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 #1: The “I Know” Attitude

Being an entrepreneur and business owner is not easy.  Most people start a business because they

think their current boss is an idiot and they could do it better.  Or maybe they’ve just taken over the business from a parent or family member.  In either case they are now in charge and they get to do things their way.

One of the first traps business owners fall into is not asking for help because they “know it all”, no one can do it better than I can.

In a recent conversation with a former client of mine Jeff Clarkson, he confessed to me that’s where he was at before we met.  He had been the owner and President of Florida Bonded Pools here is 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.  But when the recession hit and the company started to feel the effects, he confided in other smaller business owners his struggles.

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.  Because as Jeff now confesses, he had the “I KNOW” attitude, it took him over a year to respond to that advice.

Success guru Jim Rohn summed it up best when he would say that you got to “Learn before YOU Earn”.  Man is like a tree, if he is not growing he is dying.  To grow we need to consistently fill our minds with new information, otherwise we get stuck doing the same thing over and over again while expecting different results.  If our cup is full and we feel we know it all, there is no room at the top of the cup for new information and new ideas.  This is where most of our struggles begin.

A lot of times when working with business owners it’s not about helping you do something new and different, it’s about helping you to get focused on the things that made you successful in the first place. 

In the day to day struggles of running a business it is easy to get off track and lose your focus of doing what you do best.  I can’t tell you how many times I hear my clients say after we discussed a new strategy, “We use to do that”.  The sad part is that they could never remember when they stopped doing that strategy.

When you hear yourself say I’ve heard that before or I know how to do that, you need to stop and think to yourself, “isn’t that interesting”.  When we say “isn’t that interesting” we are opening our minds to new ideas and new solutions.  My goal as a business coach is to get you to look at your situation from a different perspective to help you create powerful and actionable ideas to improve your business.

Once Jeff stopped and asked for help, he gave himself a bigger cup to fill.  He was able to initially start implementing and improving the things he knew about but hadn’t taken action on.  Plus his company began to get an “actionable” education that allowed them to measure, monitor and make better informed decisions that improved the business operations, sales and bottom line.

Confession #1:  Get rid of the I KNOW attitude

Because Jeff stopped and asked for help he was able to develop a more valuable company that was system based and not dependent on him.

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

How to Get Rich in 3 (Really Difficult) Steps

Becoming wealthy may not be your primary goal, but if it is, there is a reasonably predictable way to get rich in America.

Step 1: Ignore Your Parents

Parents around the world typically encourage their kids to get educated so they can get a ‘good job.’ This may mean becoming a doctor or lawyer, although neither tends to be a path to significant wealth. High-paying professions provide an excellent income stream, but two insidious forces undermine the professional's ability to create significant wealth: tax and spending.

Tax

It is difficult to become wealthy on the basis of a salary alone. Since income is taxed at the highest possible rate, you're left with not much more than 50 cents on the dollar.

Spending

The other problem with having a high income is that it creates a ‘wealth effect’ that triggers spending. Thomas J. Stanley, the famous author of the research-driven classic The Millionaire Next Door, points out that some professionals—in particular, lawyers—spend a large portion of their income to give the impression that they are successful, in part because they do not enjoy much social status from their job. In other words, when you earn $500,000 a year, you buy a Range Rover or send your kids to an elite private school at least in part because you want people to think you are wealthy.

Step 2: Start Something

Most wealth in America is created through owning a business. Recently, Mass Mutual looked at the proportion of business owners that make up a number of wealth cohorts. They found that 17 percent of people with between $100,000 and $500,000 to invest were business owners.

Keep in mind that there are about 8 million employer-based companies in the United States, meaning that the incidence rate of business ownership (the natural rate at which you find business owners in the general population) is about three percent. Said another way, if you grabbed 100 people walking down the street, on average three of them would be business owners. On the other hand, if you took a random sample of 100 people with investable assets of between $100,000 and $500,000, 17 of them would be business owners, meaning you're over five times more likely to find a business owner in the $100,000 to $500,000 wealth segment than you are to find an employee in the same segment.

The trend becomes more pronounced the higher up the wealth ladder you go. If you look at wealthy investors with between $500,000 and $1,000,000 in investable assets, you'll see that the proportion of business owners in this segment goes up dramatically—to27 percent.

The Very Rich

Among investors with between $1 million and $10 million in investable assets, the proportion of business owners jumps to 52 percent. As for those investors with $10 million to $50 million sloshing around in their bank account, 67 percent are business owners; and for investors with $50 million dollars or more in investable assets, 86 percent are business owners.

Simply put, if you meet someone who is very rich, it's highly likely they are (or were) a business owner.

Step 3: Get Liquid

The next step for you as a business owner is to focus on improving the value of your business so that you can sell it for a premium. Just being a successful entrepreneur is typically not enough to become rich. You have to find a way to take the equity you have locked up in your business and turn it into liquid assets. When it comes to selling your business, the three most common options are:

·         Acquisition: This is the headline-popping way some entrepreneurs choose to trade their shares for cash. When Facebook acquired WhatsApp for $19 billion, founders Brian Action and Jan Koum got very rich.

·         Re-capitalization: A minority or majority "re-cap" occurs when you sell a stake in your company (often to a private equity firm) yet continue to run your business as both a manager and part owner, with a chunk of your wealth in liquid assets outside of your business.

·         Management Buyout: In an MBO, you invite your management team (or a family member) to buy you out over time, usually with a mixture of some cash from the profits of your business as well as debt that the managers take on. There are other, less common ways to turn your equity into cash (e.g., an IPO), but the key is turning the illiquid wealth in your business into diversified liquid wealth. The best part about selling a business is that the wealth created is taxed at a very low rate compared to employment income, so you get to keep most of what you make.

You might argue it is better to keep all of your wealth tied up in your business as it grows, but that can be a risky proposition—just ask Lululemon's Chip Wilson or BlackBerry's cofounder Mike Lazaridis. If you keep your money locked up in your business, it also means you may not be able to enjoy the benefits of wealth. You can't use illiquid stock in a private company to buy an around-the-world plane ticket or a ski chalet in Aspen. You actually have to get liquid first.

There are many good reasons to build a business; and for you, wealth creation may not be as important as making an amazing product or leading a great team. But if money is what you're after, there is no better way to get rich than to start and sell a successful business.

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

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.

ActionCOACH Steve Goranson'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.

Steve's clients are feeling happy because they are focused on their goals, they're feeling more successful because they are reaching their goals, and they are feeling more free because their businesses are starting to work harder than do. 

How to scale up your business to work without you

At ActionCOACH our definition of a successful business is a "Commercial Profitable Enterprise that Works without the Business Owner".  If it doesn't, the business is broken.  You don't own a business you own a "JOB".

Getting the business working harder so you don't have to is one way to create a more valuable and sellable business.   One strategy to do this is by training others in your area of expertise. This strategy is simple, so why is it so difficult to execute?  

It can be tough to grow a service business. Clients are typically buying your expertise, and if all you have to sell is time, the size of your business will always be limited by the number of hours in your day.  We have to forget our business is not about us, but what solutions we can provide our customers.

One way to scale up your service business is to launch a training division to teach others what you know.  That's what John Taylor did when he found himself run ragged trying to grow Nova Data Testing, a Jacksonville FL based non-destructive testing company.

John found that since he was the only one in his company that had some high level certifications, he was the only one that could do those jobs.  Since he was in the field with his guys most of the time, it left little time or energy left for growing the business.  He still loved the business but hated the constant demands on her time and energy.

In an effort to pull himself out of individual projects, we worked together to first document systems of what each team member is responsible for when out on a job.  Next, we worked on building his team around his company’s 10 Points of Culture.  

Once we got the right guys on the team, he began to train them to take over and lead the jobs that didn’t need his level of certifications.  Also during this time, he began to train his key team players to get the higher level certifications that only he had.  He would go as far taking them to a hotel 2 days before the exam to just get away and cram with them for the exam.

Due in part of his focus on training his team in the areas that only he had expertise, this August he was able to take the whole month of August off to go back packing in the mountains out west.  

Increase the value of your company by training others in your area of expertise.

It can be tough to grow a service business. Clients are typically buying your expertise, and if all you have to sell is time, the size of your business will always be limited by the number of hours in your day.

One way to scale up your service business is to launch a training division or just schedule set times to teach others what you know. That's what John Taylor did when he found himself run ragged trying to grow Nova Data Testing, a Jacksonville based non-destructive testing firm.

As business owners, we all know we should be documenting our systems for others to follow, but somehow writing our owner's manual or training our team for certifications always takes a backseat to serving the next customer or fighting the next fire.

Maybe what we need to do is stop thinking of writing down our process as an internal chore and instead focus on launching a training division. That way, the job of documenting our system goes from a textbook-boring task to the raw material needed to get your business working harder so you don't have to.

 Check out our upcoming events at www.bizsuccessevents.com 

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

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.

Business Advice: The #1 Task Business owners Should Stop Doing to Increase the Value of their Business

A study of 14,000 businesses reveals how you should not be spending your time.

In an analysis of more than 14,000 businesses, a new study finds the most valuable companies take a some what different approach to the business owner doing the selling.  So who does the selling in your business?  

My guess is that when you’re personally involved in doing the selling, your business is a whole lot more profitable than the months when you leave the selling to others.

That makes sense because you’re likely the most passionate advocate for your business. You have the most industry knowledge and the widest network of industry connections.

If your goal is to maximize your company’s profit at all costs, you may have come to the conclusion that you should spend most of your time out of the office selling, and leave the dirty work of operating your businesses to your underlings.

However, if your goal is to build a valuable company—one you can sell down the road—
....you can’t be your company’s number one salesperson.

In fact, the less you know your customers personally, the more valuable your business.  Now isn't that interesting?

The Proof: A Study of 14,000 Businesses

Sellability Score just finished analyzed our pool of their users for the quarter ending December 31.  We offer The Sellability Score questionnaire as the first of twelve steps in The Value Builder System, a statistically proven methodology for increasing the value of a business. (Click Here for your Score)

We asked 14,000 business owners if they had received an offer to buy their business in the last 12 months, and if so, what multiple of their pre-tax profit the offer represented. We then compared the offer made to the following question:

Which of the following best describes your personal relationship with your company's customers?

•  I know each of my customers by first name and they expect that I personally get involved when they buy from my company.
• I know most of my customers by first name and they usually want to deal with me rather than one of my employees.
• I know some of my customers by first name and a few of them prefer to deal with me rather than one of my employees.
• I don’t know my customers personally and rarely get involved in serving an individual customer.

2.93 vs. 4.49 Times

The average offer received among all of the businesses we analyzed was 3.7 times pre-tax profit.

However, when we isolated just those businesses where the owner does not know his/her customers personally and rarely gets involved in serving an individual customer, the offer multiple went up to 4.49.

Companies where the founder knows each of his/her customers by first name get discounted, earning offers of just 2.93 times pre-tax profit.

When Value Is the Enemy of Profit

Who you get to do the selling in your company is just one of many examples where the actions you take to build a valuable company are different than what you do to maximize your profit. 

If all you wanted was a fat bottom line, you likely wouldn't invest in upgrading your website or spend much time thinking about the squishy business of company culture.

How much money you make each year is important, but how you earn that profit will have a greater impact on the value of your company in the long run.

How Healthy is Your Business?  Take the Business Health Check and Find Out TAKE TEST

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

  

6 Little Things that Make a Big Difference to the Value of Your Company

With the Sochi Olympic Games taking place this month, it is interesting to reflect back on some of the big events of the 2010 Olympic Games in Vancouver.

In the Men’s Downhill race at Whistler, for example, the winning time of 1:54:31 was posted by Didier Défago of Switzerland. The time among medalists was the closest in Olympic history, and while Mario Scheiber of Austria posted a time of 1:54:52 – just two tenths of a second slower than Défago – he finished out of the medals in fourth place.

In ski racing, one fifth of a second can be lost in the tiniest of miscalculations.  And when it comes to selling your business, markets can be equally cruel. Get everything right, and you can successfully sell your business for a premium. Misjudge a couple of minor details and a buyer can walk, leaving you with nothing.

Here is a list of six little details to get right before you put your business on the market:

1.    Find your lease. If you rent space, you may be required to notify your landlord if you intend to sell your company. Read through the fine print and ensure you’re not scrambling at the last minute to seek permission from your landlord to sell.

2.    Professionalize your books. Consider having audited financial statements prepared to give a buyer confidence in your bookkeeping.

3.    Stop using your company as an ATM.  Many business owners run trips and other perks through their business, but if you’re planning to sell, these treats will artificially depress your earnings, which will reduce the value of your company in the eyes of a buyer by much more than the value of the perks.

4.    Protect your gross margin. Oftentimes, when leading up to being listed for sale, companies grow by chasing low-margin business. You tell yourself you need top-line growth, but when an acquirer sees your growth has come at the expense of your gross margin, she will question your pricing authority and assume your journey to the bottom of the commoditization heap has begun.

5.     Include a "survivor clause".  If you’re lucky enough to have formal contracts with your customers, make sure your customer contracts include a “survivor clause” stipulating that the obligations of the contract “survive” the change of ownership of your company. That way, your customers can’t use the sale of your company to wiggle out of their commitments to your business. Have a lawyer paper the language to ensure it has teeth in your jurisdiction.

6.    Get your Sellability Score. Take 13 minutes to answer the Sellability questionnaire now. You’ll see how you performed on the eight key drivers of sellability and you can identify any gaps you need to fill before taking your business to market.

Like competing in the Olympics, selling a business can be an all-or-nothing affair. Get it right and you will walk away a winner. Fumble your preparation, and you could end up out of the medals.

Will your business be more valuable this time next year?

For many, January is a time of rebirth and resolutions. It’s a month to reflect on last year’s achievements and to set goals for the year ahead.

Some people will set personal goals like losing weight or quitting a nasty habit, and most company owners will set business goals that focus on hitting certain revenue or profit milestones.

But if your goal is to own a more valuable business in 2014, you may want to make one of the following New Year’s resolutions:

• Take a two-week vacation without checking in with the office. When you return, you’ll see how well your company performed and where you need to make a key hire or create a new system.
• Write down at least one process per month. You know you need to document your systems, but you may be overwhelmed by the task of taking what’s inside your head and putting it down in writing for others to follow. Resolve to document one system a month and by the end of the year you’ll own a more sellable company.
• Offload at least one customer relationship. If you’re like most business owners, you’re still your company’s best salesperson, but this can be a liability in the eyes of an acquirer, which is why you should wean your customers off relying on you as their point person. By the time you sell, none of your key customers should think of you as their relationship manager.

• Cultivate a new relationship with a new supplier. Having a “go to” group of suppliers is great, but an over-reliance on one or two suppliers can create a liability for your business. By spreading some of your business to other suppliers, you keep your best suppliers hungry and you can make a case to an acquirer that you have other sources of supply for your critical inputs.
• Create a recurring revenue stream. Valuable companies can look into the future and see where their revenue is going to come from. Recurring revenue models can vary from charging customers a small amount for a special level of service to offering a warranty or service contract.
• Find your lease (and any other key contracts). When it comes time to sell your company, a buyer will want to see your lease and understand your obligations to your landlord. Having your lease handy can save time and avoid any nasty surprises at the eleventh hour in the process of selling your company.
• Check your contracts and make sure they would survive the change of ownership of your company. If not, talk to your lawyer about adding a line to your agreements that states the obligations of the contract “surviving” in the event of a change of ownership of your company.
• Start tracking your Net Promoter Score (NPS). The NPS methodology is the best predictor that your customers will re-purchase from you and/or refer you, which are two key indicators of a healthy and successful company. It’s also why many strategic acquirers and private equity companies use NPS as a way to measure the health of their acquisition targets during due diligence.
• Get your Sellability Score. All goals start with a benchmark of where you’re at today, and by understanding your company’s Sellability Score, you can pinpoint how you’re doing now and which areas of your business are dragging down your company’s value. 

A lot of company owners will set New Year’s resolutions around their revenue or profits for the year ahead, but those goals are blunt instruments. Instead of just building a bigger company, also consider making this the year you build a more valuable one.

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

The Hidden Goal of the Smartest Business Owners

What were your business goals for the year? If you’re like most successful owners, you have a profit goal you want to hit. You may also have a top line revenue number that’s important to you. 

While those goals are important, there is another objective that may have an even bigger payoff: creating a commercial profitable enterprise that works without you.  In doing so, you are also building a sellable business.

But what if you don’t want to sell? That’s irrelevant. Here are five reasons why building a sellable business should be your most important goal, regardless of when you plan to push the eject button:

1. Sellability means freedom

One of the fundamental tenants of sellability is how well your company would perform if you were unable to work for a while. As long as your business is dependent on you personally, there’s not much to sell. Making your company less dependent on you by building a management team and creating just-add-water systems for employees to follow means you have the ability to spend time away from your business. Think of the world of possibilities that would open up if you could choose not to go into the office tomorrow….

2. Sellable businesses are more fun

Running a business would be fun if you were able to spend your days on strategic thinking and big picture ideas. Instead, most business owners spend the majority of their day on the minutia: the government forms, the employee performance reviews, bank reconciliations, customer issues, auditing expenses. The boring details of company ownership suck the enjoyment out of owning a business—and it is exactly these tasks you need to get into someone else’s job description if you’re ever going to sell.

3. Sellability is financial freedom

Each month you open your brokerage statement to see how your portfolio is doing. Not because you want to sell your portfolio, but because you want to know where you stand on the journey to financial freedom. Creating a sellable business also allows you peace of mind, knowing that you’re building something that—just like your stock portfolio—has value you could choose to make liquid one day.

4. Sellability is a gift

Imagine that your first-born graduates from college and as a gift you give him your prized 1967 Shelby Ford Mustang. Your heavily indebted child takes it on the road, but after a few miles, the engine starts smoking. The mechanic takes one look under the hood and declares that the engine needs a rebuild.

You thought you were giving your child an incredible asset, but instead it’s an expensive liability he can’t afford to keep, and nor can he sell it without feeling guilty.

You may be planning to pass your business on to your kids or let your young managers buy into your company over time. These are both admirable exit options, but if your business is too dependent on you, and it hasn’t been tuned up to run without you, you may be passing along a jalopy.

5. Nine women can’t make a baby in one month

There are some things in life that take time, no matter how much you want to rush them. Making your business sellable often requires significant changes; and a prospective buyer is going to want to see how your business has performed for the three years after you have made the changes required to make your business sellable. Therefore, if you want to sell in five years, you need to start making your business sellable now so the changes have time to gestate.

Are you curious about how sellable your company is and what you would need to tweak to sell it when you’re ready? Then it’s time to get your Sellability Score via the questionnaire on our website. It takes about thirteen minutes and your responses are kept confidential. You can complete the questionnaire here www.actioncoachsellabilityscore.com.

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: