If your company is growing, congratulations! However, it’s critical to address a common misconception about timing the market for mergers or acquisitions: waiting until growth slows down before running a process can be a costly mistake. Many business owners believe that continued expansion means they can delay conversations with potential buyers or investors, assuming their growth is sustainable indefinitely. This assumption overlooks the nuanced dynamics of a growing company, particularly in the software industry.

When growth slows, it signals to the market that your business may need external capital to continue scaling. Buyers may interpret this as a red flag, signaling that your growth is no longer sustainable. At this point, you may find yourself scrambling for solutions, but the advantage has already shifted to the buyer. As a result, your valuation may be lower, or the terms less favorable, than if you’d approached the market earlier.

It’s essential to recognize the two critical inflection points in the lifecycle of a software company. The first is achieving product-market fit and surpassing $1M in revenue. This stage signals that the product resonates with the market, and you’ve found an audience willing to pay for it. The second key milestone is when you’re scaling beyond $4-5M in revenue. At this juncture, scaling for growth requires a different set of strategies than those used during your scrappy startup days. This is when you’ll need a more professionalized approach, including disciplined financial planning and possibly new sales leadership to sustain momentum.

At this second inflection point, many companies recognize the need for a partner—whether financial or strategic. A strategic acquirer or private equity (PE) partner can provide both the capital and resources necessary to maintain and accelerate growth. Importantly, this is when professional guidance can help you navigate new challenges and take your company to the next level​​.

If you wait until growth slows or revenue flatlines, you’ve likely missed your window of greatest leverage. Entering into a process when you’re still growing allows you to showcase your company’s full potential and capture a premium valuation. Buyers are much more inclined to pay for a business that’s on a steep growth trajectory than one that has already hit its peak.