This post also appears at Inc.com. Reprinted with permission.
Sell just after landing your first big customer? This CEO didn’t think he’d do it either. But sometimes when you sell your company isn’t entirely up to you
In the summer of 2005 I was the CEO of a start-up on a roll. Barely more than a year after my partner Louie Gasparini and I had hatched the business out of my pool house, we landed Bank of America as a client.
When an established company in our industry–one we respected–approached us with a merger deal, we declined.
Sell now? Just after we landed a major national client? No way.
Yet just a few months after saying no to being bought out, we said yes. Happily. To the same company, making the same offer. What happened to cause our sudden shift can be instructive for any entrepreneur grappling with the question of when to sell.
You aren’t the only game in town.
Our business was PassMark Security, which provided a novel approach to how banks and brokerages could increase the security for online consumer account logins. At the time, phishing was a serious problem. Crooks set up doppelganger websites that lured unsuspecting customers to sign into their bogus sites, at which point the phishers had the info they needed to drain accounts.
What Louie and his team of engineers developed (and patented) are systems we now all take for granted: Many financial institutions “recognize” the computer or device we’re logging in from–a first line of defense–and on that log-in page we are shown an image that we selected to confirm that the site is legit.
The merger offer came from RSA Security, a leader in enterprise authentication systems. I knew and respected Art Coviello, the CEO. And I saw the logic in the deal: His company had the enterprise market, and we were a leader in the burgeoning consumer market. But Louie and I felt it was too early to let go.
Art turned around and did what every smart businessman should do: He found another solution. Just a few months after we declined RSA Security’s offer, Art announced a merger with Cyota, an Israeli-based competitor of ours. With the sales and marketing distribution of RSA behind it, we knew Cyota had just become a much more formidable competitor.
You don’t pick the time, the time picks you.
The minute the Cyota deal was announced PassMark went from leader to underdog. Timing often is what happens to you, not something you control. I liken it to driving a car. You’re at the wheel, controlling the car, but if you hit traffic and a detour, it’s no longer just about what’s happening inside your car. You’ve got the world outside affecting your plans.
Keep your friends close, keep your competitors closer.
Just a month after Art announced the Cyota deal I went back to him and said maybe now was indeed the time for us to merge. PassMark’s security solution was software-based; clients installed it on their own systems and were good to go. Cyota’s solution was to host the authentication process. Bigger financial institutions tended to prefer our solution; smaller ones liked Cyota’s hosted model. Art appreciated that bringing us into the fold made sense, and we got the deal done.
That only happened because Art and I always remained cordial in our conversations. You can compete and still treat your competitors with respect. When we said no to Art and RSA the first time around, we made sure to keep the lines of communication open.
Respect the luck factor.
Did Louie and I wish we had more time to do it on our own? Sure. But at the same time, we knew we had been on the receiving line of some fortuitous luck along the way.
We landed Bank of America because the bank had already internally come to the conclusion it needed to step up its online security. We weren’t selling them on our idea. We were delivering them the solution they already knew they wanted.
And soon after we launched, a consortium of Washington regulators that oversee financial institutions announced plans to develop new online security requirements. That was a level of marketing and biz dev we didn’t see coming.
Our early success was built on great engineering and being in the right place at the right time. Ultimately we had to respect that deciding when to sell wasn’t solely about our timeline. Bad luck? Nah. That’s just business.