Monthly Archives: February 2013
Where To Start, When Your Growth Stops
Why would two companies in the same industry, with the same financial
performance, command vastly different valuations? The answer often comes down to how much each business is likely to grow in the future.
The problem is that a lot of successful businesses reach a point where their growth starts to slow as the company matures. In fact, the price of doing a great job carving out a unique niche is that the specialty that made you successful can start to hold you back.
If you make the world’s greatest $5,000 wine fridge, you may have a successful, profitable business until you run out of people willing to spend $5,000 to keep their wine cool.
Demonstrating how your business is likely to grow in the future is one of the keys to driving a premium price for your company when it comes time to sell. To brainstorm how to grow beyond the niche that got you started, consider the Ansoff Matrix. It was first published in the Harvard Business Review in 1957 but remains a helpful framework for business owners today.
Sometimes called the Product/Market Expansion Grid, the Ansoff Matrix shows four ways that businesses can grow, and it can help you think through the risks associated with each option.
The choices above are presented from least to most risky. In a smaller business, with few dollars to gamble, focusing your attention on the first two options will give you the lowest risk options for growth.
Existing Products to Existing Customers
It’s natural to feel like you’re being greedy when you go back to the same customers for more of their dollars, but the opposite can often be true. Your best customers are usually the ones who know and like you the most and are often pleased to find out that you – someone they trust – are offering something they need.
Greg is a hardware store owner who came to understand the Ansoff Matrix. Greg earns a 150% mark up on cutting keys but his cutter was hidden in a corner of the store where nobody could see it. As a result, he didn’t cut many keys. One day, Greg decided to move the key cutter and position it directly behind the cash register so everyone paying for his or her hardware could see the machine. Customers started seeing the cutter and realized – often to their pleasant surprise – that Greg cut keys.
Not surprisingly, Greg started selling a lot more keys to his loyal customers. The key cutter didn’t woo many new customers, but it did increase his overall revenue per customer.
If you want to sell more of your existing products to your existing customers, draw up a simple chart of your products and services. Don’t be afraid to dust off those old products that you haven’t paid much attention to lately. List your best customers’ names down one side of the paper and your products across the top. Then cross-reference your customer list with your product list to identify opportunities to sell your best customers more of your existing products.
New Products to Existing Customers
Another approach to growth is to sell new products to existing customers. For example, there is a BMW dealership owner in the Midwest whose typical customer is a family patriarch in his forties. When he felt like he had saturated the market for well-heeled forty-something men in his trading area, he thought about what other products he could sell his existing customers. But instead of defining his customer as the forty-something man, he decided to think of his customer as the financially successful family and his market as their driveway.
Instead of trying to sell more BMWs into a market of diminishing returns, he bought a Chrysler dealership so he could sell minivans to the spouses of his BMW buyers. He then realized that a lot of his customers had kids in their teens so he bought a Kia dealership to sell the family a third, inexpensive car.
Once you become successful, it can be tempting to sit back and enjoy your success. But in order to drive up the value of your business, you need to be able to demonstrate how you can grow, and the least risky strategy will be to figure out what else you could sell to your existing customers.
How would your business score n the sellability stakes? take this 14min quize to find out – Sellability Score
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James Lawson is a Business Transformation Coach and author located in Fairfax, Northern Virginia. He works with and helps business owners TRANSFORM their businesses from where they are to where they ultimately want to be.
How Often Do Your Customers Come Back To You?
How often do your customers come back to you? The answer can define the value of your business.
Such is the case at Wpromote, an online advertising agency that manages its clients’ online marketing and social-media promotions. Wpromote founder Michael Mothner is not looking to sell, but he did let my colleague Mark Tepper, the founder of Strategic Wealth Partners, and I have a look under the hood of his business to see just how sellable the company would be if Mothner ever wanted to get out.
We found a business that will have the big agency holding companies salivating if and when the time comes for Mothner to sell. Wpromote derives 99 percent of its $11 million in annual revenue from six-month contracts that renew at a rate of 96 percent.
This wonderful article in INC magazine by Built To Sell Author John Worrillow investigates how creating a recurring or subscription based model can radically increase the value of your business and at the same time create a line waiting to buy it when your ready to sell.!!
Buyers will Line Up For This Business Model
James Lawson is a Business Transformation Coach and author located in Fairfax, Northern Virginia. He works with and helps business owners TRANSFORM their businesses from where they are to where they ultimately want to be.
Great Employees Are Not Replaceable
One of the key aspects of making a business sellable is the quality of the people that will be there after you leave. As a potential buyer I want to have the comfort of knowing that the business will continue to grow and prosper and that your ‘team’ can effectively run the business without your input.
Why is it then that owners aren’t putting as much time and effort into not only attracting great people but also looking at innovative ways of keeping them there!
Amy Rees Anderson wrote a great article for Forbes just a day or so ago that caught my eye and so I thought I would share it with you!
Click on the link below to read Amy’s article and start to gather ideas about how you can attract the right talent for your business and keep them there!
Great Employees Are Not Replaceable
Watch our new video and tell us what you think – Winning The Uphill Battle
James Lawson is a Business Transformation Coach and author located in Fairfax, Northern Virginia. He works with and helps business owners TRANSFORM their businesses from where they are to where they ultimately want to be.
Is Now The Time To Sell Your Business?
Have you been thinking about selling your business but just can’t decide if now is the best time? Do you find yourself repeatedly analyzing the economic situation and wishing you had a crystal ball? There are positive signs and there are negative signs….
If you’re still up in the air and can’t quite decide whether or not to hit the eject button, here are six reasons you might want to consider getting out now.
1. You’re less interested in fighting the good fight
A lot of business owners to the Great Recession in the teeth. If your stabilized and the prospect of possibly having to fight through another recession leaves you panic-stricken, it could be time for you to get out.
2. The Worst is behind you
Lets say you were mentally ready to consider selling a few years ago and then 2008 hit and 2009 was bad, and in 2010 and 2011 you made cuts and adjustments, so now you’re starting to see some profit and revenue growth. With your numbers going in the right direction, now might be just the right time to make your move.
3. The tax man is coming
Governments around the world are looking for money to fund the cost of an aging population. At some point this will mean increased taxes.
4. Nobody is lucky forever
If you’re lucky enough to be in a business that actually benefits froma bad economy, congratulations… you’ve probably had the best 4 years of your business life. But no cycle lasts forever and right now might be a great time to take some chips off the table.
5. The coming glut
As a business owner, demographics are not on your side. As the baby boomers start to retire in droves, we’re going to see a glut of small businesses coming to the market. That’s great if you’re buying; but if you’re a seller, you may want to avoid the flood and head for higher ground now.
6. The closing window
Since 2008, it’s been tougher for private equity companies to raise money; so many firms had their last successful round of fundraising a number of years ago. Many of these funds have a five-year window in which to invest or they have to give the money back to the people who gave it to them. Some boutique private equity firms will make investments in companies that have at least one million dollars in pre-tax profits (larger private equity firms will not go below $3 million in EBITDA); so if you’re in the seven-figure club, you could get a bidding war going for your business among private equity buyers keen to invest their money before they have to give it back.
James Lawson is a Business Transformation Coach and author located in Fairfax, Northern Virginia. He works with and helps business owners TRANSFORM their businesses from where they are to where they ultimately want to be.