Don't Try to Sell Too Soon

Dear Norm,
In November 2008, I started a business making baby slippers from used wool sweaters and used leather jackets. I sell them mostly on Etsy, where my business is thriving. I've received many more requests for wholesale accounts than I can fill. I've trained my second subcontractor and have added adult slippers to my line. My goal is to sell the business in about five years to a company that already uses recycled materials to make footwear. What must I do to make that happen? Should I trademark my name? Patent my design? Raise outside capital for expansion?

-- Josie Marsh, founder, Wooly Baby
Kennett Square, Pennsylvania

If you want to sell your company, you need a proven business model with strong cash flow and good growth prospects. Although Josie has been in business for two years and has attracted a following, she still has a way to go. Her sales aren't enough to interest a serious buyer. She also has capacity problems. And she's vulnerable to copycats. I advised her to trademark her company's name, which she can do inexpensively at an online trademark site. Securing a patent, however, is expensive and time-consuming, and she might not get one in the end. Instead, she should spend her time and capital on increasing sales. I suggested she consider marketing through services such as Google Affiliate Network and Commission Junction. She also needs to increase capacity. Finally, I cautioned her against seeking outside capital. She'd have to give up too much equity to get it. It's better for her to bootstrap for now.

Josie asked me how she would know when to approach prospective buyers. It wouldn't be for a few years, I said, and she had enough to do right now without worrying about it. I told her to check back with me in 12 months, and we'd reassess her situation then.

Please send all questions to AskNorm@inc.com. Norm Brodsky is a veteran entrepreneur. His co-author is editor-at-large Bo Burlingham. Their book, The Knack, is now available in paperback under the title Street Smarts: An All-Purpose Tool Kit for Entrepreneurs.

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