Why doesn’t everyone just start a company, sell it and do it all again?

There is a massive global cultism to startup founding these days. Everyone believes they should either be founding a startup, working in one or funding one. Yet, the reality is most startups fail, most people working in startups make much less than they would working in established companies in similar spaces/markets, and working for a startup is largely a gamble (taking a bet that sacrifice in the short term will pay off in the long-term).

And the numbers aren’t in your favor. If you aren’t part of the initial founding club/cult, you likely won’t get anything out of any given sale/IPO. So for those founders and their startup crew, selling is a painfully difficult objective to achieve. Once accomplished, the founders will struggle to found another company, fund it and target the exact same segment.

There is an opportunity for founders and employees to learn from the experience and start something new or related. However, I’d argue that people in established companies have equal exposure and can start companies, improve their own companies and do many other things without being part of a “startup”, selling it and going through the whole mess.

It isn’t easy

In most countries, the people buying the business will make sure that the sellers(the seller) sign lots of documents stipulating what and how you can or cannot remain in the same space.

This is often expanded to include some kind of long-term equity position in the business being sold. This is often important to the Buyers as they may want the seller involved/committed for long after the sell. It also gives the seller a direct motivation to not damage the business they have just sold.

None of this completely prevents the seller from starting up another company directly, via partners or becoming a “silent” partner.

The company could sue you for breach of contract if they find out. Lawsuits are often a risk-balancing. If they just sold the business for a lot of money, and they feel the business they are starting is demonstrably different, they may be happy to accept the lawsuit risk.

In reality, the biggest barriers to someone starting a company in competition to the company they just sold are: 1. Good Faith and Reputation, and 2. Legacy Interest.

  • Good Faith — most business deals are done in good faith. We commit to a relationship because we believe both parties will follow through. We also know that if people fail to follow through, it has a direct reputation risk to their future business.
  • “How many investors will be willing to buy your next business if they know what you did to your last business?”
  • Legacy Interest — most founders dump a lot of their life into the company that they are selling. A lot of their personality is wrapped up in that company. It may hurt them to “fight” that company.

Startup from Gimlet Media has a really interesting series about American Apparel that covers all kinds of weird stuff the founder was involved in. It also covers this very topic as after the CEO/Founder was kicked out, he went and started up another apparel company. Check it out: Part 1: Labels (Season 4, Episode 4) — Gimlet Media

As long as you don’t steal, it doesn’t really matter

It really doesn’t matter that much. There are so many different problems and opportunities in the world that “anyone” (with suitable funding, partners, expertise, interest, etc…) could start and build a business within. Even if a founder manages to replicate a carbon-copy of the company they have just sold, chances are that new company could fail/become something else/etc... Well unless the employees/founders steal stuff like copying the designs and code-base of their previous startup and using it for the next one

This is a modified version of an answer I posted to Quora in July 2017. I’m slowly moving all my Quora answers to Medium and modifying them to be longer form and more relevant. This is ongoing.




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Connor Clark-Lindh

Connor Clark-Lindh

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