Growthink Blog

How to Win Over Skeptic Investors


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When you're selling something to anyone, be it a prospective investor or prospective customer, there are two main types of selling techniques to employ: emotional selling and logical selling.

In emotional selling, you appeal to the buyer's emotions. For example, if selling a sports car, emotional selling would have the prospective buyer visualize how they will feel when they press down on the accelerator and surge forward, and how the wind will feel in their hair when they put the sun roof down, etc.

Logical selling would appeal to the buyer's logic. A more logical sales pitch, for example, would include factors such as why this sports car is better than others (perhaps better gas mileage, better warrantee, etc.) and why the prospect should buy from this dealer (perhaps better pricing, better service, etc.).

The most effective form of selling is generally to use both emotional selling and logical selling. This holds true for "selling" to investors, even very sophisticated ones.

For example, even the seasoned venture capitalist has emotions. Painting the picture that your company will be the next Facebook or Google will excite them. Getting them to think about how they will feel (the prestige among friends, colleagues, etc.) from being an early investor in such a huge success can prompt action.

However, while emotional selling is helpful, the primary selling technique to motivate most investors is logical selling. Specifically, you need to prove to them why your venture will succeed and how they will get a solid return on their investment.

To win over such investors, your logical selling argument should be packed with irrefutable market research. When you present investors with third party research (i.e., research published by sources other than yourself), they gain the confidence that your venture is in fact worthy.

So, what market research should you conduct to logically prove your case to investors? Here are the eleven core areas to answer:

1. Industry Sizing


Investors need to understand precisely how big your market is. Because if your market is too small, their opportunity for returns might also be small. So, start by determining your market size.

2. Key Market and Industry Trends

Investors also need to know the key trends in your market. For example, if the market is currently small, but it's growing rapidly, this might excite investors. Or if new government regulations have prompted industry changes that support your success, they need to know.


3. Details on Your Top Competitors

Having competition is generally a good thing; it proves that customers are buying solutions like the ones you offer. Importantly detail the strengths and weaknesses of your competitors so you and your investors know what you're up against.

Importantly, you don't have to be better than your competition in every single area; ideally you're better in the areas customers care about most.

4. Website Performance of Top Competitors


In nearly all industries, the web is a great source of leads. Understanding and detailing your competitors' performance on the web gives great insight into them and online opportunities that exist for you.

5. Link Profiles of Top Competitors

Understanding the other websites that link to your competitors is also helpful. You may want to contact and/or partner with similar companies/websites, or use their link profiles to identify other websites to contact to link to you.

6. Web Traffic to Top Competitors


Among other things, understanding the website traffic of your top competitors will show their traffic trends. For example, is one competitor's traffic rising or decreasing? Do they experience seasonal fluctuations? Etc.

Likewise, understanding which keywords are driving their traffic alerts you to the keywords for which you should focus on ranking.

7. Social Media Profiles of Top Competitors


Social media can tell a lot about a competitor. Do they have a large Facebook following? What about Twitter, or Pinterest, etc.? Understanding their social media profiles alerts you to the types of customers they are serving, and how customers perceive them, among others.

8. Detailed Identification of Key Customer Segments


Customers are the key to any company's success, and investors want to know exactly who your customers are. Importantly, identify the distinct customer segments you are or will target.

9. Demographic Profiles of Customer Segments


Once you detail which customer segment(s) you will target, you must detail their demographic make-up. For example, what gender are they, where do they live, how much money do they make, etc.? If you serve business clients, demographic variables also include the size of their company, what their title is, etc.

10. Ancillary Needs of Key Customer Segments


The final step in assessing your customers is to determine what else they might be buying before, during and/or after purchasing from you. This will help in further understanding their needs, and alert you to potential business partners to contact.

11. Financial Research

Financial Research gives great credibility to your financial model and the potential financial returns to investors. Here you should research and present your industry's average financial metrics, such as average industry costs, profit margins, etc.

In summary, when selling to investors, particularly savvy investors, be sure to appeal to their emotions. But remember that logical selling will generally be more effective. So rigorously conduct your market research so you can present facts and logic that convinces them to invest in your company. Not only will the research prove the viability of your business to investors, but it will give you great market and competitive intelligence that allows you to gain more customers and grow faster.

 

Suggested Resource: Click here to see a super-brief video that explains how Growthink can conduct a comprehensive 11-Point Market Research Assessment for your company.


Odd Song Lyrics That Yield Business Success


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The other day on my drive to work I heard a song on Pandora. The song was called "Just the Girl." And it's by the band 'The Click Five.' I'd never heard of the band nor the song, but one of the lyrics caught my attention:

"She laughs at my dreams. But I dream about her laughter"

This line caught my attention because it reminded me of two extremely important mindset principles for entrepreneurs.

1. You must separate yourself from people who laugh at your dreams


"She laughs at my dreams." Imagine hanging out with someone who laughed at your dreams. Do you think that would help or hurt you? Clearly it would hurt you. And I think it would be near impossible to achieve your dreams when surrounded by such negativity.

In fact, motivational speaker Jim Rohn once said, "You are the average of the 5 people with whom you spend the most time." This is absolutely true. When you hang out with successful people, the conversation is generally optimistic. You hear what the others are achieving, how they are overcoming obstacles, etc. And you adapt their positive thinking and can-do attitude which prompts your success.

Alternatively, when surrounded by negative people, you hear how they primarily talk about their struggles, how they blame others for their problems, and so on. You get brought down, and you start thinking negatively too. The result: you never achieve your goals.

So, the first lesson here is to separate yourself from losers and hang out with winners. There are many ways to achieve this. One of the easiest is to find and attend local business and entrepreneurial events. Another is to find a mentor or assemble a Board of Advisors. In each of these cases, you'll soon be spending time with winners, and their success and mindset will rub off on you.

2. The Law of Attraction


The Law of Attraction is basically defined as this: you get what you think about most. So, if you're constantly thinking about what can go wrong in life and/or your business, things will go wrong. But, if you constantly stay positive and think about success, you'll achieve success.

"But I dream about her laughter."  In this line, the singer is thinking positively. He's dreaming about her laughing; so that is what he'll attract/get.

In your business, you do this by setting goals for what you want to achieve. Then, think about achieving your goals and do it often. Visualize yourself achieving the goals too. Doing so is proven to dramatically improve your success.

Pretty Clever


Looking at the line as a whole -- "She laughs at my dreams. But I dream about her laughter" -- you can see how clever it is. Even though she's a negative influence in general, he turns it into a positive.

Even more clever is for you to surround yourself with successful entrepreneurs. Their mentality and success will rub off on you. And set your goals and dream about achieving them. When you do these things, you'll start achieving a lot more success. You'll achieve your goals and start creating even bigger and bolder ones.

 

Suggested Resource: As you just learned, the way you think as an entrepreneur is absolutely critical to your success. In fact, it's arguably the most important factor in your success. Check out our Millionaire Mindset program to learn how to improve the way you think so you achieve more entrepreneurial success.


How to Get More Sales Without Selling


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"The point of marketing is to make selling superfluous."

This is a great quote from management guru Peter Drucker. What it means is that if you do a great job in marketing, sales will be easy. Likewise, there are other things you can do to improve your sales without having to resort to aggressive sales tactics.

This article details such strategies.

1. Create a Stronger USP

Your USP or unique selling proposition is what distinguishes your company from others.

Here are some famous USPs:

  • The nighttime, coughing, achy, sniffling, stuffy head, fever, so you can rest medicine. (Nyquil)

  • Pizza delivered in 30 minutes or it's free. (Dominos Pizza)

  • When it absolutely, positively has to be there overnight. (Federal Express)

  • 15 minutes or less can save you 15% (GEICO)

Each of these USPs does a great job in distinguishing these companies and getting customers to choose them over competitors.

2. Provide Clear Benefits

In addition to a strong USP, make sure you detail the benefits of your products and/or services to your customers.

For example, do your products:

  • Remove their pain
  • Save them time
  • Improve their success
  • Make them feel better
  • Etc.

You generally want to provide a list of features associated with your products/services, but lead with the benefits.


3. Use Many Different Marketing Channels

After you create the best USP you can, and identify your key benefits, you want to convey your message to as many of your prospective customers as possible.

But realize this: not all of your customers are in one place or read/view/listen to one media source. So, use multiple means of reaching them.

For example, you can reach customers through each of the following marketing channels among others:

  • Direct Mail
  • Email
  • Event Marketing
  • Networking
  • Partnerships
  • Press Releases/PR
  • Print Ads
  • Radio Ads
  • TV Ads
  • Search Engine Optimization
  • Pay Per Click Advertising
  • Social Media Marketing (Facebook, Twitter, etc.)

 

4. Understand and Improve Your KPIs

Key Performance Indicators or "KPIs" are the metrics that judge your business' performance.

And, as you might know, you can't improve what you can't measure.

So the key is to 1) identify the most important KPIs in your business, and 2) measure/track them over time so you can judge your progress in improving them.

While there are hundreds of potential KPIs to track, here's a small sample of KPIs that most companies must measure:

  • Net Profit
  • Sales
  • Sales by product/service line
  • Cost to acquire new customers
  • Lifetime customer value

Importantly, as you understand and improve your KPIs, your revenues and profits will grow. In fact, identifying and managing your KPIs is one of the pillars of an 8-figure business.
 


5. Make It Simple to Purchase from Your Company


When you make it easy to buy from your company, you'll get more sales.

For example, not accepting credit cards will dramatically hurt the sales of many businesses.

Similarly, making customers complete tedious paperwork (that may not really be necessary) may frighten off some customers.

Conversely, having your product for sale not only on your website, but on Amazon, eBay and others, could make it easier for some customers to purchase from you and prompt more sales.

So, think about ways to make it easier for current and prospective customers to buy from you.

Start using these five strategies today, and watch your sales and profits grow.


How the JOBS Act Is Legalizing Equity-Based Crowdfunding


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In April 2012 the Jumpstart Our Business Startups Act (called the JOBS Act) was passed and signed by President Obama.

The JOBS Act Opens Up Equity-Based Crowdfunding

The key goal of the JOBS Act was to make it possible to raise funds from investors through certain crowdfunding sites in exchange for equity in your company.

To clarify, there are many sites online where you can raise Crowdfunding today. But on these sites, the money you raise is either in the form of donations or are in expectation of rewards; you were previously unable to raise equity via Crowdfunding.

The JOBS Act Today


While the JOBS was signed in April 2012, it did not allow for equity-based Crowdfunding...until the SEC approved certain regulations.

The first major regulations were approved last month, on September 23, 2013. Specifically, on this date, the JOBS Act removed the ban on general solicitation.

General solicitation is the act of telling people, with whom you do NOT have a pre-existing relationship, about the opportunity to invest in your private company. This had not been allowed for 80 years prior to September 23.

So now you can tell the world that you're raising equity funding. You can shout it from the rooftops, tell people about it who are leaving a library, post it on Facebook and Twitter, and so on.

The JOBS Act Tomorrow

However, there is still one BIG limitation the JOBS Act has not resolved. That issue is that, as of today, you can only raise equity Crowdfunding from accredited investors.

While the full definition of "accredited investor" is slightly more detailed, it generally means that the investor is sophisticated and has a net worth (excluding the value of their primary residence) exceeding $1 million and/or has annual income greater than $200,000 in each of the two most recent years or (or $300,000 if including their spouse).

As you can imagine, the vast amount of people who might want to invest even a small amount in your company are NOT accredited investors. That's where Title III of the JOBS act comes in; we hope that sometime in early 2014 the SEC finalizes Title III and legalizes equity-based Crowdfunding to non-accredited investors.

In the meantime, you CAN raise rewards-based Crowdfunding and equity-based Crowdfunding from accredited investors. And hopefully within a few months, the Crowdfunding opportunity will be even bigger.

 

Suggested Resource: Do you want Crowdfunding? If so, don't try to raise it from scratch -- the 14-step blueprint already exists. Get the Crowdfunding blueprint here.


7 Sneaky Negotiations Tips


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Negotiating is one of the most powerful skills you can use regardless of your business type.

Not only are there ample negotiating opportunities when buying, selling, or managing for growth; being able to negotiate well can mean the difference between reaching your desired outcome or not.

Make it a habit to negotiate all important items and it will add up in a major way. For example, think of what it would do to your bottom line to reduce expenses by 10% across the board!

Below are 7 "sneaky" negotiations tips. There not "sneaky" in that they're not deceitful or lying (which I do NOT recommend). Rather, they are techniques that you probably are not familiar with, don't do as much as you should, and which DO work.

Tip #1: Schedule the Negotiation Close to a Deadline


Ideally, you can schedule the negotiation close to the other party's deadline by which they need a completed agreement. This will put you in a more powerful position, because they are more motivated than you.

You would know their deadline by gathering research about them in advance. Scheduling the negotiations later also gives you more time to do further research and prepare for the meeting so you'll be even more effective when the time comes.

If you are the buyer, keep the end of the week, month, or year in mind. They might have internal goals and quotas in their company and will be willing to give away more in order to reach them.

Tip #2: Don't Get Emotionally Attached Inside


There are two main ways to get overly attached. The first is attachment to outcomes. The reality of negotiating is that any time you go into one, you may have to walk away, or only get part of what you wanted.

Be willing to do your best and then accept whatever outcome takes place. Fact: when you play the game you will lose some of the time. But when you cling to outcomes too much, you lose more of the time.

Be willing to walk away. This brings us to the second way to get too attached...by reacting to the other party, their attitude, and what they say (which may be designed to get you to react). Stay calm and patient, no matter what they do. Your calmness will help you think clearly and also make you appear more powerful.

Tip #3: Don't Look Too Attached on the Outside


If you're attached inside, it will probably show through your body language-so work on your inner game first. Then, pay attention to your physiology and what your posture is conveying.

Without even saying a word, you can give the impression that you're willing to walk away from the deal and that doing so wouldn't be a big deal for you. Think about how you would sit, stand, lean, listen, and the tone of your voice while speaking, and try to act the part.

You'll find that just paying attention to your body leads to it correcting itself and conveying the image you want. Try to get in the right state of mind before the negotiation starts, and check in with yourself throughout to make sure you're not slouching or appearing less confident.

In reality, you're sending messages through your body language that many salespeople or experienced negotiators are trained to read. The only question is whether to pay attention it to yourself or not. And the answer is "yes!" Try it and see.

Tip #4: Never Be the First Person to Name a Figure


For example, if someone asks you what your firm's hourly rate is, don't just react and answer it right away! You'll be tempted to blurt out something that is less than you wanted by the time the meeting is over.

You could respond by asking what their budget is for the project with which they need help. A low-anxiety way to turn it back on them is to respond with a clarifying question. Then, ask a second question like the one above to the other party that's aimed to find out what they can pay, or are willing to pay.

Tip #5: Always Ask for More than You Need


If you can't avoid naming the first figure, then make the best of it by asking for more than you need, to start the negotiations with plenty of room to come back down later if you must.

Sometimes the other party will accept this higher offer right away! These are the exceptions, but always do it anyway because you never know.

So if someone asks for your hourly rate, as mentioned above, you could answer with a higher hourly rate than you would typically bill. This also gives the impression that they are getting more value in the deal, as those who "typically" bill a higher rate more are usually seen as more competent professionals. (I would then suggest that if you get the deal, to work extra hard on it to make it worth the higher price.)

Tip #6: Never Take the First Offer


If you CAN get the other person to name the first figure, here's what to do-balk, then ask them to do better. I know a few guys who do this out of habit no matter how low the starting price is.

When they name their figure, try to look shocked or surprised. This does wonders to manage expectations for the same reason that starting with a lowball offer works. Then, even if it's a lot better than you expected, calmly and assertively (but not arrogantly) state "Is that the best you can do?" or "I think you'll have to do better than that."

Tip #7: Don't Get Suckered by the "Rules" Trick

Don't think for a minute that all contracts must be signed as-is. If the other party has a contract to sign, feel free to cross out anything you don't like in it. You can also add items you feel should be in there. Don't just sign away your chance to improve your outcome! It's all negotiable.

Some companies or salespeople will try to tell you that the contract can't be altered. Find out if this is truly the case by asking where it says that. Is it law? Is it company policy? Has an agreement ever been changed before? Who could approve it? Find this out and have them get permission from their manager if needed.

If the boilerplate language of the agreement really can't be altered, take this as a cue to go back and renegotiate one of the previous items by saying something like "Okay, well if I can't change this paragraph, lower the price by $X and you've got a deal."

There are dozens more negotiating and persuasion tips I discuss in "Getting What You Want." The key is for you to not only know these tips and tactics, but to use them in the daily course of running your business.


14 Times You Should be Negotiating


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This article presents 14 times and ways when you can negotiate to get a better deal for your business.

After reading this, I want you to choose the ONE most significant thing in your business that you must negotiate in the near future.

I'm not talking about buying a used swivel chair on Craigslist. I'm referring to one of the various opportunities that you have as an entrepreneur to determine your own end results-possibly saving thousands or tens of thousands of dollars-on some significant expense or transaction coming up.

Since so many things in business are negotiable, keep negotiations top of mind. Generally you should always try to negotiate as you often have nothing to lose.

Here we go...

Negotiating with Suppliers


1. Cost of high-end purchases - Typically, items you buy in the hundreds or thousands of dollars have a more involved sales process, so the vendors offering them are more likely to adapt and negotiate in order to secure your business. They also have more leeway between their cost and what they charge than if they were selling commodities.

2. Payment terms - Oftentimes you might rely on customer payments to cover your purchases. IF so, you'll ideally want to pay your vendors after your customers pay you. So negotiate this preference

3. Quality/Scope of Offering - Maybe your budget is limited and you just can't pay more for something than you have. Don't stop negotiating! Just change what you ask for. Suppliers might be able to offer you better service, some freebies, or an upgraded package just by asking for it.

4. Volume discounts - If you're a startup and don't have volume yet, then share your vision with suppliers of how you will grow and what your company will become. Use this vision to negotiate a volume discount over time that starts immediately.

5. Office Space - It's funny how many people walk over dollars to get to the dimes. The same people who drive 2 extra miles to pump gas at a station that's $.02/gallon cheaper will not bother negotiating on major purchases and save thousands. Your working space is one of your highest expenses-so fight for the best price!

Negotiating with Employees


1. Salary - Obviously, when hiring a full-time employee there will be salary negotiations. This is the final part of the hiring process and it pays to prepare as it might save you thousands of dollars per year. And, with freelance service providers, they will often offer discounts off their regular hourly rate in order to get a first project started with you, or in exchange for consistent work.

2. Equity or Partnership - in the beginning, you might not have the cash to offer real players a full-time job, but you can attract them by offering a piece of the pie, if you can show that the opportunity is great enough. You can avoid paying market-level wages.

Negotiating with Investors and Lenders

1. Basically, everything you agree on with an investor or lender is negotiable, including:

  • Loan amount
  • Interest rate
  • Equity
  • Length of time for repayment or exit
  • Security
  • Personal guarantee
  • Payment amount and frequency


Negotiating with Buyers

1. Price - Your customers generally want the lowest price, and you probably want the highest. So try to offer other concessions besides price to close sales when customers won't pay as is. For example, you can include an additional product or service to influence the customer to buy.

2. Special Discounts - These are made on a case-by-case basis, and should be used sparingly. These are different from sales, which is a pre-emptive concession to get people in the door. Only agree to lower your price in exchange for something else, or if they commit to buying now.

3. Offering bonuses - These are the extra add-on items you can offer the customer that add value but don't affect your cash flow as much. You might upgrade or further personalize the product or service you offer-anything to sweeten the deal.

4. Extending financing or payment plans - This is another way to keep your price high and still make more in the long run, if you don't mind waiting a little longer and also not being able to collect a certain percentage of the remaining payments (hopefully a small number).

5. Collecting accounts payable - If someone falls behind in making payments to you, the best thing to ask them is how much they are able to pay, and when. Let them tell you...and this will start the negotiation and give you a better idea of what's possible.


Which of these negotiating scenarios do you see coming up soon on your radar? Which could you make happen now? What would you stand to gain by having the courage to ask for more?

And what do you stand to lose by asking? The odds are, nothing. The worst they can say is "No." Don't worry...few deals have been lost because someone got offended by an attempt to negotiate. They may even respect you even more for having tried!

Now, since the first step of negotiating is to begin with the end in mind, and picturing a clear outcome in your mind, take the negotiating opportunity you choose and break it down in to specific objectives, like "Save 25% on our office's new security system" or "Work a deal with our new CFO to work for $2500/month in addition to 10% ownership" or something equally specific. The time to negotiate starts now.


Jeff Bezos and Amazon's Success Secret


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Last month, author Brad Stone released an interesting book called, "The Everything Store: Jeff Bezos and the Age of Amazon."

The book chronicles the story behind Jeff Bezos and Amazon, but there's really only one paragraph from it that I'd like to focus on herein. That paragraph reads as follows:

    "They [Amazon] would let other more experienced retailers sell everything on the site via Amazon's Marketplace, and Amazon would take a commission. Meanwhile the company [Amazon] could watch and learn. That was something we did quite well, says Randy Miller. If you don't know anything about the business, launch it through the Marketplace, bring retailers in, watch what they do and what they sell, understand it, and then get into it."


So, let me break this down for you if it's not apparent. Rather than selling items like apparel and kitchen items itself, Amazon launched these categories through the Amazon Marketplace where other vendors sold them.

In doing so, Amazon was able to see what products sold well and how they were sold. And then, when a product sold well, what did Amazon do? Well, they started selling the item themselves in the main Amazon.com site.

So, what is this strategy called?

Market Research. That's right, Amazon.com went from an online bookseller to the WalMart of the internet by doing market research. Because with the right market research you can avoid the missteps that most companies and entrepreneurs make.

So, what kind of market research will help you grow your company? Below are the key research areas you need:

Industry Research


In assessing your industry or market, start by defining how big it is. Why? Because if it's too small, it's probably not worth entering. Define your market as clearly as possible. For example, if you manufacture prosthetics, look at the size of that market, not the entire healthcare market.

Next look at market trends. For example if the market is shrinking or consolidating, it's probably not a great market to enter; unless you have a revolutionary new product that could shake things up.

Customer Research

Understanding your target customers is absolutely critical to your business' success. In fact, one of Jeff Bezos' hallmark strategies is "We start with the customer and work backward."

In your research, you need to precisely identify and define who your customer is. Define their demographics such as what gender they are, how old they are, where they live, etc. If a business customer, also define their role in their company and the type of company for which they work.

Then move to the psychographic questions. What do your customers like to do in their free time? Who do the like on Facebook? Etc.

The more you know your customers and what make them tick, the better job you will do in creating the products and services they want, and effectively marketing to them.

Competitive Research


Identify who you are top competitors are. Importantly, like Amazon did, determine what has worked well for them and what their customers are buying.

The old investor saying is very important here, which is as follows: "if you have no competitors; maybe you have no market." What this means is that if customers aren't currently buying a product or service that serves the need your company fulfills, then maybe that need and thus market doesn't exist.

The more you understand your competition, the better you will do in creating a winning strategy. Fortunately, with online tools, you can learn a lot about your competition. You can find out the demographics of their website visitors, what other sites those visitors frequent, what other companies they like on Facebook, and so on. Clearly this information will help improve your marketing and overall strategy.

Financial Research


The final category or research to conduct is financial research. Here the goal is to develop benchmarks. For example, what is the average Cost of Goods Sold in your industry? What percentage of your revenues should staffing costs comprise?

By understanding these benchmarks, you can do a better job in determining financing needs and also measuring and improving your performance over time.

We all know that knowledge is power. And when running a business, the knowledge you need is market research. With it you'll have a better strategy and your likelihood of success skyrockets. Without it, you're shooting in the dark. I prefer the former.

 

Suggested Resource: If your business plan and/or strategy is missing critical market research, you will fail. Or worse yet, if your plan or strategy is based on faulty research, you're doomed. Click here to learn how my team can quickly and affordably conduct your market research for you.


The 5 Questions That Determine Your Business' Value


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The biggest aspiration of most entrepreneurs and business owners today is to grow and then sell their businesses. And why shouldn't it be? Selling your business creates more multi-millionaires than any other endeavor.

The key issue however is this: are you growing your business the right way, and are you focusing on the right things? You see, when it comes time for buyers to appraise the value of your business, they might find different things to be important than you do. And the last thing you want to do is focus your time developing aspects of your business that buyers don't value. Particularly when doing so forces you to neglect the things they do.

Below are five key questions that will determine your business' value. Answer them honestly. And then work to improve your position on each.

1. How replicable is your business?

When corporations consider buying a business, they make a "build" or "buy" decision. That is, they ask whether the time and money it would take to build a similar business from scratch is greater than the cost to buy the business from you now.

As such, the more unique and less replicable your business is, the better. So think about how replicable your business is. For example, could another company easily replicate your products or services? Could they easily hire and train a team as good as yours? Would it be simple for them to build a customer base like yours?

Answer these questions honestly and focus on building a profitable AND harder-to-replicate business going forward.

2. How easy will it be to run your business after acquisition?

Why do we pay a premium for a new automobile versus a used one? Because we know the new one doesn't have any problems. It hasn't gotten into any accidents. It doesn't have an oil leak, etc.

Similarly, acquirers will pay a premium for a business that is in great "running condition." Sure, every business will have its challenges, but a business that is simple to run, like a new car, will be highly valued.

So, let me ask you this: if you sold your business today and retired, would the new owner be able to easily run your business thereafter?

  • Do you have systems in place that enable your business to run consistently every day?
  •  
  • Are your employees trained to handle all key issues that arise?
  •  
  • Will your customers continue to buy from your company even though you're no longer a part of it?

Always think how your business will run after you're gone. And if currently it wouldn't run smoothly, take actions now so that it will.

3. How has your business performed financially?

Unless the majority of the value of your company is in unique and patented technologies, buyers will thoroughly review your financial performance.

Clearly, they want to see strong revenues and profits. And they want growing revenues and profits. If your revenues or profits are on the decline, many buyers will project that decline will continue, and thus significantly decrease the valuation of your business. Fortunately the opposite is true, so do whatever you can to have strong and growing revenues and profits.

4. How stable is your customer base?

Your customers are the lifeblood of your business. The revenues you generate from them pay the bills and ideally fund great profits.

As such, acquirers will scrutinize your customer base. And the most important question is how stable that base is. For example, do they expect 50% of your customers to leave after the acquisition? Or 25%? Or 10%? Or none?

Clearly, the more stable your customer base, the more attractive you are to an acquirer. In the ideal situation, you have signed contracts with customers so the acquirer has complete certainty they will be retained. If not, ideally your customers have gotten in the habit of buying your products or services, or have a solid preference for them, so their continued patronage is likely.

Likewise, having a diversified customer base, as opposed to just a few very large clients, helps. Because with fewer, larger customers, there's more risk that one will leave and take a large chunk of your revenues with them.

5. What are the odds of sustainable future growth?

When you combine the four questions above, much of what the acquirer is trying to answer is what your odds are for future growth.

For instance, if you have a stable customer base, your financials are strong and growing, your business is unique, and it will be easy to run your business post acquisition, then your odds for future growth are great and you will have tons of suitors.

And tons of suitors interested in buying your business means that they will bid the value up and up, so when you sell, you will get a great premium. Which is probably one of the reasons you started your business in the first place. So do this, and make it happen!

 

Suggested Resource: If you want to build a sellable business, watch this free presentation called "Million Dollar Exits: How to Build a Business You Can Sell For Millions of Dollars." It starts by explaining the 3 most dangerous trends facing entrepreneurs today. Click here for this must-know information.


Building Your Dream Team


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No great companies have just one employee. None. Which means that in order to grow your company, you need to build a great team.

In building your team, there are two equally important but distinct parts: recruiting great employees and expertly managing them so they perform at their best.

1. Recruiting Great Employees

Recruiting great employees requires you to: 1) determine who to hire, and 2) hire the right people.

Determining Who to Hire

In determining who to hire, you need to assess both what job functions you need now, and what functions you'll need in the future. This will help you find the right people.

Consider this example: you need someone right now to manage your marketing. So you hire a marketing manager. A year from now, your company is doing well and you hire four more people as part of your marketing team.

Now here's the question that arises: is the person you initially hired for the marketing position the right person to lead your marketing team? Sometimes they are, but often they aren't. Since performing in a role yourself is a very different job than managing a team.

So, the question you need to ask yourself when you initially hire the marketing person is this: should I hire someone simply to meet my short-term marketing goals, or should I hire someone that can fill my short-term goals and who could also manage and grow my marketing department. The latter hire will typically be more qualified, and more expensive, so making such a decision is important.

Another tip when determining who to hire is to conduct a return on investment (ROI) analysis on new positions. That is, what expected return, typically in terms of increased profits, will the business generate in return for hiring each new staff member. The less funding you have in your business, the more important this analysis becomes in choosing who to hire now.

Hiring the Right People

There is an old and important saying in management, "Hire slowly and fire quickly." You hire slowly since it's critical to get the right people in your organization. And you fire quickly, since bad employees can ruin the morale and productivity of your entire team.

The process of hiring the right employees starts with sourcing them. You can source or find employees from a wide range of places, from college job boards to posting classified ads. For each open position, think about the best places to find qualified prospects.

Once you find qualified prospects, the key is to weed through them to find the top performers. While interviewing prospective employees is key, remember that someone's interviewing skills are not as important as their on-the-job performance. That is, someone can be great during interviews, but not so great on the job.

To overcome this challenge, delve into the prospect's performance in their last jobs and, as much as possible, give them tests to see how they might perform in your company. With regards to tests you give them, treat their performance on them as their best possible work. While they can refine their skills with training, prospective employees generally give it their all on such a test. So, if they score mediocre, they are not a good prospect.


2. Expertly Managing Your Team

Your job as a manager doesn't stop once you've recruited a great team. Rather, you need to expertly manage them. We see this in sports all the time; one team has incredibly talented players, but they still don't win the championship.

Key to your company's performance is motivating and managing your employees so they work collectively as a team and are highly productive.

Among the many techniques for accomplishing this, here are two of my favorites:

1. Let Your Employees Set Goals for Themselves

Employees will perform much better when they've set their own goals, rather than goals being dictated for them. So, have each employee set goals. Then review those goals with them. As needed, persuade them to modify their goals to better align with company goals. Even when you do this, they will feel personally accountable for achieving their goals.

2. Conduct Performance Reviews

If you don't meet with employees and review their performance, they won't know whether they're doing a good job or not. So, meet with your employees periodically to discuss their performance versus their goals, detail what they are doing well at, and identifying areas for improvement and your suggestions to achieve such improvement.

Your Team Allows You to Win the Game

We all face competition in our businesses. And the difference between the winners and losers is often the quality of the teams.  Clearly, if your marketing manager is better than your competitors', and so is your sales team, your production team, etc., you're going to win every time. So, focus on building your dream team so you emerge victorious.

 

Suggested Resource: Building Your Dream Team is a comprehensive video program that takes you through the four phases of building an outstanding team, which are: 1. Building a Founding Team, 2. Determining Who to Hire, 3. Hiring Superstars, and 4. Expertly Managing Your Team. Click here to learn more.


Focus On Value Drivers To Get To A Big Payday


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The acquisition market continues to be very strong. In the 12 months ending August 31, 2013, $881.7 Billion was paid to acquire 9,499 US companies. This represents an 8.1% increase over the $815.9 Billion paid to acquire companies in the previous year.

Importantly, during this time, the average EBITDA multiple paid for Middle Market firms (companies valued between $1 million and $500 million) was 9.1. This means that if your company's EBITDA (earnings before interest, taxes, depreciation and amortization) were $2 million, that your company would sell for 9.1 times that or $18.2 million.

I'm telling you this important information because selling your company is the ultimate goal for most entrepreneurs, because it's how you achieve significant wealth.

Importantly, not all of the $881.7 Billion paid to buy these companies went to the founders of these companies. Some of it went to investors, employees, and others. But the entrepreneurs who founded them received by far the biggest chunk.

That's why 80%, a full 4 out of 5, of individuals with a net worth of $5 million or more (called "pentamillionaires") are entrepreneurs who started and sold their businesses.

Here are some acquisitions that have taken place in just the last few days:

  • Sega purchased Atlus, a gaming company, for $141 million

  • Xchanging, an outsourcing services company, acquired e-sourcing provider MarketMaker4 for $22 million

  • EnerSys, an industrial battery manufacturer, agreed to acquire Purcell Systems, an electronic equipment company, for $115 million

  • Intel purchased Indisys, an artificial intelligence technology for $26 million and Omek, a gesture-based interface company, for $40 million
  • Google acquired mobile startup Bump for over $30 million (exact amount not disclosed)


And the list keeps going.

Now importantly, I want you to understand why each of these companies was acquired for millions of dollars. Here's why: each of them developed the right value drivers.

You see, whenever a large company considers buying a smaller company, they make a "build or buy" decision. That is, they think, "how long and how much money will it take for us to build what that company has already built." And then, they compare that answer to the price at which they could buy the company.

And when the larger company realizes that buying the smaller company is less expensive (in terms of dollars and time savings), they buy it. And as you read above, they often buy it at a huge price.

Now, what value drivers do buyers want?

I have identified 21 different value drivers they want. Such as the following:

1. Customers: the more customers you have and the more valuable your customers are, the more acquirers will pay to buy your company.

2. Intellectual Property: the more intellectual property you have, such as patents, trademarks, copyrights, and trade secrets, the more your company is worth to acquirers.
 
3. Team/employees: the more talented and trained your team, the higher the price the acquirer will pay for you.

So, be sure to build your company with these value drivers in mind. When you figure out which of the 21 value drivers are most important to acquirers in your sector, and focus on building them, you'll soon get to a massive payday - a big acquisition of your company.


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