To Sell Small Business, Stop Selling It

Trivial Paradox of Selling Small Business

A company with an annual income of €20 million can be sold for about 5 such incomes, with a 50/50 chance, while only every tenth lucky seller manages to get rid of a €0.2M income business, for a maximum of 2–3 such sums.

Small enterprises are rightfully perceived as non-transferable — the business viscera is tethered to the personality, methods, and relationships of the owner. The normal, legitimate, humanly understandable and not-business-discrediting reason for the sale — “I’m just bored of it” — is never adequately accepted by the market. Sellers are assumed to be trying to get rid of some slag. Few buyers reach the stage of listening to arguments of a particular case. Sellers use euphemisms such as “liquidating a non-profile asset” and lie about relocating, but it hardly helps.

Small Business Becomes Transferable

When shredded into many tradable shares, an asset can be sold partially, but for more money than one could get for the whole. The fundamental change of narrative, the strength of secondary markets, the reduction of the absolute value of risk for an individual buyer, the illusion (or fact) of a good audit — all this works for the seller, powerfully.

Until recently, there was no reliable scenario for securitisation of a small business. However, a few years ago, many jurisdictions introduced a simplified regulatory regime for the issuance and distribution of shares of startups and SMEs (equity crowdfunding), and last year, the infrastructure began to develop, one that can significantly reduce the cost of secondary circulation (security tokens or digital shares). As a result, small business gets a new chance. It becomes transferable.

Origins of New Method for Small Business Securitisation

Let me simply report the chronology of events, as there’s no axiom-to-theorem story to tell (read PS to see why).

At the turn of the century, for the first time at the global level, the will of the mob worked through decentralisation. The torrents phenomenon has forced things across industries and the model of selling music, movies, and software was radically changed. As a result, we got “clouds” and subscriptions. Without torrents, we’d still be carrying disks and boxes.

During the last five years, the further development of decentralised ideas and relevant computer systems have inspired many people to try to break another [annoying] rule. There was an attempt to deprive the governments from the right and ability to directly control investments and gambling. It did not work out: after a short-term surge, the so-called ICOs (sale of blockchain tokens backed with nothing) were promptly banned in China and then in the US. As of today, ICO activity is small-scale, dangerous, and largely unprofitable.

The wick was put out, but the valiant community fuse and the strange category of investors — who entered into the taste-it-all phase — weren’t. Token selling was duct-taped to ordinary securities selling. It is absurd, of course, but at the junctions of dissimilar materials, some new life has originated, quickly turning from mould into motley grass and bloom. Technological reasonableness is never a necessity. After all, entire layers of our civilisation are built on outright nonsense.

Theoretically, if regulators go on easing things at the same pace, by the end of 2019, we can expect the rudiments of new liquidity. The premium in stock prices already exists: tokens sold today (if there are corresponding ordinary shares) are more expensive than just shares. Issuers can sell these tokens to anyone around the world, and if certain requirements are met — in the United States too.

An additional powerful factor is that most of the businesses represented in the crypto environment are hollow startups free-riding buzzwords and false temporary narratives, so, with that background, real enterprises — that physically produce something — do look profitable.

But who is going to manage the business if you securitise and sell part of it instead of a complete takeover? If you really do care, after receiving more money than you originally expected, there’s a management technique that is highly compatible with tokenised shares or revenue participation notes. The general term is DAO, decentralised autonomous organisation. Most probably, your STO provider can forward you to the right platform.


PS (Why Inappropriateness of Blockchain Is Okay)

The longer blockchain enthusiasts can’t let the finance go, the more visibly annoyed traditional professionals grow. Reasonably so, since they have a question, to which they were offered no answer. If you talk engineering sense, what do decentralisation techniques have to do — as something designed to NOT be regulated — in the sector that is regulated in the heaviest way possible?

When they were switching to the metric system in Canada, one unlucky airliner was fueled in litres instead of gallons, so a few hours later over a hundred of people were trapped in a thrust-less tin glider high above the Atlantic. However, this doesn’t tie the air security to the chamber of measures and weights.

Similarly, there’s no common category and single front of responsibility in “money” and “finance”. The latter deals with the means of production and human commitments, while the former is a complex accounting scale.

Blockchain has indisputably established itself as an innovation in money (bitcoins), but that is not an evidence or even a hint that finance can benefit too, so the re-application of the tech to the field of securities accounting is a questionable innovation. Moreover, the persistence of innovators grew to a degree that’s unusual, and a little unwelcome.

But that is totally okay. If something creates $100 worth of value, but costs less than $100, people will be doing it. It really is that simple. It is the basics of “economic rent” and “opportunity cost”. Lots of activities are a waste of energy: sports, advertising, religion, cryptocurrency mining, etc.

The dominance of frankly inappropriate technologies in many sectors is an evolutionary norm. Technologies evolve as species, for the sake of short-term survival and without long-term planning for the class, the order, or the family. This leads to grotesque results. Examples are numerous, both in biology and industry.

The simplest algae can feed itself with radiation of stars, that is, the most common fuel in the universe. Proud eagles and clever humans can’t live without an extremely rare substance — the flesh of the creatures from one particular planet in one particular galaxy. We suffer from hundreds of silly technical solutions in our bodies: as our spine was originally “developed” for horizontally living creatures, the pain never leaves us.

An obvious example of the technology evolution being vision-less is a car. In practical application, the internal combustion engine and the electric motor are the same age, and if investments during the 1900s went into the development of capacitors, not into the thousand patches for fundamentally inefficient micro-explosive-stoves-on-wheels, then today, modern Tesla would seem like a term project by a mediocre sophomore.

We love our horrible multi-cylinder cars, though. We will learn to love the blockchain-based finance as well.