knowlege base | G.S. Woods

Elevator Pitch:

Hi, I’m Graeme Woods,
A financial consultant specializing in business value and wealth management.
Imagine having a clear strategic plan that not only grows your business and income but also secures your financial future.
I help business owners to:
- Create
- Manage
- Grow
- Protect
- Access
- And transfer

Their business value

Using my Evergreen Value Management System™
strategic management of your business value and risk to support your personal financial goals.

By integrating business value estimates into comprehensive financial planning, I implement total wealth management and help to ensure you are well prepared for retirement, estate planning, and any exit strategy youThe Simplest Form Of Recurring Revenue Virtually Every Business Can Adopt

Recurring revenue makes your company more predictable, extends the lifetime value of a customer and ultimately makes your business more valuable. If you’re unsure how to create these automatic sales, a simple service contract can be the place to start.

A service contract is an agreement to provide an ongoing level of service in return for a regular payment. It can be a way to transform an ordinary service company into a predictable subscription business.

For example, Walter Bergeron started a small company servicing circuit boards for large food processing plants. It was a classic service business where Bergeron offered his time to fix customer’s circuit boards when they broke.

The business model worked fine, but cashflow was lumpy. Bergeron had reached a point where he could no longer sell any more of his time, and his growth stalled. Knowing something had to change, Bergeron made a 90-degree turn.

The Switch

He began offering a membership model where, instead of contracting him when a circuit board broke, he asked his customers to subscribe to a plan enabling them to have their circuit boards serviced at any time in return for a fixed monthly fee. Bergeron’s customers paid monthly for access to his technicians when they had a problem.

The switch to a subscription billing model transformed the business, and Bergeron quickly grew the company to $7 million in annual sales, at which point he sold it for $10 million — a significant premium over a standard service company.

As the example of Walter Bergeron illustrates, most small businesses begin life using the “break/fix” business model where a customer has a problem, and you swoop in to provide a solution. This business model may make you feel valued as a problem solver, but it comes at the expense of the value of your company. In the break/fix model, you must create demand, sell your product or service, deliver it, and start all over again, which is why acquirers place a lower value on these transactional businesses when compared to subscription-based companies.

By contrast, with a service contract, you create an ongoing stream of income that has the potential to grow the lifetime value of a customer dramatically. When you can accurately predict how much money you will get from a subscriber, you can invest more in wooing them.

The most compelling reason to adopt a recurring revenue model is the impact it can have on your company’s valuation. Dollar for dollar, recurring revenue can be worth more than twice that of transactional revenue, depending on your industry.

Service contracts are a simple and effective way to transform a transactional business into a recurring revenue goldmine.

Will your business be more valuable this time next year?

For many, January is a time of rebirth and resolutions. It’s a month to reflect on last year’s achievements and to set goals for the year ahead.

Some people will set personal goals like losing weight or quitting a nasty habit, and most company owners will set business goals that focus on hitting certain revenue or profit milestones. But if your goal is to own a more valuable business in 2014, you may want to make one of the following New Year’s resolutions:

Take a two-week vacation without checking in with the office. When you return, you’ll see how well your company performed and where you need to make a key hire or create a new system.

Write down at least one process per month. You know you need to document your systems, but you may be overwhelmed by the task of taking what’s inside your head and putting it down in writing for others to follow. Resolve to document one system a month and by the end of the year you’ll own a more sellable company.

Offload at least one customer relationship. If you’re like most business owners, you’re still your company’s best salesperson, but this can be a liability in the eyes of an acquirer, which is why you should wean your customers off relying on you as their point person. By the time you sell, none of your key customers should think of you as their relationship manager.

Cultivate a new relationship with a new supplier. Having a “go to” group of suppliers is great, but an over-reliance on one or two suppliers can create a liability for your business. By spreading some of your business to other suppliers, you keep your best suppliers hungry and you can make a case to an acquirer that you have other sources of supply for your critical inputs.

Create a recurring revenue stream. Valuable companies can look into the future and see where their revenue is going to come from. Recurring revenue models can vary from charging customers a small amount for a special level of service to offering a warranty or service contract.

Find your lease (and any other key contracts). When it comes time to sell your company, a buyer will want to see your lease and understand your obligations to your landlord. Having your lease handy can save time and avoid any nasty surprises at the eleventh hour in the process of selling your company.

Check your contracts and make sure they would survive the change of ownership of your company. If not, talk to your lawyer about adding a line to your agreements that states the obligations of the contract “surviving” in the event of a change of ownership of your company.

Start tracking your Net Promoter Score (NPS). The NPS methodology is the best predictor that your customers will re-purchase from you and/or refer you, which are two key indicators of a healthy and successful company. It’s also why many strategic acquirers and private equity companies use NPS as a way to measure the health of their acquisition targets during due diligence.

Get your Value Builder Score. All goals start with a benchmark of where you’re at today, and by understanding your company’s Value Builder Score, you can pinpoint how you’re doing now and which areas of your business are dragging down your company’s value.

A lot of company owners will set New Year’s resolutions around their revenue or profits for the year ahead, but those goals are blunt instruments. Instead of just building a bigger company, also consider making this the year you build a more valuable one.

Will This Be the Year You Seriously Drive Up the Value of Your Company?

If you have resolved to make your company more valuable in 2022, you may want to think hard about how your customers pay.

If you have a transaction business model where customers pay once for what they buy, expect your company’s value to be a single-digit multiple of your Earnings Before Interest Taxes, Depreciation and Amortization (EBITDA).

If you have a recurring revenue model, by contrast, where customers subscribe and pay on an ongoing basis, you can expect your valuation to be a multiple of your revenue.

Buyers pay a pretty penny for companies with recurring revenue because they can clearly see how your company will make money long after you exit.

Not sure how to create recurring revenue? Here are four models to consider:

Products That Run Out

If you have a product that people run out of, consider offering it on subscription. The retailing giant Target sells subscriptions to diapers for busy parents who don’t have the time (or interest) in running to the store to re-stock on Pampers. Dollar Shave Club, which was acquired by Unilever in 2016 for five times revenue, sells razor blades on subscription. The Honest Company sells dish detergent and safe household cleaning products to environmentally conscious consumers and more than 80% of their sales come from subscriptions.

Membership Websites

If you’re a consultant and offer specialized advice, consider whether customers might pay access to a premium membership website where you offer your know-how to subscribers only. Today there are membership websites for people who want to know about anything from Search Engine Marketing to running a restaurant.

Services Contracts

If you bill by the hour or the project, consider moving to a fixed monthly fee for your service. That’s what the marketing agency GoBrandGo! did to steady cash flow and create a more predictable service business.

Piggyback Services

Ask yourself what your “one-off” customers buy after they buy what you sell. For example, if you make a company a new website, chances are they are going to need somewhere to host their site. While your initial website design may be a one-off service, you could offer to host it for your customer on subscription. If you offer interior design, chances are your customers are going to want to keep their home looking like the day you presented your design, so they might be in the market for a regular cleaning service.

Rentals

If you offer something expensive that customers only need occasionally, consider renting access to it for those who subscribe. ZipCar subscribers can have access to a car when they need it without forking over the cash to buy a hunk of steel. WeWork subscribers can have access to the company’s co-working space without buying a building or committing to a long-term lease.

You don’t have to be a software company to create customers who pay you automatically each month. There is simply no faster way to improve the value of your business this year than to add some recurring revenue.

Will this be the year you seriously drive up the value of your company?

If you have resolved to make your company more valuable in 2017, you may want to think hard about how your customers pay.

If you have a recurring revenue model, by contrast, where customers subscribe and pay on an ongoing basis, you can expect your valuation to be a multiple of your revenue.

Breedlove & Associates Sells for 6X Revenue

In 1992 Stephanie Breedlove started a payroll company to make it easier for parents to pay their nannies on a recurring basis. It began small and Breedlove self-funded her growth, which averaged 20% per year.

By 2012, Breedlove & Associates had hit $9 million in annual sales when Breedlove accepted an offer from Care.com of $55 million for her business—representing an astronomical multiple of more than six times Breedlove’s revenue.

Buyers pay up for companies with recurring revenue because they can clearly see how your company will make money long after you hit the exit.

Not sure how to create recurring revenue? Here are four models to consider:

Products That Run Out

If you have a product that people run out of, consider offering it on subscription. The retailing giant Target sells subscriptions to diapers for busy parents who don’t have the time (or interest) in running to the store to re-stock on Pampers. Dollar Shave Club, which was recently acquired by Unilever for five times revenue, sells razor blades on subscription. The Honest Company sells dish detergent and safe household cleaning products to environmentally conscious consumers and more than 80% of their sales come from subscriptions.

Membership Websites

Services Contracts

If you bill by the hour or the project, consider moving to a fixed monthly fee for your service. That’s what the marketing agency GoBrandGo! has done to steady cash flow and create a more predictable service business.

Piggyback Services

Rentals

Why You Should Fire Yourself

If you find yourself in a position where your customers always insist on speaking with you directly instead of your employees, then you might want to consider shifting your structure so you can improve the value of your business.

Here's why: a business that can thrive without the owner at the center of all its operations is more valuable because processes can run smoothly with or without you. If you're too stuck in the weeds, you'll have a difficult time improving or evolving – and your employees won't have the opportunity to grow and become advocates for your brand.

To maximize the value of your business, you should set a goal to quietly slip into the background and let your staff take center stage. Here are five ways to make customers less inclined to call you:

1. Re-rank

If you display the bio of key staff members on your website, re-order the list so that it is alphabetical rather than hierarchical.

2. Re-brand

If your surname is in your company name, consider a re-brand. There's nothing that makes a customer want to deal with the owner more than having the owner's surname featured in the company name.

3. Hire a President

Giving someone the title of president conveys the message that they have real authority to solve customer problems.

4. Use an email auto-responder

Tim Ferriss, the author of The 4 Hour Work Week among other books, made the email auto-responder famous, and it can serve you well. Set up an automatic response to anyone sending you an email explaining that you are travelling or attending to a strategic project and unable to answer their questions immediately. Instead, train customers to direct questions to the person best suited to answer them quickly.

A word of caution using this strategy: if you continue to answer customer emails after setting up an auto-responder, it's going to become transparent that you're just trying to hide behind your autoresponder, which could diminish your credibility. If you set one up, you need to be ready to let others step in.

5. Play hookey

If you have the kind of business that customers visit in person, set up a home office so you can spend more time away from your location.

For a hard-charging A-type entrepreneur, the steps above can be complicated and feel counterintuitive. They may even have a short-term negative impact on your company's sales, but once you get your customers trained to go to your team, you'll be able to scale up further and ultimately maximize the value of your business.

Why the Future of Your Business Is Critical to Its Value

As a business owner, you’re likely proud of the results you’ve achieved in the past, but when it comes to the value of your business, your future is critical. That’s why your growth potential is one of eight factors that drive the value of your business.

One metric that acquirers may use to evaluate your growth potential is your revenue per employee.

Alphabet (Google’s parent company) generates around $1.3 million in revenue per employee. Compare that to the advertising agency WPP Group, whose average revenue per employee is around $100,000. For every dollar of revenue, WPP needs more than ten times the employees than Alphabet does.

It takes time to recruit, train, and motivate people, which is why WPP has grown more slowly and suffers much lower valuations when compared to a less people-heavy company.

Measuring your revenue per employee is just one of many ways an investor may evaluate how quickly they are likely to grow your company.

Looking Skyward

For an example of some of the other ways acquirers assess your growth potential, take a look at Verizon’s recent acquisition of Skyward. Jonathan Evans started Skyward in 2012 when he spotted companies like Amazon and Walmart using drones for package delivery. Evans was working as an air ambulance helicopter pilot and realized widespread use of drones would eventually create air safety issues.

Evans saw an opportunity where others hadn’t and launched Skyward to develop software that could safely route drone traffic. While he wasn’t a programmer, his extensive aviation experience enabled him to understand how the current airspace management guidelines could be turned into applications that created “digital train tracks” for drones.

Early adopters like utility, construction, and media companies used Skyward’s software to manage their drone fleets. Investors also came calling. Within a few years, Skyward had raised approximately $8 million.

One of those investors was Verizon. Drones would require fast and reliable Internet connectivity to operate safely, and the telecom giant wanted a piece of the future. Airbus came calling too, and when Verizon heard of the aerospace corporation’s interest, they leaped into action and offered to buy the company. For Evans, marrying his nascent technology to the country’s largest telecommunications giant was an ideal match.

Within days, Evans had sold Skyward to Verizon for top dollar. Investors enjoyed returns of between three and five times their original investment.

Given the growth of the industrial drone market, Verizon knew Skyward had the potential to expand quickly as significant companies started to adopt drones. Verizon also understood that as Skyward grew, so too would the customer’s need for Verizon’s data because drones rely on a data connection to communicate with the ground.

No matter what business you’re in, the critical takeaway is to remember that the value of your business is determined less by what you have done in the past and more by what you will likely do in the future.

Why Startups Stall

Have you ever wondered why startup companies stop growing? Sometimes they run out of potential customers to sell to or their product starts losing market share to a competitor, but there is often a more fundamental reason: the founder(s) lose the stomach for it.

When you start a business, the assets you have outside of your business likely exceed those you have in it, because in the early days, your business is worthless. As your company grows, it starts to have value and becomes a more significant part of your wealth—especially if you’re pouring your profits back into funding your growth.

For most business owners, their company is their largest asset.

Eventually, your business may become such a large proportion of your wealth that you realize you are taking a giant risk every day that you decide to hold on to it just a little bit longer.

95% Of His Wealth In One Business

In 2000, Etienne Borgeat and Olivier Letard co-founded PCO innovation, an IT consulting firm. The company took off and, by 2016, PCO had 600 full-time employees and offices around the world.

As the business grew, Borgeat and Letard started to become uneasy about how much of their wealth was tied up in their business. By 2015, the shares Borgeat held in PCO represented 95% of his wealth.

That’s about the point that aerospace giant Boeing came calling. Boeing wanted PCO to take on a very large project and Borgeat and Letard turned down the opportunity reasoning that the project was so large it could risk their entire company if it went wrong. In the early days, the partners would never have turned down a chance to work with Boeing, but the partners had changed.

That’s when Borgeat and Letard realized the time had come to sell. They agreed to an acquisition offer from Accenture of over one times revenue.

The success of your startup is probably driven by your willingness to put all your eggs in one basket. You’re all in. However, at some point, you may find yourself starting to play it safe, which is about the time your business may be better off in someone else’s hands.

Why Now Is The Riskiest Time To Own Your Business

Most people think of starting a business as risky, but unless you invest a significant amount of start-up cash in your venture, you’re not really risking much other than your time.

That changes if you’re lucky enough to get your business off the ground. As your company grows, you start to risk more and more of your wealth because the business you’ve built is actually worth something. The longer you hang on to it, the more you have to lose.

This phenomenon makes owners become more risk averse as their business grows, potentially squeezing off growth to avoid risking what they’ve created. This can mean the owner goes from a company’s great asset to its biggest liability.

Cigar City Brewing

For an example of how growth can impact an owner’s appetite for risk, let’s look at the case of Joey Redner, the founder of Florida-based Cigar City Brewing. Redner’s craft beer operation started off in 2009 with the relatively modest goal of selling 5,000 barrels of beer per year.

Cigar City proved popular with the locals and Redner was able to sell 1,000 barrels of beer in his first year of business.

Cigar City Brewing continued to grow but was thirsty for cash, eventually forcing Redner to take on an SBA loan. Redner quickly surpassed his 5,000-barrel goal, and by 2015, had scaled all the way up to 55,000 barrels per year, at which point he ran out of capacity in his brewing facility.

To get to the next level, Redner would have had to find another $20 million for a major expansion, but he was tired of the feeling of being “all in” at the poker table. He had built something successful and wanted to enjoy financial security rather than having to roll his winnings into even more debt that he would have to personally guarantee with the bank.

Redner decided to sell even though his business was still growing and he had built a brand Floridians loved.

And therein lies one of the hidden reasons owners decide to sell. They are tired of shouldering all of the risk. Most of us have a limited appetite for risk, and, as the Bob Dylan song goes, “When you ain’t got nothing, you got nothing to lose.” Start-ups aren’t risking much, but when you build something successful, every day that you decide to keep it is another day you have all (or most) of your chips on the table, and, no matter how strong your hand, eventually we all decide to cash in.

Why fire trucks always back in

Have you ever noticed that fire trucks always back into the fire hall?

Why don’t they just pull into their parking spot snout-forward like the rest of us?

Backing in at the end of a shift saves them time when they have to get to a fire. They back in to be ready; whether the call comes in 5 minutes or 5 days, they are prepared to pull out as quickly as possible.

Like the firemen, you, as a business owner, need to be ready when you get the call from someone who wants to buy your business. And these days, owners are getting that call more often. According to the latest Sellability Tracker report, the proportion of business owners who received an offer to buy their company in the quarter ending March 31, 2014 was up considerably from Q4 2013. Roughly 12% of business owners using The Value Builder Score last quarter had recently received an offer to buy their business.

The proportion of owners getting an offer is an important statistic because it measures one half of the equation of a business sale. For a transaction to take place, there must be both a willing seller and a willing buyer.

Companies are becoming more acquisitive because they have access to more cash than they know what to do with. Interest rates are next to nothing, and after the liquidity crisis of 2008, companies have been socking away profits on their balance sheet for a rainy day.

This increase in acquisitiveness among buyers has important implications for you as a business owner. Chief among them is that you need to have a sellable asset when opportunity strikes.

Statistically speaking, the two most common reasons you are likely to sell your business are:

A health scare;
An unsolicited offer to buy your business.

As unsolicited offers increase, so too does the need for you to be ready if an opportunity comes your way. Unlike when the owner is in control of when he/she decides to list a property, the hallmark of an unsolicited offer is the fact that the owner doesn’t’ know when it is going happen; which means you need to operate your business as if an offer were always around the corner.

Companies that are sloppily put together with shoddy bookkeeping or too much customer concentration, or that are run by a Hub & Spoke manager, will end up being passed over for turnkey operations.

The time is now for you to get your company ready to showcase when opportunity comes knocking.

Why Companies are Adopting Subscription Billing Models

Volvo recently announced they will make their cars available on a subscription model where consumers will pay one fixed fee per month for access to a car which includes insurance and maintenance.

Everything from tooth brushes to flowers are now available with subscription billing.

Could you offer some sort of recurring plan to your customers? Here are six reasons to consider offering your customers a subscription:

Predictability: When you have subscribers, you can plan what your business needs in the future. For example, the average flower store in America throws out more than half of its inventory each month because it’s too rotten to sell.

At H.Bloom, a subscription-based flower company that sells flowers to hotels and spas, say they throw out less than 2% of their flowers because they can perfectly predict how many flowers are needed to fulfill their orders.

Eliminate Seasonality: Many businesses suffer through seasonal highs and lows. In fact, a whopping thirty percent of a typical flower store’s revenue comes on Mother’s Day and Valentine’s Day – ultimately leaving them to scramble and make a sale in November.

By contrast, H.Bloom has a steady stream of subscribers that pay each month. At Mister Car Wash – where they offer a subscription for unlimited car washes – they receive revenue from customers in November and April even though very few people in the Northern east wash their cars in rainy months.
Improved Valuation: Recurring revenue boosts the value of your business. Whereas most small companies trade on a multiple of profit, subscription-based businesses often trade on a similar multiple of revenue.
The Trojan Horse Effect: Once you subscribe to a service, you become much more likely to buy other things from the same company. That’s one reason Amazon is so keen to get you to buy subscriptions to things like Prime or Subscribe & Save. Amazon knows that once you become a subscriber, you are much more likely to buy additional products.
The Sale That Keeps On Giving: Unlike the transaction business model where you have to stimulate demand through advertising to get customers to buy, with a subscription based model, you sell one subscription and it keeps giving month after month.
Data & Market Research: When you get a customer to subscribe, you can start to see their spending and consumption habits. This data is the ultimate in market research. It’s how Netflix knows which new shows to produce and which to kibosh.

Which Is Better, a Financial Buyer or a Strategic Buyer?

If you decide to sell your business to an outside acquirer, you’re going to have to decide between a financial and a strategic buyer—understanding the different motivations of these two buyers can be the key to getting a good price for your business.

A financial buyer is acquiring your future profit stream, so they will evaluate your business based on how much profit it is likely to make and how reliable that profit stream is likely to be. The more profit you can convince them your company will produce, the more they will pay for your business.

But there is a limit to how much they will pay, because financial buyers are playing the buy-low, sell-high game. They do not have a strategic rationale for buying your business. They don’t have an army of sales reps to sell your product or a network of retailers where your product could be merchandised. They are simply trying to get a return on their investors’ money, so they tend to buy small and mid-sized businesses using a combination of this investment layered on top of a pile of debt, and they want to buy your business as cheaply as possible with the hope of flipping it five or ten years down the road.

Because financial buyers are usually investors and not operators, they want you and your team to stick around, so they rarely buy all of a business. Instead, they buy a chunk and ask you to hold on to a tranche of equity to keep you committed.

A strategic buyer is a different cat—usually a larger company in your industry, they are evaluating your business based on what it is worth in their hands. They will try and estimate how much of their product or service they can sell if they added you into the mix. Because of their size, this can often lead to buyers who are willing and able to pay much more for your business.

Tom Franceski and his two partners had built DocStar up to 45 employees when they decided to shop the business to some Private Equity (PE) investors. The PE guys offered four to six times Earnings Before Interest Taxes Depreciation and Amortization (EBITDA), which Franceski deemed low for a fast-growing software company.

Franceski was then approached by a strategic acquirer called Epicor, which is a global software business with a lot of customers who could use what DocStar had built. Epicor offered DocStar around two times revenue—a much fatter multiple than the PE firms were offering.

If you're wondering when is the right time to sell your business, you may want to wait until your company is generating $1 million in earnings before interest, taxes, depreciation, and amortization (EBITDA).

What's so special about the million-dollar mark?

The million-dollar mark is a tipping point at which the number of buyers interested in acquiring your business goes up dramatically. The more interested buyers you have, the better multiple of earnings you will command.

Since businesses are often valued on a multiple of earnings, getting to a million in profits means you're not only getting a higher multiple but also applying your multiple to a higher number.

For example, according to our research at ValueBuilderSystem.com, a company with $200,000 in EBITDA might be lucky to fetch three times EBITDA, or $600,000. A company with a million dollars in EBITDA would likely command at least five times that figure, or $5 million. So the company with $1 million in EBITDA is five times bigger than the $200,000 company, but almost 10 times more valuable.

There are a number of reasons that offer multiples go up with company size, including:

1. Frictional Costs

It costs about the same in legal and banking fees to buy a company for $600,000 as it does to buy a company for $5 million. In large deals, these "frictional costs" become a rounding error, but they amount to a punitive tax on smaller deals.

2. The 5-20 Rule

I first learned about the 5-20 rule from a friend of mine named Todd Taskey who runs an M&A firm in the Washington, D.C. area. He discovered that, in many of the deals he does, the acquiring company is between 5 and 20 times the size of the target company. I've since noticed the 5-20 rule in many situations and I believe that more often than not, your natural acquirer will indeed be between 5 and 20 times the size of your business.

If an acquiring business is less than 5 times your size, it is a bet-the-company decision for the acquirer: If the acquisition fails, it will likely kill the acquiring company.

Likewise, if the acquirer is more than 20 times the size of your business, the acquirer will not enjoy a meaningful lift to its revenue by buying you. Most big, mature companies aspire for 10 to 20 percent top-line revenue growth at a minimum. If they can get 5 percent of organic growth, they will try to acquire another 5 percent through acquisition, which means they need to look for a company with enough girth to move the needle.

3. Private Equity

Private Equity Groups (PEGs) make up a large chunk of the acquirers in the mid market. The value of your company will move up considerably if you're able to get a few PEGs interested in buying your business. But most PEGs are looking for companies with at least $1 million in EBITDA. The million-dollar cut-off is somewhat arbitrary, but very common. As with homebuyers who narrow their house search to houses that fit within a price range, or colleges that look for a minimum SAT score, if you don't fit the minimum criteria, you may not be considered.

If you're close to a million dollars in EBITDA and getting antsy to sell, you may want to hold off until your profits eclipse the million-dollar threshold, because the universe of buyers—and the multiple those buyers are willing to offer—jumps nicely once you reach seven figures.

WHAT YOUR BIRTH CERTIFICATE SAYS ABOUT YOUR EXIT PLAN

In our experience, your age has a big effect on your attitude towards your business and how you feel about one day getting out. Here's what we have found:

Business owners between 25 and 46 years old

Twenty- and thirty-something business owners grew up in an age where job security did not exist. They watched as their parents got downsized or packaged off into early retirement, and that caused a somewhat jaded attitude towards the role of a business in society. Business owners in their 20’s and 30’s generally see their companies as means to an end and most expect to sell in the next five to ten years. Similar to their employed classmates who have a new job every three to five years; business owners in this age group often expect to start a few companies in their lifetime.

Business owners between 47 and 65 years old

Baby Boomers came of age in a time where the social contract between company and employee was sacrosanct. An employee agreed to be loyal to the company, and in return, the company agreed to provide a decent living and a pension for a few golden years.

Many of the business owners we speak with in this generation think of their company as more than a profit center. They see their business as part of a community and, by extension, themselves as a community leader. To many boomers, the idea of selling their company feels like selling out their employees and their community, which is why so many CEO’s in their fifties and sixties are torn. They know they need to sell to fund their retirement, but they agonize over where that will leave their loyal employees.

Business owners who are 65+

Older business owners grew up in a time when hobbies were impractical or discouraged. You went to work while your wife tended to the kids (today, more than half of businesses are started by women, but those were different times), you ate dinner, you watched the news and you went to bed.

With few hobbies and nothing other than work to define them, business owners in their late sixties, seventies and eighties feel lost without their business, which is why so many refuse to sell or experience depression after they do.

Of course, there will always be exceptions to general rules of thumb but we have found that – more than your industry, nationality, marital status or educational background – your birth certificate defines your exit plan.

What to Do When Your Clients Want You

Do your customers ever ask that you personally get involved in their account?

If so, one of the best things you can do to improve the value of your business (and your life) is to get your employees to treat your customers as well as you do. That’s easy to say but hard to do, which is why the story of Ian Fraser is so instructive.

A former pro golfer, Fraser got his start in business by helping elite golfers find the perfect clubs as a master fitter at TaylorMade Europe.

When Fraser launched his own club-fitting business, he quickly realized the necessity of teaching his club-fitting expertise to his employees if he aimed to elevate his company beyond a lifestyle business. Fraser used the following five-step approach to clone himself:

1. Master Your Craft on Someone Else’s Dime

Before founding TXG, Fraser had already dedicated most of his professional life to golf. He began playing at 15, and within three years, he had become a scratch golfer. He then spent eight years at TaylorMade Europe, working in various club-fitting roles where he collaborated with some of the biggest names in the PGA in Europe, including Colin Montgomerie, Gary Woodland, Eduardo Molinari, and Chris Wood. In his final role with the company, Fraser designed and operated the TaylorMade Performance Lab at Scotland’s world-famous Turnberry golf resort.

Fraser describes himself as “underpaid” while at TaylorMade, but he was content to accept a below-market wage because he had a vision for the company he wanted to start. He knew the insights he was gaining at TaylorMade would assist him in building TXG.

2. Think Like Nobu

Fraser drew inspiration from Nobu, the five-star restaurant chain partly owned by Robert De Niro. Fraser argued that when you visit one of the 50 Nobu restaurants worldwide, you never question who the chef is that night. Nobu has established the benchmark for five-star dining, so you’re assured that regardless of the chef or location, you will have a fine dining experience.

Fraser utilized the Nobu example to communicate his vision to his team of club fitters.

3. Hire for EQ, Not IQ

Fraser aimed to establish a customer experience company that happened to fit golf clubs, as opposed to a golf-fitting business that offered good customer service. That’s why he prioritized EQ over IQ when hiring TXG staff. “I can teach you to fit a golf club,” Fraser argues, “but I can’t teach you to be a good person.”

Fraser implemented a behavioral interview question to identify the right candidates. He presented potential interviewees with a scenario that offered two choices: one that would benefit the client and another that would provide short-term gains to the company at the expense of the client. Candidates who opted for short-term profit over doing what was right for the customer were eliminated from consideration.

4. Teach Your Employees Through Osmosis

Most golf-fitting studios are private offices where the fitter works one on one with a player. Fraser, however, wanted to observe his apprentices at work and wanted them to learn from his interactions with clients. Therefore, he designed his location with three open-concept bays. He worked from the middle bay so his apprentices could overhear his client interactions and he could listen in on their client conversations as well.

Fraser contended that being physically close to his employees accelerated their learning curve more than any other technique he tried.

5. Broadcast Your Expertise

Fraser established a YouTube channel where he provided club-fitting advice for free. The channel amassed 216,000 subscribers. Fraser understood that only one percent of his subscribers would ever step foot in a TXG store, but the channel reinforced TXG’s reputation as the world’s best club fitters. Additionally, it transformed his marketing strategy from a cost into a profit center as the channel generated over $300,000 per year in advertising revenue, which Fraser reinvested in growth.

When asked if he was concerned about divulging his “secret sauce” in the YouTube videos, Fraser referred to celebrity chef Gordon Ramsay. He reasoned that Ramsay shares his recipes in cookbooks, but this doesn’t make people any less likely to visit his restaurants.

By implementing an innovative hiring process and utilizing a creative teaching approach, Fraser succeeded in expanding Tour Experience Golf (TXG) to a team of 14 employees, developing a YouTube fan base of over 200,000 subscribers, and generating revenue exceeding $3 million.

In 2022 TXG was acquired by Club Champion, the largest club-fitting company in the United States, with more than 100 locations.

What a Study of 14,000 Businesses Reveals About How You Should Not Be Spending Your Time

In an analysis of more than 14,000 businesses, a new study finds the most valuable companies take a contrarian approach to the boss doing the selling.

Who does the selling in your business? My guess is that when you’re personally involved in doing the selling, your business is a whole lot more profitable than the months when you leave the selling to others.

That makes sense because you’re likely the most passionate advocate for your business. You have the most industry knowledge and the widest network of industry connections.

If your goal is to maximize your company’s profit at all costs, you may have come to the conclusion that you should spend most of your time out of the office selling, and leave the dirty work of operating your businesses to your underlings.

However, if your goal is to build a valuable company—one you can sell down the road—you can’t be your company’s number one salesperson. In fact, the less you know your customers personally, the more valuable your business.

The Proof: A Study of 14,000 Businesses

We’ve just finished analyzed our pool of Value Builder Score users for the quarter ending December 31. We offer The Sellability Score questionnaire as the first of twelve steps in The Value Builder System, a statistically proven methodology for increasing the value of a business.

We asked 14,000 business owners if they had received an offer to buy their business in the last 12 months, and if so, what multiple of their pre-tax profit the offer represented. We then compared the offer made to the following question:

Which of the following best describes your personal relationship with your company's customers?

I know each of my customers by first name and they expect that I personally get involved when they buy from my company.
I know most of my customers by first name and they usually want to deal with me rather than one of my employees.
I know some of my customers by first name and a few of them prefer to deal with me rather than one of my employees.
I don’t know my customers personally and rarely get involved in serving an individual customer.

2.93 vs. 4.49 Times

The average offer received among all of the businesses we analyzed was 3.7 times pre-tax profit. However, when we isolated just those businesses where the owner does not know his/her customers personally and rarely gets involved in serving an individual customer, the offer multiple went up to 4.49.

Companies where the founder knows each of his/her customers by first name get discounted, earning offers of just 2.93 times pre-tax profit.

When Value Is the Enemy of Profit

Who you get to do the selling in your company is just one of many examples where the actions you take to build a valuable company are different than what you do to maximize your profit. If all you wanted was a fat bottom line, you likely wouldn’t invest in upgrading your website or spend much time thinking about the squishy business of company culture.

How much money you make each year is important, but how you earn that profit will have a greater impact on the value of your company in the long run.

3 Ways To Re-Invent Yourself In A Crisis

Veterans refer to “the fog of war” to describe how difficult decision making can be when you’re on the battlefield with imperfect information.

Sometimes the obvious answer in retrospect is not so apparent when you’re in the throes of a crisis which is why we wanted to share the stories of three owners who took bold and decisive action at a time of deep economic uncertainty.

Back in September 11, 2001…

During the days that followed the terrorist attacks of September 11, 2001, most Americans believed they were at war. The crisis paralyzed owners who wondered what would become of the world. Spending stopped. The stock market tanked. At the time, Sunny Vanderbeck owned and operated a web hosting company called Data Return and had just seen a $1 billion acquisition offer from Compaq go up in smoke. Vanderbeck took stock. Data Return was burning cash, and Vanderbeck figured they had six months to get a deal done before they could face mortal danger. He continued to look for a buyer and soon received another offer from a technology consulting and software business rolling up IT services companies. Vanderbeck agreed to sell Data Return in return for stock in the IT services roll-up.

Soon after the transaction closed, Vanderbeck realized he had made a mistake. He recognized that his company's acquirer was suffering the consequences of a buying spree, during which they had made forty recent acquisitions. Data Return's acquirer had bitten off more than they could chew, and a little over a year later, they declared bankruptcy. Vanderbeck had fallen from being just days away from a $1 billion payday to owning shares in a bankrupt business. He still had his original Data Return partners and investors who believed in him, so Vanderbeck assembled his team again and bought the assets of his former company out of bankruptcy for $30 million. Four years later, Vanderbeck sold Data Return to Terremark Worldwide in a transaction valued at $85 million.

Listen to Sunny’s story

Back in 2003…

In 2003, the most common term used to describe the state of the economy was the "jobless recovery." The year began with concerns about the war in Iraq. The Dow Jones Industrial Average fell below 8,000 in February. Mortgage rates plunged to 30-year lows, and homeowners rushed to refinance. George Bush cut taxes hoping consumers would start spending. It was against this backdrop that Joshua Dick took over his father's company.

Urnex was generating less than $1 million in annual sales across seven product lines. Dick re-trenched and jettisoned six of the seven product lines to focus his limited resources on the one product that Dick thought had the potential to scale: cleaning supplies for commercial coffee makers. In other words, a niche of a niche. Dick poured all of his limited resources into becoming the best in the world at one thing and ultimately grew Urnex to more than $5 million of EBITDA, which is when he decided to sell for a double-digit multiple.

Back in 2008/9…

The Great Recession that began in 2008 was a time of massive disruption. Stock markets around the world were dropping hundreds of points a day. Banks were failing. Many, including John Moore, thought the world might be ending.

Moore is the founder of 3D4Medical.com, a company that created three-dimensional models of the human body, photographed them and licensed the images to textbook publishers. When the Great Recession of 2008/9 hit Ireland, Moore's business took a significant turn for the worse, and he realized he needed to re-invent the company. Moore decided to offer an application that students could use to learn about anatomy. Instead of focusing exclusively on textbook publishers, they started selling their app directly to students, teachers and medical professionals. The business began to hum as more Universities – including the likes of Stanford and Cambridge – signed on. By 2019, 3D4Medical was up to 75 employees, including a reliable management team. Moore was making plans to continue to grow the business when one of the biggest textbook publishers in the world made an offer to buy 3D4 Medical for $50.6 million.

Listen to John’s story.

Warren Buffet 8 drivers

Caution: 8 Value Traps to Avoid in Small Business. - Boss Moves

There are 8 common drivers of value to work on to accelerate the value of your business. I discuss these 8 drivers from the eyes of Warren Buffet.
Hi, I’m Graeme Woods,
A financial consultant specializing in business value and wealth management.
Imagine having a clear strategic plan that not only grows your business and income but also secures your financial future.
I help business owners to:
- Create
- Manage
- Grow
- Protect
- Access
- And transfer

Their business value

This livestream is about helping you to make Boss Moves using my Evergreen Value Management System™
Boss Moves is about strategic management of your business value and risk to support your personal financial goals.
By integrating business value estimates into comprehensive financial planning, I implement total wealth management and help to ensure my you and my clients are well prepared retirement, estate planning, and any exit strategy they choose.
Connect with me to learn how we can grow and protect you business value together.

Lets get into this
Financial Performance:
- Trap: Focusing solely on revenue growth without profitability.
- Quote: "Rule No.1: Never lose money. Rule No.2: Never forget rule No.1."
- Potential Solutions
  1. Improve record keeping
  2. Implement robust financial controls
  3. Look at asset efficiency: Inventory mgt, optimizing the use of equipment
  4. Look at profit margins = work on cost structure, look at pricing strategy
Growth Potential:
- Trap: Overestimating future growth without a solid plan.
- Quote: "The investor of today does not profit from yesterday's growth."
- To enhance the "growth potential" element in a value driver system, here are five possible solutions:
  1. Expand into New Markets: Geographic, demographic, new customer segments
  2. Diversifying Product or Service Offerings: Complementary
  3. Improve Business Infrastructure:
  4. Strengthen Sales and Distribution Channels:
  5. Leverage Technology and Innovation:
Switzerland Structure:
- Trap: Relying too heavily on key employees, customers, or suppliers.
- Quote: "You only have to do a very few things right in your life so long as you don't do too many things wrong."
- Solutions include
  1. Diversify supplier base
  2. Cross train employees
  3. Develop and document your systems and processes
  4. Manage risk through your contracts
Valuation Teeter-Totter:
- Trap: Poor cash flow management.
- Quote: "I do not like debt and do not like to invest in companies that have too much debt, particularly long-term debt. With long-term debt, increases in interest rates can drastically affect company profits and make future cash flows less predictable."[4]
- Solutions:
  1. Accelerate collections
  2. Extend payables
  3. Increase cash reserves (like an emergency fund): unexpected expenses or opportunities
Recurring Revenue:
- Trap: Overlooking the quality of recurring revenue.
- Quote: "If you don't find a way to make money while you sleep, you will work until you die."[5]
- Solution:
  1. If you run a service business like mine consider productizing your service:
    1. To make it easier to sell as a more tangible product
    2. Easier to scale
    3. With a defined processes: Subscription models, service contracts
Monopoly Control:
- Trap: Ignoring competitive threats.
- Quote: "The key to investing is not assessing how much an industry is going to affect society, or how much it will grow, but rather determining the competitive advantage of any given company and, above all, the durability of that advantage."[6]
- Solutions
  1. Differentiation from a marketing standpoint
    1. VBS + Due diligence & transaction support + Risk management +
  2. Develop proprietary technology or other IP
    1. Privequity.ai and app development with machine learning
    2. Rori is the flagship ai agent, and it is not just a Chat GPT wrapper.
Customer Satisfaction:
- Trap: Neglecting customer feedback and loyalty.
- Quote: "It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you'll do things differently."[7]
- We use the Net promoter score system
- Any dependable CRM system
Hub and Spoke:
- Trap: Over-reliance on the owner.
- Quote: "I try to buy stock in businesses that are so wonderful that an idiot can run them. Because sooner or later, one will."[8]
- solutions
  1. Business succession & continuity planning
    1. Dismal D’s: Death, disability, dissention, disaster
    2. Opposite of the dismal D’s: Growth, Retirement, Vacation

References

[1] TOP 25 QUOTES BY WARREN BUFFETT (of 959) | A-Z Quotes

[2] 102 Warren Buffett Quotes on Life, Success, & More - Rule #1 Investing

[3] Warren Buffett - Wikiquote

[4] 100+ Wise Warren Buffett Quotes On Money And Life

[5] 25 Best Warren Buffett Quotes - The Motley Fool

[6] 8 Best Warren Buffett Quotes of All Time | Investing | U.S. News

[7] Warren Buffett Quotes: His 25 Best Insights - TIME

[8] Warren Buffett on Success and Customer Experience

Avoiding these traps can help you align your business strategy with Buffett's investment principles and enhance the value of your company.

Beyond the 8 drivers of value, Warren Buffett considers several additional criteria when evaluating potential investments:

Favorable Long-Term Economic Characteristics: Buffett looks for companies with sustainable competitive advantages that can maintain profitability over the long term. This includes strong brands, unique products, or cost advantages[1].
Competent and Honest Management: He values companies with trustworthy and capable management teams. Buffett believes that good management can make a significant difference in a company's success[1].
Attractive Purchase Price: Buffett seeks investments that are priced below their intrinsic value. He aims to buy high-quality companies at a discount, ensuring a margin of safety[1].
Industry Familiarity: Buffett prefers to invest in industries he understands well. This allows him to make more informed decisions and better assess the risks and opportunities[1].
Consistent Operating History: Companies with a stable and predictable operating history are more attractive to Buffett. He looks for businesses that have demonstrated consistent performance over time[2].
Strong Return on Equity (ROE): Buffett favors companies with a high return on equity, as it indicates efficient use of shareholders' funds to generate profits[3].
Low Debt Levels: He prefers companies with manageable debt levels. High debt can be risky, especially during economic downturns, so Buffett looks for businesses with strong balance sheets[3].
Profit Margins: Buffett examines profit margins to ensure the company is operating efficiently. Higher margins often indicate a competitive advantage and effective cost management[3].
Competitive Advantage (Moat): A strong competitive advantage, or "moat," is crucial. This could be in the form of brand loyalty, patents, network effects, or cost advantages that protect the company from competitors[3].

By considering these criteria, Buffett aims to invest in companies that are not only undervalued but also have the potential for long-term growth and stability.

Is there a specific company or industry you're interested in analyzing with these criteria?

References

[1] Warren Buffett's 4 Foundational Criteria for Major Investments ...

[2] Warren Buffett’s Investment Criteria: An In-Depth Analysis

[3] Buffett's 3 Best Rules for Stock Investing - Investopedia

The Evergreen

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I’m thrilled you’ve made the decision to invest in a Value Builder Assessment for <insert company name>.

Your Value Builder Assessment will include an analysis of your company across the eight key drivers of company value. We will calculate how your company performed on each driver and outline opportunities for you to improve your score.

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