Case Study: How Three Moves Quadrupled the Value of this Business

Are you stuck trying to figure out how to create some recurring revenue for your business? 

You know those automatic sales will make your business more valuable and predictable, but the secret to transforming your company is to think less about what’s in it for you and more about coming up with a reason for customers to agree to a monthly bill.

Take a look at the transformation of Laura Steward’s company, Guardian Angel. Steward had gotten her IT consulting firm up to $400,000 in revenue when she called in a valuation consultant to help her put a price on her business. Steward was disappointed to learn her company was worth less than fifty percent of one year’s sales because she had no recurring revenue and what sales she did have were dependent on her personally.

Steward set about to transform her business into a more valuable company and made three big moves:

1. Angel Watch

The first thing Steward did was to design a monthly program called Angel Watch, which offered her business clients ongoing protection from technology problems. Steward offered her Angel Watch customers ongoing remote monitoring of their networks, pre-emptive virus protection and staff on call if there was ever a problem.  

Steward approached her clients with a calculation of what they had spent with her firm over the most recent 12-month period, including the cost of her customer’s downtime. She made the case that by signing up for Angel Watch, they would save money when taking into consideration both the hard costs of her firm’s time and the soft costs associated with downtime.

90% of her customers switched from hourly billing to the Angel Watch program.

2.      Doubling Rates

Next Steward doubled her personal consulting rates. That way, when one of the customers who decided not to opt into Angel Watch called her firm, they were quoted one rate for a technician’s time or twice the price to have Steward herself. Not surprisingly, most customers opted for the cheaper option and others chose to re-consider their decision not to sign up for Angel Watch.

3.      Survivor Clause

Steward also credits a small legal maneuver for further driving up the value of her business. She included a “survivor clause” in her Angel Watch contracts, which stipulated that the obligations of the agreement would “survive” a change of ownership of her company.

Steward went on to successfully sell her business at a price that was more than four times the original valuation she had received just two years prior to launching Angel Watch.

Steve Goranson has owned and operated the Northeast Florida of ActionCOACH since 2014. ActionCOACH is the World's #1 Coaching franchise with of 1000 offices in 50 different countries. They coach over 15,000 business each week.

Steve's commitment is to assist small business owners, to spend less time working "in" their business and more time working "on" their business so they can build a more valuable and sellable business. In the end, you’ll be spending less total time working, will be making more money and will have truly created the company and team you always dreamed of. In addition we will help you put the FUN back in your business and your life.


If you would like to learn more about how you too can get an "actionable" business education to improve your business's operations, sales,& bottom line contact ActionCOACH Steve Goranson to schedule a free 1/2 hour Phone Strategy Session  at 904-739-0200. www.actioncoachjax.com

Confessions of a Business Owner: The business was driving me instead of me driving the business

Are you driving your business or is your business driving you?  You can continue to be stuck in the owner’s trap and stay on the treadmill or choose to get your business back on track.

That was the 2^nd confession from Jeff Clarkson, a former client of mine of where he was at before we met.  He wanted more than a job; he wanted a business that would work without him but wasn’t sure how to get there.

It was while having a cold beer during a gripe session with a friend of his (a current ActionCOACH client) that his friend recommended that he speak to me about how the ActionCOACH system could help him through his struggles.  .

Jeff had been the owner and President of Florida Bonded Pools here in Jacksonville for over 10 years.  It was the oldest pool company in Jacksonville started by his father over 50 years ago.  He had success in turning their struggling family owned business with 1 million in sales to a profitable company with sales ranging from 4.5 million to 6.5 million in annual sales.  Even with this success he was frustrated &wanted more.

As John Warrillow wrote in his book Built to Sell,  Jeff was caught in the owner’s trap. He was doing a lot of the selling and business always got slow when he was away.   Customers only came directly to him when there was a problem and his employees couldn’t make a decision without asking him first. 

He definitely felt trapped.  He was afraid that he was going to fall into the same trap that his dad had fallen into when he was spending more time at the business than at home.  Jeff wanted more than a job he wanted a business that could work without him.

It all starts with ActionCOACH’s definition of a business … with the simple idea that as a business owner you started or bought yourself something that’s more than just a job …

I see a business as … A Commercial, Profitable, Enterprise, that Works, without You … Let’s look at this more closely;

Commercial means that you sell something that people value, they want to buy;

Profitable means that you understand enough about business finance that you can possibly increase your profits without even increasing your revenue or lowering your expenses.

That Works and can work without you means that you have a system and a team that you can trust.”

You can’t have a business that works without you as the owner until you first have a business that works. Prior to that, it’s got to be both commercial and profitable … 

So, let’s take a look at the 6 Steps that Jeff learned to create a business that could work without him.

Step 1 - Mastery: 
This is about going from Chaos to Control … it’s about going from breaking even or losing money, to truly making a bankable cash profit.  It’s about making sure delivery happens so you don’t get customer complaints and, it’s about taking back control of your time

Steps 2 – Niche
Now this is where you start to make the real money … working your Niche is about getting a bunch of new leads, quickly reworking your sales conversion rates, getting your repeat business numbers up and then, boosting your average dollar sale.  This is truly about building a marketing machine that drives profit straight to your company’s bottom line. 

Steps 3 – Leverage
The next step is all about Systems … it’s about working ‘ON’ your business and not just ‘IN’ it.  Here you’ll start to see your business going from being people reliant, to being systems reliant …truly starting to free up your time and give you control over the growth of your business.

Step 4 – Team
They say team stands for ‘Together Everyone Achieves More’. When you’ve already got your Mastery, Niche and Systems in play, it’s time to lead a team that will ultimately run the company without you.  At the team stage you start to get a true business by getting it to begin to work without you.

Step 5 – Synergy
Here you’ll start to step back from the day to day, start handing over control. You really begin to ‘turn up the volume’ as they say … now that everything works, it’s time to do it bigger, better and more often … all the while keeping an eye on your team, your systems and your company making sure it can handle the growth.

Step 6 – Freedom / Results
This is about you – First, it’s about you enjoying the fruits of your labor and then it’s about diversification and investment.  Now that it’s all working, you can start to invest more time with your family, at your hobbies (or, even to find a hobby), or even work on investing your income or buying other companies where you can use everything you’ve learned all over again.

Confession # 2:  The business was driving me instead of me driving the business

Solution:  Jeff stopped and asked for help.  He was able to develop a more valuable company that was system based and not dependent on him by learning ActionCOACH’s 6 Steps Business Success System.

Over the next few blogs we will look a bit closer at each of these 6 Steps to create a more valuable and sellable business.

If you would like to learn more about you too can get an "actionable" business education to improve your business's operations, sales,& bottom line contact ActionCOACH Steve Goranson at 904-739-0200. www.actioncoachjax.com

Steve Goranson has owned and operated the Northeast Florida of ActionCOACH since 2014. ActionCOACH is the World's #1 Coaching franchise with of 1000 offices in 50 different countries. They coach over 15,000 business each week.

Steve's commitment is to assist small business owners, to spend less time working "in" their business and more time working "on" their business so they can build a more valuable and sellable business. In the end, you’ll be spending less total time working, will be making more money and will have truly created the company and team you always dreamed of. In addition we will help you put the FUN back in your business and your life.

Call his office to schedule a free 1/2 hour Phone Strategy Session 904-739-0200

4 Keys to Increased Profits & Cash Flow

Every business I speak with wants to increase sales in their business.  Who wouldn’t?  

But increased sales is not necessary for the goal.  We don’t really want more sales, what we really want is more profit, right?  Well not necessarily, because you can’t really do anything with profit.  Profit is just a theory.  The question is how we turn profits into cash. 

To help us understand how to increase our profits and cash flow we must first understand the 4 M’s; Management, Money, Marketing, & Merchandise.

Management:  Properly run companies can sustain profitability over the long run because they are organized and cut wasteful spending.  When business is good the average company doesn’t seem to care where the wastes are in the business because there is enough cash to cover up the waste.  Properly run companies understand that investing in properly trained teams will lead to increased profits and cash flow.  A team who is aligned to company goals and that understands how their specific role and task leads into the company’s “big picture”, will be more effective and efficient.  Since they are aligned to the company’s goals they will be able to recommend ways for the company to be more effective and efficient.

Money:  Money management is a key to all successful business.  That’s both money coming in and out.  The two biggest bottlenecks that prevent profits from turning into cash are inventory and accounts receivables.  Properly run companies are always managing their vendors, looking for better ways to order more efficiently and ways they can negotiate better terms.  Most AR problems arise because issues aren’t addressed until they turn into problems.  Make sure your clients understand and are clear on your payment terms.  Don’t be afraid to ask for your money.  If you don’t, someone will be getting paid before you. 

Marketing:  Even in a tough economy people are spending money on your product or service.  The purpose of your marketing is to help you get your “unfair” share of the dollars being spent.  To do this you have to be very clear on what your clients want and how your product or service can help them achieve that.  Marketing is not just advertising, it’s all about understanding your whole sales process, which turns a lead into a customer that comes back again and again.  By understanding each step of the sales process from lead generation to repeat customer, you can quickly identify the bottlenecks and implement strategies to move them to the next step.

Merchandise:  If sales are down, you need to see if people are using your product in the same way as before.  In the past, people might have been using your product or service out of ego, price, or having a particular item, that might not be the case now.  Maybe now your product or service could be used in a different way that your customer hasn’t even thought of.   Successful companies are always asking themselves why people are buying their product or service.  Additionally, make sure your team understands which products are your most profitable.  Just adding some extra attention to your most profitable items can easily increase your overall profit margins.

In creating a more valuable business, it is always the little things that get the big results. Our Business Health Check will give you invaluable insights into the many areas of your business that if tweaked will increase the value of your business.

By completing the Business Health Check, you will receive a Free Report based on your answers, prepared by our team of highly skilled Business Coaches.  CLICK HERE to take your Business Health Check Now

Business Advice: 6 Reasons Not To Diversify

Diversification is a sound financial planning strategy, but does it work for company building?

How does Vitamix get away with charging $700 for a blender when reputable companies like Cuisinart and Breville make blenders for less than half the price?  It’s because Vitamix does just one thing, and they do it better than anyone else.  

WhatsApp was just a messaging platform before Facebook acquired them for $19 billion US. Go Pro makes the best helmet mounted video cameras in the world. These companies stand out because they poured all of their limited resources into one big bet.

The typical business school of thought is to diversify and cross sell your way to a “safe” business with a balanced portfolio of products – so when one product category tanks, another line of your business will hopefully boom.  But the problem with selling too many things – especially for a young company – is that you water down everything you do to the point of mediocrity. 

Here are 6 reasons to stop being a jack-of-all-trades and start specializing in doing one thing better than anyone else:

1. It will increase the value of your business  -- When you sell one thing, you can differentiate yourself by pouring all of your marketing dollars into setting your one product apart, which will boost your company’s value. How do we know? After analyzing more than 13,000 businesses using The Sellability Score, we found companies that have a monopoly on what they sell get acquisition offers that are 42 percent higher than the average business
2. You can create a brand  -- Big multinationals can dump millions into each of their brands, which enable them to sell more than one thing. Kellogg can own the Corn Flakes brand and also peddle Pringles because they have enough cash to support both brands independently, but with every new product comes a dilution of your marketing dollars. It’s hard enough for a start-up to build one household name and virtually impossible to create two without gobs of equity-diluting outside money.
3. You’ll be findable on Google  --  When you Google “helmet camera,” Go Pro is featured in just about every listing, despite the fact that there are hundreds of video camera manufacturers. It’s easy for Go Pro to optimize their website for the keywords that matter when they are focused on selling only one product.
4. Nobody cheered for Goliath  --  Small companies with the courage to make a single bet get a bump in popularity because we’re naturally inclined to want the underdog – willing to bet it all – to win. When Google launched its simple search engine with its endearing two search choices “I’m feeling lucky” vs. “Google search,” we all kicked Yahoo to the curb. Now that Google is all grown up and offering all sorts of stuff, we respect them as a company but do we love them quite as much?
5. Every staff member will be able to deliver  --  When you do one thing, you can train your staff to execute, unlike when you offer dozens or hundreds of products and services that go well beyond the competence level of your junior staff. Having employees who can deliver means you can let them get on with their work, freeing up your time to think more about the big picture.
6. It will make you irresistible to an acquirer  --  The more you specialize in a single product, the more you will be attractive to an acquirer when the time comes to sell your business. Acquirers buy things they cannot easily replicate themselves. Go Pro (NASDAQ: GPRO) is rumored to be a takeover target for a consumer electronics manufacturer or a content company that wants a beachhead in the action sports video market. Most consumer electronics companies could manufacturer their own helmet mounted cameras, but Go Pro is so far out in front of their competitors – they are the #1 brand channel on You Tube – that it would be easier to just buy the company rather than trying to claw market share away from a leader with such a dominant head start.

Diversification is a great approach for your stock portfolio, but when it comes to your business, it may be a sure-fire road to mediocrity.

10 Things That Make Your Business More Valuable Than That of Your Industry Peers

The value of your company is partly determined by your industry. For example, cloud-based software companies are generally worth a lot more than printing companies these days.

However, when we analyze businesses in the same industry, we still see major variations in valuation. So we dug through the data available to us from our partners at The Sellability Score and we found 10 things that will make your company more valuable than its industry peer group.

1. Recurring Revenue

The more revenue you have from automatically recurring contracts or subscriptions, the more valuable your business will be to a buyer. Even if subscriptions are not the norm in your industry, if you can find some form of recurring revenue it will make your company much more valuable than those of your competitors.

2. Something Different

Buyers buy what they cannot easily replicate on their own, which means companies with a unique product or service that is difficult for a competitor to knock off are more valuable than a company that sells the same commodity as everyone else in their industry.

3. Growth

Acquirers looking to fuel their top line revenue growth through acquisition will pay a premium for your business if it is growing much faster than your industry overall.

4. Caché

Tired old companies often try to buy sex appeal through the acquisition of a trendy young company in their industry.  If you are the darling of your industry trade media, expect to get a premium acquisition offer.  

5. Location

If you have a great location with natural physical characteristics that are difficult to replicate (imagine an oceanfront restaurant on a strip of beach where the city has stopped granting new licenses to operate), you’ll have buyers who understand your industry interested in your location as well as your business.

6. Diversity

Acquirers pay a premium for companies that naturally hedge the loss of a single customer. Ensure no customer amounts to more than 10 percent of your revenue and your company will be more valuable than an industry peer with just a few big customers.

7. Predictability

If you’ve mastered a way to win customers and documented your sales funnel with a predictable set of conversion rates, your secret customer-acquiring formula will make your business more valuable to an acquirer than an industry peer who doesn’t have a clue where their next customer will come from.

8. Clean Books

Companies that invest in audited statements have financials that are generally viewed by acquirers as more trustworthy and therefore worth more. You may want to get your books reviewed professionally each year even if audited statements are not the norm in your industry.

9. A 2iC

Companies with a second-in-command who has agreed to stay on post sale are more valuable than businesses where all the power and knowledge are in the hands of the owner.

10. Happy Customers

Being able to objectively demonstrate that your customers are happy and intend to re-purchase in the future will make your business more valuable than an industry peer that does not have a means of tracking customer satisfaction.

Like a rising tide that lifts all boats, your industry typically defines a range of multiples within which your business is likely to sell for; but whether you fall at the bottom or the top of the range comes down to factors that have nothing to do with what you do, but instead, how you do it.

5 Ways To Attract The Attention Of a Buyer for Your Business

In any negotiation, being the person who makes the first move usually puts you at a slight disadvantage. The first-mover tips their hand and reveals just how much he/she wants the asset being negotiated.

Likewise, when considering the sale of your business, it is always nice to be courted, rather than being the one doing the courting. The good news is, the chances of getting an unsolicited offer from someone wanting to buy your business are actually increasing.

According to the Q2, 2014 Sellability Tracker analysis released in July 2014, 16% of business owners have received an offer in the last year, which is up 37% over Q1. Said another way, you’re 37% more likely to get an offer to buy your business today than you were at the beginning of the year.

Big companies are buying little ones for a lot of reasons and the current market conditions are accelerating their appetite: interest rates are low and stock markets are high, which provide the ideal platform for acquirers to realize a return on their investment from buying a business like yours.

So how do you ensure you are on their shopping list? 

Here are five ways to get noticed by an acquirer:

1. Win an award

Getting recognized as the “Widget Maker of the Year” by the Widget Makers Association is a great way to get the attention of acquirers in your industry.

2. Hire a PR person

Engaging a public relations professional to tell your story to the media can get you on the radar of buyers in your industry.  A lot of media relations professionals focus on the big mainstream publications, and while these are important, ensure that your PR firm also targets trade publication and industry-specific websites that are read by acquirers in your industry.

3. Host an event

 Consider hosting an event (e.g., conference, tradeshow, summit) for your industry and invite representatives from potential acquirers to attend. Being invited to an industry event can be flattering for acquirers and it is a good way to get them to notice you as an industry leader.

4. Join a board

If an executive from a company you think would make a natural buyer for your business is serving on a board of directors, consider joining the board. Serving on a board together can be a great way for an acquirer to notice you and your company without you having to say you’re for sale.

5. Grab lunch

Consider inviting a senior executive from a potential acquirer to share a meal under the guise of discussing trends in your industry. At the very least, you may glean some useful information about how big companies are seeing your industry evolve. At best, your lunch mate may realize that your company could play a key role in helping them grow.

The sale of your business is a delicate dance where it is usually better to be the courted, rather than the courter. Acquirers are on the hunt for new businesses, and having them notice you will put you in a position of strength when you get to sit down at the negotiation table.  

To determine the Sellability of your business find our your Sellability Score.  Get a free report  identifying how sellable your business is now the 8 areas you need to focus on to increase your business value now.  Click Here to learn more.

Actions that Lead to Profits

The goal of every business is to make money or a profit.  For some reason profits seem to elude some businesses more than others.  They are working hard day in and day out, but they seem to just be spinning their wheels and not getting anywhere.  They are trapped in the American dream treadmill, moving faster and faster but going nowhere.

The reason they are working so hard and not seeing any fruits from their labor is that their actions are in the areas that do not lead to the profitability of the business.  We are busy, but we are spending our time with non-productive activities.

So what is a productive activity?  The definition is very simple.  An action that moves us toward making money is productive and an action that leads away from making money is non-productive.

In business we have to realize that “people working” and “making money” are now the same thing.  Once we understand this, we can now look at our business from a different perspective.  We now need to look at our profitability per activity.  So now we can start looking at a different set of metrics to measure how profitable a particular job or activity is in our business.

The financial measurements we now have to look at to see if we are making money are:

[1] Net Profit    [2] ROI – Return on Investment    [3] Cash Flow.

We need to determine our Profit KPI’s (key performance indicators) by determining profit per....

• Direct labor hour
• Team member
• Transaction or Job
• Customer
• Product or Service

The first area you should look at is gross profit per labor hour.  This will help you to determine what types of jobs you should focus on to increase your overall profits.  Let’s take a look at this example...

	Job A	Job B
Revenue	$3,900	$9,000
Material Costs	$2,250	$3,000
Labor Costs	$450	$2,500
Direct COGS	$2,700	$5,500
Gross Profits	$1,200	$3,500
Gross Profit Margins	30.8%	38.9%
# of Labor Hours	18	100
Gross Profit per Labor Hr.	$67.00	$35.00
Determine Labor Hr per month 10 Techs @40 hrs  (@90% compactly * 4.3 wks) 36 hrs per tech	1560/hrs	1560/hrs
Gross Profit per Month	$104,520	$54,640

In this example we are comparing 2 different types of jobs.  At first glance, Job B has a higher gross profit margin and seems to be more profitable.   However, when you further analyze the gross profit per labor hour, doing more of Job A type jobs can double the profitability of your business.

By understanding this, we can now direct our marketing to target more “A” type jobs.   Or, we can look at how we can be more efficient with Job B type jobs to reduce our labor hours per job.  Once we implement these 2 basic strategies we can begin to learn how to work smarter and not harder in our business.

Business Advice… Stop Discounting and Start Increasing Value!

Discounting if used properly can be an effective strategy to increase profitability and cash flow, but if not used properly it can cause serious consequences to the growth and profitability of your business.

Most of the time discounting is a gut reaction to a slowdown in business.  Businesses find it easier to discount the value of their product than to sell on value.

One of the biggest negative consequences of discounting is that we are training our clients to buy only on sale.  This can have a big affect on our bottom line.  I’m not really sure a business understands how much more they have to sell just to stay at that same profit level.

For Example if you have a…

30% margin
You discount your product or service 10%
You will have to sell 50% more to make the same amount of money.
Contrast that with…

If your margins are 30%
You increase your prices by 10%
You can sell 25% less and still make the same amount of money.
Now isn’t that interesting…

Discounting is an appropriate strategy if your inventory is high and you need cash to pay bills or if it’s a perishable item that you will have to throw away.  However instead of just discounting your product, use it as an incentive for your customers to purchase more.

Let’s assume you have a product that costs you $5.00 and you sell it for $10.00.  If you were to have a sale of 25% off, you would now be selling it for $7.50 and only making $2.50 instead of $5.00.

Instead of discounting the full price you can have a buy one get the 2nd item at ½ price.  Now you’ll at least be making the same $-profit if you sold 1 at full price.  Another option is a buy 3 get the 4th free.  You are in essence still providing a 25% discount but you are now making $10.00 profit per sale instead of just $5.00 if you sold just 1 item.

The advantage here is that you are moving more inventory and turning it back into cash.

When it comes to marketing, “perception is reality”.  If you have a 25% off sale you become labeled as a discounter.  If you have a buy 3 get the 4th for free sale, or buy 1 and get the 2nd item at ½ price, you now are perceived as a place where you get more for your money.  You are now distinguishing your business from your competition by providing adding value to your customers instead of being viewed as just another discounter.

5 “Strategic” Ways to Sell Your Company

Did you see the news that Facebook has recently acquired Internet messaging service WhatsApp for $19 billion? It represents the largest-ever acquisition of an Internet company in history.

WhatsApp is a pearl for sure. The messaging service allows users to avoid text-messaging charges by moving texts across the Internet instead of the mobile phone carrier networks. This can save people who travel, or who live in emerging markets, hundreds of dollars a year, which is why WhatsApp is adding one million new users per day.

At the time of the acquisition in February 2014, WhatsApp had acquired some 450 million users. Their business model is to charge a subscription of $1 per year after their first full year of service. Even if all 450 million WhatsApp users were already paying, that is still less than half a billion in revenue. Why would Facebook acquire WhatsApp for a number that is somewhere north of 40 times revenue?

Nobody know for sure what is in Mark Zuckerberg’s head, but we can only assume that at least part of the opportunity Facebook sees is the opportunity to sell more Facebook ads because of the information they glean from WhatsApp users. Global advertising giant Publicis estimates 2013 online advertising spending in the US alone to be around $500 billion. Presumably Facebook believes they can get a larger chunk of the global online ad buy because they know more about its users by owning WhatsApp.

And therein lies the definition of a strategic acquisition. Most acquisitions run a predictable pattern of industry norms, but a strategic can pay a significant premium for your business because they are looking at your business for what it is worth in their hands. Rather than forecasting out your future profits and estimating what that cash is worth in today’s dollars, a strategic is calculating the economic benefit of grafting your business onto theirs.

There can be many strategic reasons why a big company might want to buy yours. Here are a few to consider:

1. To control their supply chain

 In 2011, Starbucks announced it had acquired Evolution Fresh, one of their providers of juice drinks, for $30 million. Now Starbucks is no longer beholden to one of its suppliers.

2. To give their sales people something else in their briefcase

Also in 2011, AOL announced the acquisition of The Huffington Post for $315 million, even though HuffPo had just turned its first modest profit on paper. AOL wanted to give its advertising sales people more inventory to sell and HuffPo had 26 million unique visitors a month.

3. To make their cash cow product look sexier

 Microsoft bought Skype for $8.5 billion dollars even though Skype was losing money. The good folks in Redmond must have assumed they could sell more Windows, Office and Xbox by integrating Skype into everything they already sell.

4. To enter a new geographic market

 Herman Miller paid $50 million to acquire China’s POSH Office Systems in order to get a beachhead into the world’s fastest growing market for office furniture.

5. To get a hold of your employees

Facebook reportedly acquired Internet start-up Hot Potato for $10 million, largely to get hold of the talented developers working at the company.

Most acquisitions are done for rational reasons where an acquirer agrees to pay today for the rights to your future stream of cash. You may, however, be able to get a significant premium for your company if you can figure out how much it is worth in someone else’s hands.

Curious to see what your business is worth and how you might improve its value to both strategic and financial acquirers?  Complete the Sellability Score questionnaire today and we’ll send you a 27-page custom report complete with your score on the eight key drivers of Sellability. Take the test now at:  www.actioncoachsellabilityscore.com 

CLICK HERE to see our upcoming business events

  

Growth vs. Value: Not all Revenue is Created Equally

When you look ahead to next year, will your growth come from increasing your average dollar sale and average number of transactions per customer, (selling more to your existing customers at a higher rate) or finding new customers for your existing products and services through lead generation?

The answer may have a profound impact on the value of your business.

Take a look at the research coming from a recent analysis of owners who completed their Sellability Score questionnaire. We looked at 5,364 businesses and found that the average company that had received an offer from an acquirer was offered 3.5 times their pre-tax profit.  When we isolated just the businesses that had a historical growth rate of 20 percent or greater, the multiple offered improved to 4.3 times pre-tax profit, or about 20 percent more than their slower growth counterparts.

However, the real bump in multiple came when we isolated just those companies that claim to have a unique product or service for which they have a virtual monopoly. The niche companies enjoyed average offers of 5.4 times pre-tax profit, or roughly 50 percent more than the average companies, and fully 20 percent more than the fastest growth companies.

Nurture your Niche

Chasing “bad” revenue by offering a wide array of products and services is common among growth companies. The easiest way to grow is to sell more things to your existing customers, so you just keep adding adjacent product and service lines. But when a strategic acquirer buys your business, they are buying something they cannot easily replicate on their own.

A large company will place less value on the revenue derived from products and services that you have in common. They will argue that their economies of scale put them in a better position to sell the things that you both offer today.

Likewise, they will pay the largest premium to get access to a new product or service they can sell to their customers. Big, mature companies have customers and systems, but they sometimes lack innovation; and many choose a strategy of acquisition as a way to buy their innovation.

Focusing on your niche is one of many areas where the long-term value of your business is at odds with short-term profit. For example, if you wanted to maximize your short-term profit, you might avoid investing in new technology or hiring a head of sales, arguing that both investments would hinder short-term profit. The truly valuable company finds a way to deliver profit in the short term while simultaneously focusing their strategy on what drives up the value of the business.  

At ActionCOACH our definition of a successful business is a commercial profitable enterprise that can work without the business owner.  Our 6 Steps process helps business owners by coaching them to define their niche and at the same time focus on the 5 drivers of profitability to increase cash flow.  We then help you to leverage your business by creating systems and helping you to find and keep motivated team members to "work in" your business.  This will give you the time and cash flow to plan and "work on" your future growth and eventual exit from the business.

You can get your own Sellability Score, and see how you compare on the eight key drivers of valuability and thus sellability, by taking our 13-minute survey here at www.actioncooachsellabilityscore.com

Do you have a billion dollar business hiding inside your company?

Asking customers to pay to join a special group of your best patrons
can increase your revenue, encourage customers to buy new products and services from you, and provide a healthy boost to your cash flow. Just ask Jeff Bezos, the founder of Amazon.com and the chief architect behind Amazon Prime.

In exchange for $79 a year, Amazon Prime customers get:

• Free two-day shipping on millions of items
•  Unlimited streaming videos and TV shows
•  350,000 books to borrow for free.

It’s a compelling offer, which is why, according to TIME Magazine, more than 10 million people have signed up. If you do the math, that makes Prime close to a billion-dollar business for Amazon. And like most programs, members pay upfront, giving Amazon a big injection of positive cash flow.

But what is even more interesting is what being a member of Prime does to the buying behavior of the average Amazon customer. Prime customers pay their $79 upfront and therefore are eager to ‘get their money back’ by purchasing a bigger and broader array of products from Amazon. With free shipping and a $79 nut to recover, Prime customers go well beyond buying books from Amazon and now get everything from tires to turtlenecks from the e-tailer.

According to TIME, the average Prime customer now spends $1,224 per year with Amazon vs. the average non-Prime customer who spends just $505. In other words, Prime customers spend almost three times more per year than non-members.

Most businesses have some sort of loyalty program (buy nine sandwiches and the tenth is on us or get five hairs cuts and the sixth is free). The difference with Amazon Prime is they are charging customers to sign up for their special club and the fact that customers pay to join changes their buying behavior to want to recover their membership fee. 

Amazon did not invent the pay-to-join-our-club business model. Private members clubs have been doing it for years. To join an elite golf club, you pay an initiation fee of tens of thousands of dollars, which then acts as a barrier to ever leaving.

But as with Amazon Prime customers, becoming a member also changes a member’s buying behavior regarding other items.  When compared to someone shooting 18 holes at a public course, the average golf club member is much more likely to buy balls from the shop, lessons from the pro, and dinner from the dining room.

The “AMC Stubs” loyalty program charges moviegoers to join the club. In return, customers get free upgrades on the size of popcorn and drink orders, along with $10 of Stubs rewards to spend on anything in the theatre in return for every $100 spent. AMC’s best customers become even better customers by going to the movies even more often and filling up with goodies while they’re there. 

Look at the spending patterns of people who pay a premium to join a credit card company’s loyalty program. Customers who pay upfront for a premium card charge a much broader and deeper set of services to their card than people using a freebie card.

Getting your customers to pay to join your elite customer club requires that you design a compelling offer as Amazon Prime and AMC Stubs have done. But if you build it right, not only will the club itself turn a profit; it will also provide a quick boost to your cash flow and create a legion of sticky customers who buy more because they paid to become a member.

If you're curious to benchmark your company on growth potential and the other seven factors that drive your company’s value, take 13 minutes and get your Sellability Score here: 

Have you fallen into The Mile Wide Trap?

If your company’s revenue has stalled after a period of rapid growth, you may have fallen into The Mile Wide Trap.

Consider the case of Kim (not her real name) who runs a public relations firm. Kim studied marketing at school and went on to work for a big advertising agency where she spent ten years learning a variety of marketing disciplines, from public relations to advertising to direct marketing and social media.

Then Kim decided to leave her job to start a public relations firm. Given her depth of experience and connections, she quickly landed tractor giant John Deere as a client and was asked to handle their regional dealer events. She hired some helpers and her start-up agency quickly began to grow. Kim did a great job with the dealer events, so John Deere asked her to handle their annual sales conference. Again she delivered with style and creativity.

Impressed by Kim’s innovative approach to the event, John Deere asked her to handle some of the creative for their next advertising campaign.  Kim had started her company to do PR, not advertising, but John Deere was a great client so she agreed to help out with the ads.

Then John Deere asked her to take a look at their website. Kim’s new employees had no experience with web design, but Kim had done some website jobs back at the ad agency. Not wanting to disappoint John Deere, Kim started to personally handle projects that her employees didn’t have the ability to execute.

Kim didn’t worry about new business development for own firm because the more John Deere asked Kim to do, the busier – and more profitable – her firm became.

Then one day Kim looked at her monthly P&L statement and realized that, for the first time, their sales were flat on a month-over-month basis. The next month it happened again and then again. Kim had run out of hours in the day to sell – she had inadvertently fallen into The Mile Wide Trap.

The Mile Wide Trap

The Mile Wide Trap ensnares you when you do an excellent job serving a small number of great customers and they ask you to handle more of their work. You keep delivering, and they keep broadening the list of products and services they want you to supply.

Your company is wildly profitable serving the expanding needs of this small list of “great customers” so you keep falling deeper and deeper into the trap.

Pretty soon, you’re an inch deep and a mile wide in offerings and the only person in your company with the depth of industry experience to deliver all of the services is you. But you’re trapped because your expenses have crept up as your revenue has exploded – leaving you dependent on the sales you get from a small group of demanding customers.

With no more hours in the day, your company stalls and you run on a hamster wheel just trying to keep what you’ve got.

The Solution: Sell less stuff to more people.

Instead of selling more things to a few customers, concentrate on selling a few things to a lot of customers.

Nashville-based Ethos3 is a successful design firm that has avoided The Mile Wide Trap. Most design firms are founded by a designer who gets himself in trouble by offering a broad range of design services (brochures, websites, signage, advertising) to a handful of clients. But founder Scott Schwertly knew that in order to scale up beyond himself, he needed his employees to execute the work, and therefore he decided to focus on one very small corner of the design business: PowerPoint presentations.

Schwertly’s focus on PowerPoint has allowed him to train his employees to follow his system for designing presentations. Everything is standardized – from the proposal to project management to the final invoice – so employees can follow a system that doesn’t require Schwertly. Ethos3 has scaled up nicely and counts Microsoft, Google and Cisco among its 300+ customers.

Another example: Flikli.com is a video production studio, but instead of making videos of all kinds, they’ve decided to focus exclusively on two-minute animated “explainer” videos that explain a company’s value proposition simply and effectively. Their focus on creating one specific type of product allows them to standardize their pricing and give employees a step-by-step guide to making great explainer videos. Flikli has scaled up to 22 employees and their work has been featured in everything from Wired Magazine to The Washington Post.

You can fall into The Mile Wide Trap innocently enough: you do great work and a customer wants more of you. But it’s a trap that will eventually choke off your growth. The way out is to follow Flikli and Ethos3 and focus on selling less stuff to more people.

If you're curious to benchmark your company on growth potential and the other seven factors that drive your company’s value, take 13 minutes and get your Sellability Score here: