Blog

word m and a made with wood building blocks, stock image

What makes you tough to compete with?It’s that thing customers value but competitors can’t seem to match.For Apple, it’s their integrated ecosystem of devices and services. Apple’s ecosystem binds together iPhones, iPads, Macs, Apple Watches, and services like iCloud, Apple Music, and Apple Pay into a seamless experience. Once you own one Apple product, the additional benefits and ease of using multiple devices and services from the same company make it difficult to switch to competitors.The strength of Apple’s ecosystem lies in how all their products and services work together, enhancing convenience and functionality. This integration creates a powerful moat that other tech companies struggle to cross, contributing to Apple’s dominant market position.And this doesn’t just work for large tech companies. We refer to your moat as having Monopoly Control, and it can significantly increase your company’s value. A study done by The Value Builder System™ shows that companies with a monopoly are 40% more likely to receive acquisition offers, and these offers are typically 25% higher than businesses without a virtual monopoly.<h3>How Boondockers Welcome built a moat</h3> Let’s look at Boondockers Welcome, founded by Marianne Edwards and her daughter, Anna Maste.Boondockers Welcome is like Airbnb for RVers. RV enthusiasts can find hosts willing to let them park their RVs on their land for free. The RVers get a free place to stay, and the hosts enjoy meeting like-minded travelers.As with any two-sided market, the challenge lies in quickly growing both sides—hosts and guests. This challenge of establishing a thriving marketplace created the moat that made Boondockers Welcome tough to compete with. The success of a two-sided market depends on achieving critical mass; without enough hosts, guests won’t join, and vice versa.Edwards and Maste had an advantage here. Edwards had spent years writing travel guides and had a dedicated list of followers who made ideal hosts. By tapping into this community, they quickly populated the site with high-quality hosts, giving Boondockers Welcome a head start that was hard for others to replicate.This early success allowed the Boondockers Welcome network to grow to more than 3,500 locations across the country, creating a robust marketplace that was difficult for any new entrant to challenge.<h3>The sale to Harvest Hosts</h3> This well-established network caught the attention of Harvest Hosts, a membership service for RVers offering unique camping experiences at locations like wineries and farms. CEO Joel Holland saw the potential synergy and reached out to Maste and Edwards for a partnership.Initially, Maste and Edwards declined. But Holland, recognizing the strength of their moat, persisted and asked them to name their price.Maste and Edwards considered their ideal number and doubled it. After some negotiation, Holland agreed, and the deal closed just weeks later.Your moat may make your company attractive to customers, but it also makes your business more valuable. Focus on widening and hardening your moat, and watch the value of your business grow.

Why a strong moat made Boondockers Welcome an acquisition target

Ice hockey players on the grand ice arena - copy spce

Have you ever wondered why some athletes struggle to transition from player to coach? This challenge isn't just limited to sports; it’s a critical shift that many business owners need to make to build a valuable business.&nbsp;Take Wayne Gretzky, for example. Despite being arguably, the best hockey player of all time, he failed to make the playoffs in four years as the coach of the Phoenix Coyotes. Similarly, Ted Williams, the greatest hitter in baseball history, couldn't lead his team to the playoffs in four years as a manager.On the other hand, some of the most successful coaches never excelled or even played the sport they coached professionally. Andy Reid has won three Super Bowl titles with the Kansas City Chiefs without ever playing in the NFL. Greg Popovich, one of the best NBA coaches of all time, never played professional basketball.Why does this matter for business owners? The transition from being the star player in your business to becoming its leader or “coach” is crucial. The Value Builder System™ analyzed more than 80,000 businesses and found that companies able to function without their owner for three months are more than three times more likely to receive a premium offer (defined as greater than 6x pre-tax profit). In other words, owners who successfully transition from player to coach are much more likely to get a premium offer for their business.<h3>How Jason Bagley made the move from player to coach</h3>In 2013, Jason Bagley started Firing Squad, a lead generation company specializing in cold emails. Initially, Bagley did everything himself, especially copywriting, which he considered his “ninja skill.”However, Bagley wanted to build a business that could thrive without him. To do this, he needed to transfer his skills to his employees. Here’s how he did it:1. Create a library: Bagley compiled good and bad copywriting examples in a folder accessible to all employees. 2. Use video: He provided feedback through screen-sharing videos, making it easier for his team to understand his thought process. 3. Avoid perfection: Bagley learned to accept 80% of his standard from his employees, realizing that nitpicking every detail wasn’t productive. &nbsp;This approach allowed Bagley to transition his skills to his team, enabling him to sell Firing Squad to Southern Web in 2020.Making the shift from player to coach is challenging but essential if you aim to build a valuable and sellable business.&nbsp;

From Gretzky to Popovich: what sports legends teach us about business value

Diverse Group of Professionals Meeting in Modern Office: Brainstorming IT Programmers Use Computer Together, Talk Strategy, Discuss Planning. Software Engineers Develop Inspirational App Program

When potential acquirers first evaluate your business, most will quickly categorize it into a specific industry. This initial classification can significantly impact the value they place on your business. Some industries are inherently perceived as more valuable than others, and if your business is placed in a less favorable category, it can be challenging to change that perception.&nbsp;When Jeremy Parker was raising money for Swag.com, he ran into investors who were left with the impression that Swag.com was a simple distributor of promotional products, which is an industry plagued by low valuations. &nbsp;Parker tried to make the case that Swag.com was more than a middleman, but investors weren’t buying it. They lumped Swag.com into the promotional products category and offered Parker a low single-digit multiple of EBITDA for a slice of his business.&nbsp;Parker regrouped and began positioning the business as an e-commerce play with an unforgettable domain name, world-class merchandising, and one of the most elegant direct-to-consumer (DTC) buying experiences online. Investors began to see the company differently. No longer a simple distributor of “trinkets and trash,” Swag.com began to be seen as a technology company and a digital commerce leader. Instead of a low single-digital multiple of profit, Parker attracted an acquisition offer valuing his $30 million company at a healthy multiple of revenue.&nbsp;Once an acquirer has categorized your business into a particular industry, it can be challenging to shift that perception. If your business doesn’t fit neatly into their preferred categories, it can be difficult to change their initial impression. &nbsp;Additionally, acquirers often compare your business to others within the same industry. If they have already placed you in a less favorable industry, they might use lower benchmarks and valuation multiples from that industry, making it harder to argue for a higher valuation. Furthermore, the initial narrative you present about your business can stick. If this narrative places you in a lower-valued industry, subsequent efforts to reframe your business may be met with skepticism.&nbsp;<h3>How to look like a valuable business&nbsp;</h3>To ensure your business is categorized favorably from the start, consider these strategies:&nbsp;1. Clear positioning: Clearly articulate your business’s value proposition and industry position. Avoid ambiguous descriptions that might lead to misclassification. Be explicit about where your business fits and why it should be valued accordingly.&nbsp; 2. Highlight industry trends: Emphasize positive trends in your industry and how your business is positioned to capitalize on them. Use data and market analysis to back up your claims and shift perceptions.&nbsp; 3. Put your best foot forward: If your business spans multiple industries, highlight the most favorable one. Demonstrate how your company leverages the strengths of high-value industries, and downplay associations with lower-value ones.&nbsp; 4. Leverage third-party validation: Use endorsements, industry awards, and analyst reports to support your positioning. Third-party validation can lend credibility to your claims and help shift acquirer perceptions.&nbsp; When selling your company, perception is everything. The category investors place your business in can make or break the deal.&nbsp;

How first impressions can impact your company’s value

Who does the selling inside your business?If you’re involved, your business will be less valuable than if you weren’t. Investors and acquirers are reluctant to invest in a business where the owner is the rainmaker of the company.&nbsp;The team at the Value Builder System™ analyzed more than 70,000 businesses, and the data revealed that companies that can sustain a three-month absence of the owner ​are more than twice as likely to receive a premium acquisition offer​ (defined as greater than 6x pre-tax profit).In other words, to maximize the value of your business, you need to get other people doing the selling.Easier said than done.<h3>Why employees can’t sell like the owner</h3>Unsurprisingly, most young recruits struggle to sell at the same level as the founder. In addition to having experience on your side, you also have a built-in advantage over your young reps based on your job title.Founders often sell by offering customers a great experience, which is believable coming from you. After all, you are the expert in your industry, you control who works on each project, and, if something goes wrong, a customer always knows they can call you to fix it.When junior salespeople try to use your company’s reputation for customer service as a selling point, it often sounds like a hollow promise. That’s why Matt Dixon, the author of The Challenger Sale, suggests you arm new salespeople with the answer to a simple question: “Why should your prospects buy from you?”There’s just one catch. The answer can’t have anything to do with the customer service you provide.To figure out your answer, keep in mind that a great selling proposition includes three elements. It must be something that:1. &nbsp; &nbsp; customers care about;2. &nbsp; &nbsp; makes you different; and3. &nbsp; &nbsp; is believable.Arm your salespeople with a compelling point of differentiation, and you’ll have given them the raw material they need to sell without you, making your business more valuable in the process.

3 ways to get your employees to sell more

business man with laptop working on the beach

If you aspire to build a valuable company, one crucial factor is to ensure your business can operate independently without your constant involvement, but embarking on this journey can feel daunting. In this article, we'll explore three cost-effective, simple strategies to set your business on a path to autonomy and allowing it to thrive without your constant presence.<h3>1. Replace yourself by niching down</h3>The reason most owners can’t replace themselves is that a substitute would be too expensive. Trying to replace your breadth of experience would likely require a very high-salaried employee. If you can’t afford to replace all of what you do, niche down your core offering. &nbsp;For example, Casey Cavell’s baseball business, D-Bat Academy, could have catered to a broad range of players: professionals, softball players, slow-pitch beer leaguers, fast-pitch…but instead, he got specific about who his business was for: 5- to 10-year-old kids. &nbsp;Sure, he could have charged more per customer if he catered to college athletes and aspiring pros—but those elite athletes would expect to get a hitting coach with years of expertise, and Casey would have had to staff for that. &nbsp;On the other hand, when you have a business where one of its primary objectives is to give an 8-year-old an awesome birthday party, well, an entry-level employee can deliver on that. &nbsp;When you narrow down your offering, you can bypass the high salary that comes with someone with a wide breadth of experience.&nbsp;<h3>2. Create a question diary</h3>When Jodie Cook was building her social media agency, she made a conscious choice every time an employee came to ask her a question.&nbsp;The easy thing to do would have been to answer the question, but she forced herself to write each question down. She turned that question diary into a business manual that documented how to do every single task required of her employees. &nbsp;Her manual came in the form of an Excel spreadsheet with 50 tabs, each one documenting a specific process, like payroll for example.&nbsp;Challenge yourself to do the same: When an employee asks you a question, resist the urge to just answer and move on. Document those queries, and turn them into a standard operating procedure (SOP) that enables your staff to develop expertise in their role. The go-to reference becomes the manual…instead of you.&nbsp;<h3>3. List your employees alphabetically on your site</h3>Most companies list their employees by seniority, with the owner and CEO as the top listing. However, this communicates that you are the most important person in your company, which will trigger everyone from salespeople to suppliers and prospective partners to want to go straight to the top by calling you.An effective strategy to downplaying your role in your company (and getting others to step up and shoulder more) is to list employees alphabetically rather than by seniority on your company’s website. This approach can minimize the spotlight on you. Additionally, using titles like “Head of Culture” and “Head of Product” instead of “CEO” or “Owner” can further obscure your seniority, making it less likely customers will call you by default.&nbsp;Getting your business to thrive without you gives you the freedom to cherry pick the projects you want to work on or just own your business and collect passive income. A business that runs without you is also a valuable, sellable asset if you ever choose to move on to a new chapter in your life. Niching down, creating SOPs, and downplaying your role on your website are all tactical things you can do today to get your business running more independently in the future.

3 (Creative) ways to get your business to run without you

Wooden houses with yellow arrows up. housing boom, property market growing, high demand for real estate, house prices rising concept

Most founders aim to boost sales, but prioritizing top-line growth can attract low-quality revenue, potentially reducing your company’s value.&nbsp;To an acquirer, revenue quality varies. They prioritize future revenue predictability, valuing recurring income from contracts and subscriptions higher than one-off sales. Consequently, firms with recurring revenue often command a revenue-based valuation, whereas businesses reliant on transactional revenue are usually valued based on a multiple of EBITDA.&nbsp;<h3>Why Mike Winnet turned Google down&nbsp;</h3>Mike Winnet provides an excellent case study on the importance of prioritizing the right kind of revenue. &nbsp;Winnet started U.K.-based Learning Heroes after recognizing that most e-learning programs were long and boring. He saw an opportunity to transform the industry by selling large companies a subscription to his short, engaging, animated training courses.&nbsp;Although his company was growing, it was still thirsty for cash. Winnet was drawing a salary of just £500 a month when he received a lucrative offer from Google. The giant search firm offered Winnet £90,000 to create a custom course for them. The course would have taken his team just three months to develop, and Winnet would have welcomed the injection of cash.&nbsp;But Google’s offer was a one-time transaction and didn’t sit right with Winnet, who was trying to build a company based on recurring revenue. “I know loads of people who would have taken that £90,000 contract, but we didn’t because it didn’t fit the model. We used to have a sign on the wall that said, ’Does It Make the Boat Go Faster?’ and if the decision didn’t make the boat go faster, we wouldn’t do it.”&nbsp;Not only was Winnet concerned Google’s offer would slow their journey to becoming a subscription-based e-learning juggernaut but he also knew the one-off nature of the revenue had the potential to undermine the value of his company in the eyes of potential acquirers.&nbsp;Winnet started Learning Heroes with the intent of selling it within three years for £10 million. He knew he would need to position the company as a product-based subscription business to garner such a premium offer.&nbsp;Winnet understood that a simple service company doing one-off projects, like the one Google was offering, would be lucky to garner an offer of one times revenue. In contrast, a subscription-based product company could command a much higher valuation from an acquirer.&nbsp;By accepting the Google project, Winnet would have run the risk of appearing to be a project-based consultancy and accidentally falling into the service business category in an acquirer’s mind.&nbsp;In the end, Winnet’s discipline paid off when he accepted an acquisition offer from Litmos of £8 million, representing roughly four times his revenue at the time.&nbsp;Had Winnet been viewed by an acquirer as a traditional service company, he would have likely been offered a quarter of what he received.&nbsp;Rather than focusing exclusively on revenue growth as a goal, owners that sell for the highest multiples tend to concentrate on growing value, even if that occasionally comes at the expense of short-term sales.&nbsp;

Blog

Why a strong moat made Boondockers Welcome an acquisition...

From Gretzky to Popovich: what sports legends teach us ab...

How first impressions can impact your company’s value

3 ways to get your employees to sell more

3 (Creative) ways to get your business to run without you

Big vs. Valuable