Selling a business: using marketing to increase value before you sell

Singular focus can achieve transformational results in our businesses if it’s based on an understanding and channeling of who we are, what we have a passion for, what we can be the very best at and what drives our economic engine.  As we said in last post, Taking your business from good to great, that singular focus has to apply to all our activities,  so it extends to our marketing efforts.  Marketing is that which causes clients to come to you and keeps them coming back.

Dominate a niche market: be the very best supplier in that niche

In The Guerrilla Marketing Handbook, Jay Conrad Levinson states:  “In order to sell a product or a service, a company must establish a relationship with the customer.  It must build trust and support.  It must understand the customer’s needs, and it must provide a product that delivers the promised benefits.”

The goal is to dominate a niche market by being the very best supplier in that niche.  You may have to narrow the niche again and again to get it down to the one you can dominate. The starting point and qualifier for identifying what you will provide and to whom, is the selective focus we referenced above.

Bill Davidow, former Marketing VP at Intel, does a great job of describing the process of market segmentation and product development in his book Marketing High Technology.  As he says and shows, while “devices are invented in the laboratory, great products are invented in the Marketing Department”.

Taking your business from good to great

Determine what you can be the very best at

All things being equal, higher revenue and a better bottom line increase the value of a business and its appeal to potential buyers.  How we get there will be the focus of our next few posts.  But first, I’d like to take a short detour.  I recently read Good to Great, written by Jim Collins.

Criteria for moving from good to great

1. Combine personal humility and professional will to build a company that can run without you, rather than being indispensable.

Have ambition for the company and what it stands for. Your sense of purpose goes beyond your own success– build a company that can tick along without you. Focus relentlessly on tangible results and achievement.

2. First Who… then What:  start by getting the right people on the bus and the wrong ones off; then get your team’s input on where to drive the bus.

Select top performers that share your company’s core values and purpose, providing a basis for promoting from within and further reinforcing core values.

3. Confront the brutal facts of your current reality.  Sustain faith that you will prevail in the end.

Create a climate where truth is heard, particularly at the top.  Clarify what must be done to stimulate progress.  A Master Mind Group or Council like The Inner Circle where other business owners provide peer mentoring to help you clarify your vision and take appropriate actions.

4. Develop a simple, clear concept and consistently make improvements in systems and processes that improve performance. (See the related diagram where the three circles intersect.)

Financing the sale of a business, part 2

Earn-outs can put more money in the seller's pocket

In the last post, we talked about financing the purchase of a business through a bank loan (unlikely), through a Canada Small Business Loan (CSBL), a hybrid structure using a CSBL, and a seller note (preferred choice).  Today we’ll explore other approaches.

Business Development Canada (BDC) provides a lending facility—albeit expensive–for business acquisitions. There is a bureaucracy to work through, but BDC does finance some sales. They generally require the seller to finance some of the transaction behind their loan and the seller doesn’t usually receive principle payments on his/her note until the BDC debt is repaid.  Most sellers aren’t willing to wait that long to get paid out, and being behind the bank adds to their risk.

Selling assets of the business to a leasing company then leasing them back is another approach that can provide additional cash to the seller at closing.

Partnerships where the purchaser has an option to acquire the rest of the business in time are sometimes used, but these can be fraught with problems.

Earn-outs

Earn-outs can be a rewarding way for sellers to get around many issues

A seller and purchaser may disagree over projected earnings or other factors affecting the value of the business. Historical financial information may not be enough to offset the perceived risk to a purchaser determining a purchase price. An earn-out that bases a portion of the valuation on actual future performance can soften the risk of speculative projections to the purchaser and put more money in the seller’s pocket.