IBA, as the premier business brokerage firm in the Pacific Northwest, is firmly established as a respected professional service firm in the legal, accounting, banking, mergers & acquisitions, real estate, and financial planning communities. Periodically, we will post guest blogs from professionals with knowledge to share for the good of owners of privately held companies & family businesses. The following blog has been provided by Jeremiah Dole (https://jeremiahdole.com/):
How the Rare Strengths of a Business Can Enhance its Sale Value
As a business owner who is planning to sell, you’ve earned a grand slam for your 80-hour work weeks. But as you fall asleep each night, do you wonder if you could put more in your pocket?
Many sellers think the valuation is set in stone, but it’s moldable. To maximize the selling price you need your business firing on all cylinders. You need to stand out from the competition and maximize profits.
As a Certified Product Manager, I evaluate what businesses create, make incremental improvements, and grow profit margins. In my career I’ve created leverage from small adjustments without a total rebuild.
In this article I’ll share my method for making businesses distinct from their competition and proving their worth.
What Makes a Business Stand Out?
Think about your own experiences with companies that regularly raise prices. Apple, Starbucks, Netflix, Coca-Cola, Disney, Chipotle, and Nike may come to mind. Why do you stay with them even when prices keep rising? I bet your answer is some combination of their unique and valuable traits. I call these Rare Strengths.
Rare Strengths are the key to making your business stand out. They make products and services stop being commodities. Rare Strengths differentiate. They are leveraged for pricing power and growing valuations.
A business’s unique and valuable traits are worth emphasizing. Even if they used to be small and obscure, emphasizing Rare Strengths front and center makes a business stand out against the competition.
Rare Strengths come in many dimensions:
- Faster than alternatives
- Easier than alternatives
- More reliable than alternatives
- Unique procedures
- Brand and reputation
- Intellectual property
After naming them, Rare Strengths are important messages for every stakeholder:
- The owner’s confidence in pursuing higher profit margins
- Customers’ willingness to pay higher prices
- Employees’ faith that the business is on the right track
- The broker’s marketing the business to buyers
- A buyer’s willingness to pay a higher selling price
Finding and Enhancing Rare Strengths
You find your Rare Strengths by asking your customers. Often you only hear from the loudest customers, but they may not tell you the strengths.
Instead, you can ask the first customers or the longest-staying customers. You can ask the most profitable customers. You can ask the customers that refer others to you. What do they say the strengths are? Find out the reasons they appreciate the business versus all possible alternatives and you’ll find the Rare Strengths.
You may find the Rare Strengths are lacking. In this case a Razor-Focused Roadmap can improve Rare Strengths. As examples, where is execution too slow? How can you deliver faster? Where is it too difficult, and how can you become simpler? Do you have excess capacity? How do you find higher demand?
These are some of the ways great businesses can unlock higher valuation. You don’t always need something brand new. There may be tons of ways to improve what you have today.
To be clear, some Razor-Focused Roadmaps are hard work. But the most difficult ones often cause the highest profit growth. You can make the business irresistible to buyers.
Now let’s see how this can grow your valuation.
How Rare Strengths Grow Valuation
Consider the world’s best business evaluator.
Warren Buffett says pricing power leads to the strongest valuations. He said, “If you’ve got the power to raise prices without losing business to a competitor, you’ve got a very good business.”
A business raising prices and keeping customers prints higher profits.
Higher profits at the same multiple leads to higher valuation, sure.
But when a steady business adds profit margin, that’s what business buyers are hunting for. It could earn a multiple bump.
This is how great businesses multiply their valuation by leveraging Rare Strengths and raising prices.
You might think Warren’s advice won’t work in your business. It may feel like any price increase is a big deal. You imagine customers will leave after a price increase. If you think “ordinary” businesses don’t have pricing power, you justify raising prices with your Rare Strengths. Warren says excellent businesses can raise prices and keep customers.
How Much Valuation Gain is Possible?
Rare Strengths fuel your valuation gains. Math is on your side when you name Rare Strengths, execute a Razor-Focused Roadmap, and decide on a price increase.
If you aren’t sure this is worth doing, you can find motivation by calculating a possible future valuation before starting. You can set a valuation goal and reverse engineer how the business can adjust to achieve it. I’m sure you don’t want to sell your business for less than it’s worth when simple adjustments unlock so much.
If you have any questions relating to the content of this article, Jeremiah Dole would welcome the opportunity to answer them. Mr. Dole can be reached at (765) 413-7075 or [email protected].
IBA, the Pacific Northwest’s premier business brokerage firm since 1975, is available as an information resource to the media, business brokerage, mergers & acquisitions, and real estate communities on subjects relevant to the purchase & sale of privately held companies and family businesses. IA is recognized as one of the best business brokerage firms in the nation based on its long track record of successfully negotiating “win-win” business sale transactions in environments of full disclosure employing “best practices”.