Monthly Archives: August 2011

August 25, 2011

The second best way to boost the value of your business

I had dinner last night with a guy who trains dogs. He used to train dogs for an hourly fee but decided to shift his model from selling time to selling a product. Now he markets a set of pre-recorded dog training videos through his web site and earns more than a million dollars a year selling something people buy while he sleeps.

Selling a product, rather than your time, offers a fantastic leap in lifestyle benefits and makes your company more sellable. When I recently surveyed merger and acquisition (M&A) professionals about what makes a business attractive to a strategic acquirer, virtually all of them agreed that a company’s potential growth is second only to profitability among the factors that make the company a must-buy in the eyes of an acquirer.

But the term “growth potential” is a little nebulous, so I asked the M&A guys to go a layer deeper and explain how buyers assess a company’s scalability. The most important question they ask themselves is: “Could your business be five times bigger without adding five times the cost or complexity?”

Customization is the five times killer

If you customize what you sell, it means people are involved, which makes it impossible to scale quickly.

In my research business, we started out offering to customize the reports we sold, but it robbed our business of its leverage. Once we standardized and stopped offering to tailor reports, we were able to scale up.

Yes, we lost a few customers who were used to the custom reports, but we added many more new subscribers because we weren’t wasting our time and money customizing and could invest those resources in hiring sales people.

Often the need to customize comes from ten percent of your pickiest clients. If it is time for you to say goodbye to the customers who want their Big Mac without the pickles, follow these three steps:

1. Narrow your target market. Part of the reason you have to customize may be that your audience is too wide. Decrease the diameter of your bull’s eye until you can identify a group of people who like what you sell off-the-shelf and develop a discrete offer for your ideal customer.

2. Productize. When customers buy services or time, they are accustomed to being able to provide input. At the same time, everyone is used to buying products off-the-shelf. The trick is to brand your stuff consistently so customers start to see it as a tangible product instead of a squishy service.

3. Say no. When customers ask for special tweaks, explain that your offering has been time-tested for X number of years to render the best results. Explain that you’ve honed your formula and – just like the twelve herbs and spices or the secret for getting the caramel inside the chocolaty pockets – you’re not willing to change something that has been proven to work. I have found that most people respect your intellectual integrity and go along with your standard offering. The one or two who insist on special favours are not worth the hit your valuation will take when you’re ready to sell.

PS. One available spot at my “Sellability” workshop

One of the 16 attendees at my upcoming Sellability Workshop in Chicago on September 28 & 29 just cancelled. This session is not for everyone (attendees must have between $500,000 — $7,000,000 in annual sales), but if you want his spot, this is your opportunity. First come, first serve, and I have no plans to repeat the session. What you’ll learn is the “inside baseball” on selling your company for a premium from people who have actually done it. Apply here.

(photo courtesy of Flickr/pamhule)

August 03, 2011

Quantitative proof of what makes your business sellable

Over the last month, I’ve conducted two surveys to quantify what makes a company sellable. So far, 345 of you have completed my reader survey of business owners — thank you! I have also surveyed 92 intermediaries (mergers and acquisitions professionals and business brokers) to get a sense of what the pros who sell businesses for a living are seeing in the trenches.

One of the most interesting statistics relates to the extent to which your business can survive without you. I asked business owners the question,”How would your business perform if you were out of action for 3 months and unable to work? As you’ll see from the chart below, the most valuable businesses could better handle an extended absence of the owner.

So who should you hire to get your company to run without you?

I asked the professional intermediaries who you should hire to make your company an attractive acquisition target. Most mergers and acquisitions professionals agreed that hiring a second-in-command/general manager will give you the best return:

So now you have empirical proof of what you’ve known all along: to sell your business, you have to figure out a way to get someone else to be able to run it.

Your August homework

Your homework assignment is to take two glorious weeks off in August. Dip your toes in the ocean, climb a mountain, watch a t-ball game and enjoy. When you get back to the office, figure out what went wrong and start the process of making your business better able to handle your absence next time.

How to get a copy of the research findings

If you’d like a full copy of the 24 page reader survey results, please take 13 minutes and answer the survey. Everyone who completes the survey gets a copy of the results.