As a business owner, I encourage you to think about your business a little differently. That is, I want you to think about your business as a product. And specifically a product that one day you might sell to an acquirer (for a lot of money of course).
By thinking about your business this way, you will be more likely to build a company that an acquirer would want to buy. As opposed to the vast number of un-sellable businesses most entrepreneurs unfortunately create.
Importantly, even if your intention is never to sell your business, I want you to adapt this way of thinking. Because the same attributes that will make your business attractive to buyers will also make it perform better for you. Remember, your business should work for you, not the opposite.
Looking at your business as a product, the first question to ask (and the first question an acquirer will ask) is:
Does the company you built stand out from the others?
In assessing a product, we typically consider its unique attributes or unique selling proposition. For your business, what about it will get the buyers’ attention? Will it be your cash flow, recurring revenues, or potential for significant future growth?
A second question a product buyer might ask is ‘”how easy is it to use the product?” Similarly, an acquirer will ask:
How easy will it be to run this business after acquisition?
Clearly, the acquirer will want the smoothest transition possible when taking over. The acquirer does NOT want to deal with:
- Employees not knowing what to do or how to do it without you being there
- Clients and customers leaving along with you/the old owner
- Hit-or-miss revenues and unpredictable cash flow
- Being outdated by competition, trends, government regulations and/or new technologies
Likewise an acquirer would NOT want to purchase a company in which a small handful of clients represented the majority of revenues. In such a case, even just one or two clients leaving could materially hurt revenues and possibly bankrupt the company. Yes, even thriving businesses have been bankrupted by one or two trophy customers leaving because they failed to diversify their customer base.
Another question a product buyer typically asks is “what are the key features of the product that allow it to perform?” In relation to your business, these features include the Financial Metrics you’ve achieved and Business Assets you’ve built.
How has your business performed financially?
Obviously a buyer will want a business that makes money (or could make it money), and the more predictable and turn-key it is, the more you can make from the sale.
Doing your homework on what similar businesses sell for will help you plan your exit in this regard. Find out what yearly revenues and earnings is the “sweet spot” for businesses or individuals on your target acquirer list, and make this your revenue goal to shoot for before selling.
This is harder to do in the “survival” stage of your business, obviously. But over time as you discover what works and what doesn’t and double up on what’s effective, a higher percentage of your efforts will succeed and that adds to its predictability and stability.
What business assets has your company built?
A big part of your business’ value is the time and effort you put into building the business assets that allow your company to profitably and efficiently run.
These business assets, which will strengthen your business and increase its value, include:
- Subscribers & Customers – Your customer base is one of your biggest assets, and represents the chance to market repeatedly to the same people. Your databases of those who subscribe to be contacted by you via email, Facebook, text messages, etc, are also assets to spend time and energy increasing.
- Systems – Who does what in your business? What are the recurring tasks that someone will need to perform over and over and over again? What is the correct process for each of these, and the steps involved? Your business’ acquirer does not want to come on board with all of this information in your head. Ideally, these processes and checklists will have been mapped out in advance and followed as “the way we do things here” all along.
- Solid team – It takes time, trial, and error to find the right team, and much more time after that to coach and develop them to be able to run the business without you. This is also part of the work involved with preparing a company for sale. Between documenting systems and this, having exceptional people is much more important, because the right people will be willing and able figure out how to get results without having it all spelled out.
- Hard assets and technology – These business assets include real estate, machinery, inventory, web properties, software, etc. which help you run the business more effectively.
A final question you might consider when purchasing a product, and particularly an investment product, is its future growth potential. When considering purchasing a company, a similar question the acquirer will ask is:
What are the odds of sustainable future growth?
Few buyers are going to pay you a significant multiple of your annual revenues or profits unless they believe they can increase those revenues/profits even more. Otherwise, how are they going to get a return on their investment?
The ideal time to sell is after you have demonstrated profits and growth, and right as you’re positioned to grow even more, and that means:
- Growth – Having a solid business model and proven lead generation strategies in place that can be expanded by increasing ad spend, or reaching new segments, or moving into entirely new markets altogether. Get your company in a position to do these things, to pave the way for the new owner. Buyers also want a sales process and team that can handle several times more sales without a lot more training and development.
- Risk – What risks exist now or in the near future that might keep the new buyer from getting what they want? You’ll want to consider ways to mitigate legal, financial, competitive, governmental, and technological changes and threats.
- Unique Competitive Advantage – Being a “me-too” company puts you on shaky footing, whether managing or selling such a business. Creating and cementing your unique competitive advantage is a critical factor in creating a quality business.
By looking at your business as a product, you can build a thriving enterprise that satisfies your needs and the needs of a big-pocketed acquirer. Specifically, you want to build your business so that it’s unique, can run easily upon acquisition, has strong financial performance, includes valuable business assets, and is positioned for future growth.
Do this and then enjoy the success that comes with it!
The Ultimate Path to Wealth
as an Entrepreneur
What’s the ultimate path to wealth as an entrepreneur?
Build your company and then sell it for millions to the highest bidder.
Don’t build your business the wrong way.