Hosted by: New York Enterprise Report (www.nyenterprise.com/)
Presention by: Dave Lavinsky founder of Growthink (www.growthink.com). Business venture, capital raising, start-growth-exiting a company. Founder of Growthink University.
Theme: How to build a business to sell for millions of dollars so you can live the life of your dreams. The goal is to achieve freedom. It’s not about loving the company but exiting with profit.
Content: Dave’s failure led to him to mobile market base generation of customer leads for other companies. He figured out Google’s SEO formula and built a multi-million dollar company. When the market shifted and new government regulations led to massive competition. He had given all customers to other companies. He exited the business with nothing, leaving millions of dollars on the table.
Critical Entreprenuership Trends: new startups and foreign competition is increasing. Failure of business success due to massive competition. Entrepreneurs seldom realize their personal dreams.
Most of the US pentamillionaires started and SOLD their own business. That’s where wealth is made. Why? Capital gains tax advantage. Strategic buyers will place value on the synergism that your business accesses: customers, location, product type…
A typical business sells fo 6.5X the EBITDA (profits) ie Assume a 30%EBIDTA for a $30 million company means that the company is worth $90 million to sell. (Tech businesses average 10X the EBITDA). IT varies according to growth.
Market Change: It takes longer to sell a business: baby-boomers are at the age to sell their businesses. The average is no 270 days to sell. Only 17% businesses actually sell.
Solution: You must a company a certain way with the end game in mind. Start the planning and structure process from the very beginning:
The 5 Keys to Success:
Put yourself out of business: Build a company that runs without you. What are you doing that shouldn’t be YOU? What is the highest value of your time? What system must you build to ensure it can run without you? Systematize your business. This gives you high sales appeal. It’s also easier to run.
Diversify your customer base: A few large customers = high risk. Too much dependence. Think about what new customer segments can you target? Leverage your existing products and services to new customer segments. What can acquirers sell to your customer base? 2-3 years before selling think about the ideal acquirers for this company. Grow your company to their customers and their customers to their product (build synergy).
Identify and build your value drivers: The top 4 of the 21 key value drivers of a business: large customer base, intellectual property that has value to potential buyers (trademarks, copyrites), a team of talent that is transferable to the buyer (don’t make yourself an employee of the company), cash flow (more net income). You should pick and choose of the 21 value drivers to tailor to the potential buyer. You don’t need to excel at all 21 of the value drivers.
Implement continuity programs: Consistent revenue – risk removal (ie _____ of the month club). Membership programs that remove risk Contractually recurring revenue i.e. Verizon wireless, Prepaid Legal, Wine of the Month Club. How can you get the same customers to pay you over and over again? Establish a continuity/subscription model.
Skillfully execuite the transaction: You can DOUBLE the amount you sell the business with the right presentation: how you position your company and support your valuation. Show the future value of your company, how it can be worth a ton of money to the purchaser. Create a competetive marketplace for selling your company. Get more buyers (5+). Negotiating and closing skills are important. You should have prepared your business for the sale at least 2 years before the sale.
Takeaways: You have to build a company with the endgame in mind. Focus on selling your company. IPO is one route but ultimately selling is the universal exit strategy.
Conclusion: Startup-Grow-Think-Sell-Repeat. Sell your business and then do it again.
The webinar is archived at www.nyenterprise.com/webinar Available in 24 hours.