Jim Beach sold American Computer Experience for $200 million, which sounds like a fantastic exit, but when I asked Beach if he had any regrets I was surprised by how long a list of lessons he had to share.
Jim Beach’s lessons to share:
- How creating new divisions can help grow revenue but reduce the overall value of your company.
- The dangers of raising venture capital.
- Why growing faster than your cash flow may end up costing you more equity in your business than you want to give up.
- The perils of partnering with a celebrity entrepreneur.
- Why you should never take an angel investment from a friend or family member.
- How to avoid a $250,000 legal bill when selling your company.
Think Twice Before Starting That New Division
Growing revenue by starting new divisions can feel like you’re making progress, but, in many cases the growth can come at the expense of your company’s value. At The Value Builder System™ we help entrepreneurs improve their company’s value. We start by scoring your businesses on eight factors that are statistically linked to the value of your company.
One of the eight attributes is called The Monopoly Control, which quantifies how well differentiated your business is from its competitors. Starting new divisions often reduces your performance on The Monopoly Control because each new offering is almost always less differentiated in the market than the original.
In Beach’s cases, while the computer camp division was well differentiated, the contract event management services he offered the Boys and Girls Club was less unique, as there are many companies that offer generic event management services. See how you perform on the Monopoly Control by getting your Value Builder Score here.
Click to Tweet: Ep. 59 of #BuiltToSell Radio: The dangers of raising venture capital with Jim Beach and John Warrillow.
At Built to Sell we’re all about shifting the balance of power from the buyer to the seller. If you support our mission, please write a review on iTunes—and if you have any comments or questions you can find us on Twitter and Facebook. Tune in every Wednesday for another episode of #BuiltToSell Radio with John Warrillow.
About Jim Beach
Jim Beach’s first book, School for Startups, was published by McGraw-Hill in June 2011 and reached as high as number nine in Amazon’s business best-seller list. Beach has started businesses and taught entrepreneurship around the world and he recently won the Small Business Administration Media Advocate Award for his terrestrial radio show.
At the age of 25, Beach founded American Computer Experience. From 1993 to 2000, Beach grew the company with no capital infusion to $35 million in annual revenue and to over 60 permanent and 700 temporary employees, operating in 39 states and in three countries. With locations at MIT, Stanford, UCLA, Georgetown, and other exclusive universities, it was the world’s largest technology training company for children, and enjoyed corporate tie-ins with Microsoft, Intel, Lego, NASA, and many others. In 2000, Beach closed two rounds of venture funding, one for $2.4 million and another for $6.4 million. The Atlanta Business Chronicle recognized the company as one of the fastest growing in Georgia for both 1999 and 2000.
In 2009, Beach founded the School for Startups, www.SchoolforStartups.com/, a web resource devoted to teaching his philosophy of low risk entrepreneurship. He believes that anyone can be an entrepreneur when they forget about risk, creativity, and passion.
Beach lives in Atlanta, is married and has four children, ages one, five, 16, and 18.
Some Highlights of the Show
Business: American Computer Experience
- “I copied someone else’s idea, but we were selling happiness.” [2:30]
- “We grew to 89 locations across the United States and three other countries.” [7:25]
- “Five years into the business we woke up $10M in debt.” [8:30]
- Click to Tweet: The perils of partnering with a celebrity entrepreneur. [11:30]
- A failed acquisition by the only other large competitor in the industry. [12:10]
- Bringing on a new partner and raising additional funds through his network. [15:00]
- Founding ownership of 55%. [17:00]
- Expanding into five new divisions. [17:17]
- “I was the face of the business and it was very hard to figure out how to sell.” [23:00]
- Click to Tweet: How creating new divisions can help grow revenue but reduce the overall value of your company. [23:58]
- “We decided to split the company up and sell it piece by piece.” [24:00]
- The triggering event. [26:19]
- The toughest part of the exit—surviving the year before the exit. [28:25]
- #1 takeaway—creating new divisions can help grow revenue but reduce the overall value of your company.
- Spending $100,000 in lawyer fees on this one question. [33:15]
- The legal structure. [36:00]
- #1 lessoned learned—don’t trust the lawyer to understand the deal; you have to understand the deal and all of its intricacies. [37:15]
- Hiring a tax lawyer, divorce lawyer and deal lawyer. [39:30]
- The do-over—“I would not have had a partner, I wouldn’t spend money I didn’t have in the bank, I would not have taken an angel investment from someone I knew, and I wouldn’t work with venture capitalists again.”
- Final advice—“Don’t start a business that you haven’t already figured out how to sell.”
- Jim is also the author of School For Startups.
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