acquisitions | Built To Sell

August 12, 2010

Hugh Hefner, criticism and 8 tough questions

I got slammed in the comments section of an article I wrote yesterday with the title “Do You Love Your Business As Much As Hugh Hefner does”. Last year Hefner told The New York Times that “If I sold it (Playboy Enterprises), my life would be over” and I used Hefner’s quote as a hook to write a piece about how much my business had become part of my identity until I almost lost both in 2004.

The comments mostly accused me of being an egomaniac. Here’s a little sampler:

“The writer must get paid by the number of clicks on the link. based on the pic, I thought it would be a good story about Hef and the challenges of the Playboy brand today. Instead, and very boring story about the writer himself. No wonder the key employee left.”

“A clue to this man’s ego is that he the company after himself. That he writes about himself as “news” demonstrates further this egoist does not deserve the title of journalist.”

When I write, I try to remember the suggestion I got from Entrepreneurs Organization (EO) about 10 years ago, which was to share experiences instead of providing advice. That’s why you’ll notice most of the articles below feature me as the protagonist. I understand why some people see that as narcissistic.

I still don’t like criticism but I have become used to it through the process of building a business to sell. First, my employees criticized my obsession with standardizing our offering and agreements. Later on, in the management presentations I conducted with potential acquirers, the MBAs poked holes in my business model. Eight of the toughest questions I got from prospective acquirers are featured in the first of the three new articles I have selected for you below:

Eight questions you’ll get when you’re ready to sell your business

~ published August 3, 2010 the Globe and Mail

One of the most intimidating parts of selling my last business was facing the barrage of questions during the various management presentations I did for companies interested in buying it. Each meeting had a different vibe, with each potential acquirer keen to dig into various aspects of the business.

Based on my experience in the hot seat, I’ve prepared a summary of some of the questions you’re likely to get when you’re ready to sell your business. »more

Re-energize your business by preparing to sell

~ published August 4, 2010 the Globe and Mail

Recently a reader wrote the following comment about one of my articles:

“If you are running your business with one eye looking at selling it to someone else, how much passion and dedication are you putting into it?”

Respectfully, I have to disagree with what the reader is suggesting. »more

3 Reasons Why Your Name Isn’t a Good Company Name

~ published July 30, 2010 BNET

Be careful what you name your company, it could come back to haunt you later.

The first time I was threatened with a lawsuit, I had been in the business for only three months. I had hastily chosen the name “Brass Tacks Communications” for my market research business without doing my homework to see if somebody already had that name. Sure enough, there was another Brass Tacks Communications offering marketing services in my city. »more

(photo courtesy of Hugh Hefner Pictures)

December 21, 2009

7 things to make your business more sellable in 2010

1. Ask your customers to recommend you on LinkedIn. When you pull the trigger to sell your business, you’ll have a built in list of customers an acquirer can talk to during due diligence (yes, they will ask to talk to your customers).
2. Pick one product or service to stop selling; the less you offer, the more your staff has a chance to become specialists.
3. Hire another sales person. Business owners often rely on their own rainmaking to supplement the sales their staff makes. Who will top up the funnel when you’re gone? If you’re doing the selling, your business isn’t worth very much. Hire one more sales person than you think you need. It’s a great time to hire now and it will take the first six months of the year until they are ramped up.
4. Make at least one decision that will make your company less profitable in the short term and more valuable in the long term. After your cash flow statement, a valuation statement is more important than your P&L.
5. Pick one procedure that currently resides in your head and document the process for your employees to follow. It could be how to lock up at night or how to update your website. Start by documenting the simple stuff and work up to the more complicated procedures.
6. Charge more up front. The less cash you burn, the less cash an acquirer needs to commit to your business and the higher their potential return on equity. The higher the return on equity, the higher the price you’ll get for your business. If you charge 25% up front, would anyone really protest if you charged 35%. The extra 10% will go along way to reducing your working capital requirements.
7. Pay a little slower. If you pay in 45 days today, is anyone really going to cut you off if you start paying in 55 days? See point 6 for the payoff of paying slower.

What are you doing differently in 2010?

July 23, 2009

Square Peg

k1355126 Quick! Grab a napkin and calculate how many unique companies accounted for your revenue last month. If you’re like most traditional service firms, your largest customer accounted for at least 25% of your revenue. We need to fix that.

When you go to sell your company, an acquirer is going to try and understand how predictable your revenue stream is. One swing factor will be how exposed you are to any one client. If you rely on one customer for 25% + of your revenue, an acquirer is going to take a steep discount on your market price at best, or walk away at worst. Your goal should be to ensure none of your clients make up more than 5% – 10% of your revenue. That way the impact of losing any one customer is minimized.

It’s natural for service firms to have a couple of big clients

Don’t panic if you have a couple of key clients driving most of your business. It’s natural: you’ve been taught to focus on your best customers (80/20 rule), listen to their needs, build deep, long-last relationships and tailor your solution based on their needs. You’re an inch wide in terms of number of clients and a mile deep.

That’s fine if you want to run a lifestyle business, but if you’re building a company to sell it, you need to become a mile wide in terms of customers and an inch deep in terms of what you do for them. Follow these steps:

Start by creating a Standard Service Offering and a corresponding pitch deck (or brochure)
Develop a rank ordered list of your top 100 prospects for your Standard Service Offering with your best prospect ranked #1.
Draw a line through your list at the number 50 and try and get an appointment with prospects 50-100 (you want to save your top 50 prospects for after you have honed your pitch)

Keep track of the following:

Number of appointments
Number of sales

You’ll need these ratios for building a sales engine and projecting your results across sales team.

You have a hammer and you’re on the hunt for a nail. Your conversation rate will go down so you need to compensate with more prospects. Your role in the sales process needs to evolve from chief rain maker for your firm to sales and marketing manager for a business. You need to focus your personal attention on making sure your sales people (yes, you need to hire some) have enough leads to call on.