Risk Aversion And The Perils Of Selling Too Early

This brings to mind a really interesting story.

I had the chance to work with a guy who had just sold his business. It turns out that early on (about a year into it) someone came along and offered to buy the whole business for $1 million dollars.

At the time his situation was bleak:

* the site was being overshadowed by two much larger direct competitors * he was 'hosting' the site from borrowed space in a kind relatives basement. * growth was really solid, but revenues from the site where far outpaced by bandwidth/hardware costs. * He had a second mortgage on his house and his credit cards where completely maxed. His wife, while understanding, was understandably distressed.

The thing was, he absolutely believed in his business. He was confident that he was going to be able to overtake those competitors. Instead of selling and pocketing a nice gain, he pushed on.

5 years later he had a top-100 alexa site that sold for $300 million dollars. He had managed to stave off even VC funding until quite late, and so the vast majority was held by him and a co-founder.

That's the opposite of risk aversion. It's funny, he considers not selling one of the stupidest things he's ever done. Anyone in their right mind would sell and move on to something else. He didn't, and it paid off with a 300x return.