially true in the tech sector. You can grow very quickly for a period under your own steam, but you will inevitably hit a point where you stop flying under the guard of your big competitors and start competing with them. If you can’t rapidly build customer numbers, you can’t deliver big profits.

So you’ve got to sell something. Either the entire business – as we’ve seen in the cases of Firemint and Envoy Services – or a stake in your business, as we saw last week with 99designs, which sold a chunk of stock to venture capitalists Acel Partners for $35 million.

The bad news from these stories is that we are seeing great young Australian companies gobbled up.

The good news for entrepreneurs is that there does seem to be plenty of overseas companies with money to spend to buy scale and revenue – and Australia is very much on their radar.