Published May 11, 2011

"I'll Just Keep the Company..." Revisited

By Scott Dickes

A few weeks ago I blogged about a business owner who said he'd prefer to keep his company another 5 years rather than sell it today.  Well, it happened again today.  Except this time the intermediary (who was on the call and undoubtedly has heard this refrain countless times) had a very logical reply.  The conversation went something like this:

_Intermediary:  _Let's play a game.  Inside one box is $10,000,000.  Inside the other box is $0.  You don't know which is which and you get to pick one.  The expected value of the choice is $5,000,000.  Right?  OK, now, let's play the game again.  You have a choice of choosing either of the boxes OR you could just ask for the $5,000,000 and the game show host would give it to you.  What would you do?

_Owner:  _I'd take the $5,000,000.  It has the same expected value and it's a sure thing.

_Intermediary:  _Yes, I agree, that is the logical answer.  Keeping your company is the equivalent of playing the game instead of taking the sure thing.

**Owner:  **Well it might be worth $10,000,000 in five years.

**Intermediary:  **Yes it might.  It might also be worth $0.  Just look at what happened to lots of business owners in 2008 and 2009.

SBD

Post script: See Part III of this series on keeping versus selling a small business.