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We live in a business world where growth is worshipped. Entrepreneurs measure themselves by how many people they employ. Many founders dream about making lists whose sole criterion is revenue growth.However, if your endgame is to sell your business to a strategic acquirer one day, indiscriminate revenue growth may not result in a commensurate spike in your company’s value; in some cases, it may even detract from it.<h3>Strategic buyers value what they cannot replace</h3>Strategic acquirers—the buyers that usually pay the most—are looking for something they can’t easily do themselves. They covet that unique offering that would take too long—or cost too much—for them to duplicate. But the more extraneous offerings you add, the less valuable you become in their eyes.Take Michael Lieberman, who co-founded a software company named Datastay. It revolutionized how brake manufacturers cataloged their design drawings through its product lifecycle management software. Datastay became synonymous with the brake manufacturing industry. Lieberman was on a first-name basis with almost every brake manufacturing executive in the industry. He was the man to know, the one who hosted dinners at trade shows—he was the guy.Then Autodesk entered the picture, seeing Datastay as their gateway to the product lifecycle management software market. Autodesk, a billion dollar serial acquirer renowned for software tools indispensable to designers and builders across various sectors, acknowledged Datastay’s dominance in the brake industry and saw the potential to market Datastay’s product lifecycle management software across the myriad industries Autodesk served.Autodesk offered Lieberman an extraordinary ten times revenue for his nine-employee company.Had Lieberman prioritized broad revenue growth, he might have diversified his offerings to the brake manufacturers, diluting the core value that attracted Autodesk. Brake manufacturers need all sorts of other software, but Lieberman remained disciplined and focused exclusively on product lifecycle management tools.&nbsp;Lieberman could have branched out to other industries, but spreading his attention to other industries would have weakened his connection to the brake industry and invited competition.Instead, he stuck to his knitting: Make the world’s best product lifecycle management software for the brake industry.<h3>Private equity and strategic acquirers see things differently</h3>Unlike the private equity acquirer that usually bases their valuation on a multiple of your Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA), the typical strategic acquirer is trying to calculate what your product or service offering is worth in their hands.&nbsp;The typical strategic acquirer is much larger and better resourced than the companies they target. They don’t need you to diversify for them. Instead, they want the company that has the one puzzle piece they want, and the less diversified that offering is, the higher the premium they’re prepared to pay.

Growth vs. Value

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If you’re looking to attract an investor or an acquirer one day, expect them to dig into your sales and marketing process.If you’re a company that sells to other businesses, an investor will want to know where you get your leads from and how much each costs you to generate. They’ll want to know what technology you are utilizing to support your sales team. They’ll want to understand how your sales reps get meetings and how many appointments a good rep has each week. They’ll want to know the close rate of a high performer and how it compares to an average performer.&nbsp;The investor’s questions aim to gauge the scalability of your sales model under significantly higher investment rather than simply to assess your past performance. Acquirers love stumbling over a business where the main constraint to growth is capital. They fall over themselves for a company that has an efficient sales engine that needs more fuel (i.e., money). Most investors have lots of capital but struggle to find businesses with a sales system that won’t collapse under the weight of more money.<h3>How Gregg Romanzo built a sales system</h3>In 2004 Gregg Romanzo started an old-school freight brokering business. Most freight brokers are nothing more than a handful of people arranging shipments in return for razor-thin margins, but Romanzo realized his sales model had the potential to grow into something much bigger.Romanzo’s model involved hiring high-potential people with a relatively modest base salary of between $40,000 and $60,000 per year and teaching them the business from scratch. He armed them with a computer and access to the best scheduling software and tied their variable compensation to the gross margin of the jobs they booked. Romanzo knew if he could get a rep to clear $100,000 per year in total compensation, he would be able to keep them for the long run.Romanzo took his very best talent—the top one or two percent—and built a team around them so they could earn even more. This cohort of salespeople could clear three, four, or even five hundred thousand dollars in an exceptional year.Since Romanzo paid a relatively low base salary and his people didn’t need a lot of equipment, he was able to hire a lot of salespeople. By the time he sold his company, he had 200 employees, 190 of which were salespeople. That’s 95% of his headcount dedicated to sales.How does that compare to your company? If you have a winning formula you think would hold up if you doubled or quadrupled your sales team, consider monetizing the sales model you’ve created. Either hire a lot more reps or show a deep-pocketed investor or acquirer how durable your sales model is and how all you need is their capital to grow it.

Just add capital

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One of the eight factors that impact the value of your company is something the team at The Value Builder SystemÔ refers to as “The Switzerland Structure,” which emphasizes the importance of business independence. It cautions against excessive reliance on any single entity, whether suppliers, employees, or customers. While many business owners recognize the risks associated with dependency on a high-profile customer or employee, the hazards of anchoring to a single supplier are often overlooked.Supplier dependency comes in many flavors, but the most pernicious is a dependency on a single marketing supplier for sales leads, such as a dominant e-commerce site or social media platform.&nbsp;<h3>6 ways marketing supplier dependency cuts your value</h3>Amazon, for instance, is a prime example where businesses heavily invest to gain market access and visibility. However, dependence on a single sales platform like Amazon can devalue a business in the eyes of investors or acquirers for several reasons:1. Increased Risk Exposure: Sole reliance on one platform exposes a business to risks of sudden policy, fee, or algorithm changes. Such negative alterations by the platform could significantly impact the business's sales and profitability. 2. Lack of Diversification: Over-dependence on a single channel is perceived as a vulnerability, while a diversified sales approach suggests resilience and adaptability, appealing attributes to both investors and acquirers. 3. Limited Growth Potential: Exclusive reliance on one platform can restrict a company's growth opportunities. Investors typically favor businesses with multiple channels for growth. Being bound to one platform can limit a business's potential for expansion. 4. Brand and Customer Relationship Limitations: Operating primarily through a third-party platform may lead to limited customer interaction, hindering the development of a strong brand identity and customer loyalty, both highly valued by investors. 5. Negotiating Power and Autonomy: Dependence on a platform like Amazon can reduce control over crucial business aspects, such as pricing and customer service. Investors may view this lack of autonomy as a strategic weakness. 6. Perception of Innovation and Independence: Businesses demonstrating innovation and independence are often more attractive to investors. Over-reliance on a single platform can create an impression of a lack of these qualities.<h3>How Chad Maghielse improved his score on the Switzerland structure&nbsp;</h3>Chad Maghielse’s company, Pets Are Kids Too, originated with a simple spray to help improve his dog’s breath and swiftly expanded to over $2 million in sales with a 35% profit margin within three years, relying solely on Amazon. Recognizing the risks of this dependence on the e-commerce giant, Maghielse embarked on a path of supplier diversification.Maghielse expanded to another e-commerce platform, Chewy.com, and launched his own online store. This strategy reduced Amazon’s share of his sales to 65%, while Chewy and his store contributed 30% and 5%, respectively. A significant reduction in his business’s platform risk and an increase in its appeal to potential buyers resulted from this strategic shift.Thanks in part to Maghielse’s diversification strategy, Pets Are Kids Too was acquired in a deal that valued the company at three times its EBITDA, with a substantial portion paid up front. Maghielse’s journey highlights the critical insight that diversification not only shields against market volatility but also enhances a business’s overall value.<h3>Embracing the mentality of the swiss&nbsp;</h3>Reducing your reliance on a single marketing supplier not only bolsters your company’s market resilience but also notably increases its value. Adopting a Swiss-style mindset, which values independence and strategic autonomy, is more than a tactical move; it is a key strategy for achieving sustainable growth and boosting the value of your business in the long run.&nbsp;

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Growth vs. Value

Just add capital

The Switzerland structure