When is the right time to buy a business?

Success and Failure can be a billion dollar difference.

This is the tale of two business, with a (few) billion dollars’ difference.

Consider the story of WEBVAN.

Webvan raised close to $800 million from blue chip VC funds like Sequoia Capital, Benchmark Capital, Softbank, Goldman Sachs and even Yahoo. The company also raised $375 million from its IPO where it sold 25 million shares at $15 each. All of this within a few months of launching the company!

The cause of failure have been widely ruminated to be fast expansion.

Mike Moritz, the Sequoia Partner who was the board member at Webvan, said in an interview that the company “committed the cardinal sin of retail, which is to expand to expand into a new territory…before we had demonstrated success in the first market. In fact, we were busy demonstrating failure in the Bay Area market while we expanded into other regions.”

The second reason for failure commonly  offered was that it was a team with no supermarket experience.

Webvan was founded by Louis Borders, who also co-founded the Borders bookstore in 1971, which was in existence till 2011. The company then recruited the CEO of Andersen Consulting (now Accenture) George Shaheen, who led the company from the time it became independent in 1989. Smart and connected, but no retail experience.

Compare that to the story of Instacart

Instacart , the number one company on this year’s Forbes America’s Most Promising Companies list, has rocketed up the Silicon Valley money list in just two and a half years with its one-hour grocery delivery service. This month, Instacart announced a new $220 million Series C funding round that valued the company at more than $2 billion–just six months after it previously raised $44 million.

Instacart founder and CEO Apoorva Mehta needs the money to expand his service to new markets. He’s already in 15 cities, contracting with over 4,000 personal shoppers. The company has grown exponentially–from 2012 sales of $1 million, to $10 million in 2013, up to $100 million last year.

You will notice that both of the ‘causes of failure’ offered for Webvan are actually present in the Instacart story. Yet Instacart is a success and Webvan was a failure.

There are two key differences:

Firstly, whilst both companies tackled the grocery delivery business, the business models were different. But with the capital available to Webvan, there is no rational reason why it could not have succeeded by building the infrastructure, rather than crowdsourcing it.

Secondly there is the matter of timing. More than a decade separates the two attempts. Instacart entered a market where consumers had already been educated and have come to embrace online shopping fully. That is the difference between the leading edge and the bleeding edge.

In my view, the second issue of timing is the most underestimated reason for the success or failure of a business.

And timing is more than luck. When you are starting OR buying or selling a business, you need to consider the timing-related issues. There are two types of questions I recommend you ask:

Why is the seller selling NOW?

  • What has triggered the sale?
  • How long has it been on the market for and why?
  • What has changed in the market?

Is this the right time for ME to buy NOW?

  • Am I in the right emotional, psychological as well financial position NOW to buy THIS business at THIS point in time?
  • What would happen if I bought next month, next year?
  • How long has the business been doing the same thing? (And what needs to change?)

Of course there is no right time to buy a business, except with perfect hindsight.

But by asking the questions, and by putting a brake on your enthusiasm to get sstarted – albeit momentarily – may well be the difference between success and failure; because timing matters more than most other things.

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