Terry Cunningham: Is your business built to last or built to flip?

Terry Cunningham, president and general manager, EVault, A Seagate Co.

A few years ago, I was lucky enough to retire from daily work and take some time off. It was a chance to spend time with family and friends, pursue overdue projects and contemplate my past business success and failure.

My company had been prosperous, and while I sat with my feet up on my desk appreciating how good the outcome had been, I also started wondering about what I could have done better. It occurred to me that had I known then what I know now, there were a few key questions that I wished someone had asked me, if not at the start, then at least early on.

The first question — and probably the biggest one — was: What did I ultimately want from the business I founded? Was it to grow it quickly and sell it to the highest bidder in a short period of time, say five years, or to create a “lifestyle” company that would conservatively allow me to withdraw a sizable salary each year, for many years to come?

Looking back, I realize my answer always depended on the numbers. If, for example, my choice was between a business that produced a salary of $1 million for 10 years, or a business that produced a salary of $200,000 for five years with an exit value of $8.9 million at the end of the fifth year, which scenario would I prefer? Doing that math, perhaps it would have been easier for me to make a clear and informed choice.

But what if the numbers didn’t provide an easy answer?

For you quantitative people, you’ll notice both scenarios above yield roughly the same Net Present Value, thereby eliminating money as a deciding factor. So if money isn’t the deciding factor, what is left to consider?

This brings me to my next question: Is it more important to have a profitable business, even if the day-to-day operations are boring? Or would I rather earn less money and work at something “cool” that I was excited to tell my friends about? If you are facing this choice today, think carefully. Can you really handle 10 years of feeling unchallenged? Will the money be enough to get you out of bed in the morning and into your office? On the other hand, if you sold your business after five years, what would you do next? My father-in-law worked his entire life in anticipation of retirement, only to discover retirement drove him crazy.

Lastly, take an honest look at yourself. How much of your ego is wrapped up in the outcome? My father dreamed of building a family legacy — that was the most important thing for him. Yet for some of my friends, fixing a business and selling it left them feeling fulfilled. There is no right answer, other than to ask yourself, when it’s all over, will you feel prouder of “built to last” or “built to flip”?

I wasn’t lucky enough to think about these issues when I should have, and when I discuss them with business owners today, they often respond with, “What difference does it make?” The reason these questions are important to consider now, is that the answers to these questions will help you make better long-term decisions every day. You’ll allocate resources differently for a company that you intend to keep for life than you will for a company that you hope to flip quickly.

For example, if you are planning to sell your business to a larger company, the buyer tends to look for great products that can fit into their product line. For this reason, it makes more sense to invest in your product or service as opposed to sales and marketing. On the other hand, if you are planning to keep the business for a long time, you will need to invest in building a strong and resilient sales and marketing organization.

The best advice I can offer you is: Answer these questions and then build your business accordingly.

Terry Cunningham is president and general manager of EVault Inc., A Seagate Company. He founded Crystal Services, which was purchased by Seagate in 1994 and integrated into the company’s software division, which then became Seagate Software. His accomplishments include serving as president and COO of Veritas Software, and founding, building, and leading two other successful software companies.