Continued Success in a Mature Market

/in /by

Continued Success in a Mature MarketA lot of business press focuses on the “next big thing,” or unicorns that roam around (or more often than not, get killed) the rarefied air of Silicon Valley. But you won’t often hear about those “boring” businesses that quietly bring in significant incomes for the owners and employees, because these businesses are in mature, established markets. And while it’s true that longevity (simply outlasting your competitors) is a big part of that success, we’ve identified five key factors that we see in businesses in mature markets that go on to have excellent exits.

Product/Service Quality

While you don’t have to be the best in the world at what you do, or even the best in the country, you certainly need to be among the best in your region or city. This means that people have a reason to talk about you in superlatives when recommending others who might need what you provide.

Customer Service

While there’s always talk about automation and delegation when it comes to customer service, it’s important to make sure your team is as empowered as you, the business owner, when it comes to customer satisfaction. Most business owners, when dealing with a disgruntled customer, want to please that customer within reason. If those in charge of customer service feel that level of ownership and accountability, customers will feel it come through in every interaction (and will rave about it to others).

Clean Processes and Documentation

We say it all the time, but that’s because we can’t ever say it enough: have clean books, pay your taxes, and document how the business works. This doesn’t just make a business attractive for acquisition, it’s a simple method of “housecleaning” that makes businesses more efficient and enables them to create best practices. No employee was ever stressed out about having clear processes with which to do his/her job.

Staff Development

Those same employees need to know, more than ever, that they aren’t just economic ciphers or cogs in a machine. They want to continue to develop personally or professionally. The most successful companies invest in their people as they would invest in equipment or infrastructure. Everyone always talks about wanting to hire the best. These successful companies are actually willing to pay for the best, and that includes benefits that go beyond salary.

Roadmap

We are champions of annual meetings for employees and one of those reasons is the ability to share the roadmap with them. Where are we going? How are we going to get there? If people feel included in a vision and desire to help achieve a goal, they are going to perform better than if they are kept in the dark. Making sure everyone knows what the short, mid-term, and long-range goals of a company are empowers them to contribute every step of the way.

Apex Success Stories #4: Getting to the Right Deal

/in /by

Apex Success Stories #4: Getting to the Right DealOne of the things we strive for as advisors is for our sellers to be in conversations with multiple buyers. An exit is a significant life event, and we want there to be various options with their upsides and downsides so the seller can revisit all the points he/she said really mattered. In this article, we will discuss a few situations in which our sellers had multiple options and share why they went the way they did.

Better Fit

A Main Street business we were representing was priced at $505k and two full priced offers and one nearly full priced offer ($487k) came in around the same time. Someone might look at the gap and consider it crazy to give up almost an additional $20k, but our seller was not solely motivated by price. Indeed, he decided to go for the lower offer because he thought his business had a better chance of success with that acquirer. It was an add-on business for that buyer and would be part of a large organization.

The seller had developed a better connection with that buyer and ended up with only 2.5 months of diligence before closing. Because we’ve had experience in which a lower offer ended up being a better offer, we were able to encourage our seller’s instincts, which turned out to be dead on.

In another situation the gap was even larger: our seller was looking at a full price $1.5M offer vs $1.35M.

Again, at first blush, the difference seems obvious. But the full price offer needed 12% of it financed over a 5 year period, whereas the $1.35M offer was fully paid. While 12% wasn’t a great deal of exposure and 5 years is not a lot of time to wait, the seller really wanted to move on to the next chapter in his life, and settled on the lower offer. Again, higher price doesn’t always win for any number of reasons.

Hold!

Some time ago we had a limousine transportation company for sale that went nine months from listing with no inquiries. During that time, the business continued to do really well and become even more attractive from a listing standpoint. We counseled patience, as we knew such a good business would eventually find the right suitor. We were right, and all of a sudden three different full price offers materialized, all of equal attractiveness.  

Had the seller tried listing on his own, he may have gotten discouraged and had doubts about the value of the company. Because he had engaged us, we were able to revisit through his financials, his processes, and his team and verify that yes, he did have a great business and that it was just a matter of market timing.

A Family Affair

We had a seller that had a family business that really wanted to sell to the son.  Not only could the son not offer the asking price, he was offering $600k less, and would need his parents to cosign the note for the financing. The son was 30 years old, so it’s understandable that he didn’t have the necessary assets to finance a $1.5M asking price, but the seller did have to deal with the resentment from the son when a full price offer was accepted. The situation was smoothed over eventually, as the son did enjoy working at the company and realized he was a key piece in the transition, but it was also important for the seller not to give in to family pressures and resentment from a child. While you may see this as a fairly open and shut case, we have definitely seen situations in which the decision went the other way, and the overwhelming majority of the time… there were negative consequences.

Selling your business and having the exit you want is anything but straightforward. Thankfully, we’ve been down that road thousands of times. Let our experience help you!

Case Study #34: Printing Profits

/in /by

Case Study #34: Printing ProfitsJohn MacInnes started Print Audit in 1999. He aimed his software at anyone who would normally charge people for printing costs, like law firms or schools. Those businesses were often very aware of photocopy costs, but not of direct printing costs, and the software Print Audit provided allowed those individual prints to be properly assigned and then billed to clients.

As time went on, Print Audit also put software in place to monitor ink and toner levels so that those companies with copier leases would experience less friction with service and refill calls. Instead of having to call up the service provider telling them that the machine was malfunctioning or that toner needed to be refilled, the software proactively notified dealers so that service interactions were enhanced and a lot of time and money was saved, by both the dealers and their customers.

Too Many Eggs in One Basket

The company was growing well, but a latent problem in their customer distribution forced them to make some drastic changes. One of their customers, Ricoh, was responsible for 70% of overall revenues, which was roughly $600,000 a month. Ricoh made a strategic acquisition and lost focus on this particular component (software helping to manage service calls) of their business. John noted that some of the people who were added to Ricoh during the acquisition were tasked to Print Audit, but they didn’t really know the company and in the meantime the $600,000 a month had plummeted to nearly $60,000 a month.

John had two insights: focus on the individual dealers rather than the corporate office, and switch to a subscription model. He did just that, not just making a better version of the software but making it a subscription service, and adding a number of key peripheral services that created a larger base of clients worldwide.

Focus on Retention

He also did something unexpected for a tech business: work on winning the retention game. As we discussed in an article about recurring revenue businesses, retention is a big part of success. John and his team made sure they were spending 80% of their time satisfying existing customers while spending the remaining 20% of time on adding features that would lure in new customers. At the time of acquisition, Print Audit had a 99.5% retention rate, so John figured if he wasn’t going to sell Print Audit, he might have another company in the stable: one that helped other companies improve their retention rates!

As it was, John had been building Print Audit for 20 years, originally on bootstrapped friend and family funds of $75,000. He saw that the industry was in consolidation mode, that there wasn’t room for too much more growth over time. Even though he had restructured the company in the aftermath of the decline of the Ricoh account, people were simply not printing as much as they used to… not simply because of the number of ways that paper was being saved digitally, but because of growing pressure for large companies to be more environmentally responsible, and printing on paper was one of those targeted areas.

Software as a Service

Interestingly, because he had transformed the company into a SaaS (software as a service) recurring revenue model, he became a smart strategic purchase for a large firm. While he says he wasn’t excited about the 2,000 items that he was assigned by the buyers for due diligence, he had a lot of support from his broker and banker to keep him on task and positively oriented towards a fruitful conclusion.

Key Lessons:

  • Never be lopsided.  While John was alert and talented enough to pivot his company while it was in the midst of a revenue free fall, he should never have allowed one customer to be 70% of revenues.  Anytime any customer is more than 15% of revenues, you should be concerned and take the opportunity to diversify.
  • Innovate in your space.  While the copier and print industry was probably slow to change because of its high capital costs, John invested in improving his software when it already was an industry leader.  That allowed him to grab even more uncontested market space.
  • Don’t be afraid to own a category that isn’t a core competency.  Customer retention of a subscription product wasn’t a core competency of Print Audit…until it was.  John made it a priority, invested the people and resources in that direction, and the numbers say it all: 99.5% retention rate.  

Selling Strategies

/in /by

Selling StrategiesSometimes businesses come to us that need a bit of creative spark to sell properly. This is often because the business is in a unique situation. These are often fun for us as advisors because it gives us the opportunity to deploy our creativity and find solutions that get us offers. In this article, we will share a few of those solutions with you.

Reframe Your Situation

Some time ago we were asked to represent a veterinarian who was looking to sell his small-town practice and the associated real estate including his house. When the listing broker recognized that it would be difficult to find a veterinarian who was interested in acquiring both the house and the practice, she got creative and re-framed the listing as a pet boarding facility. This allowed the buying audience to be expanded beyond licensed veterinarians, resulting in more inquiries and ultimately a successful transaction.

Not Everyone Wants Your Other Assets

In a previous article, we’ve discussed the importance of being proactive when it comes to the disposition of real estate within your business. As with the previous example, someone might not have wanted a vet business and a house. Sometimes people look at companies that have a lot of vehicles and some of those vehicles were simply bought by owners because of personal tax strategy, not because the vehicles are particularly relevant to the business.

This is why business owners always need to consider two things when looking at asset purchases in relation to current tax liability: how will it help me now AND how does this affect our ability to sell later. Too often, people look at the former and forget the latter even exists, when the reality is that sometimes a considered look at the “later” consequences will convince you that the “now” benefits simply aren’t worth it.

It’s also important to remember that when you encumber a business with real estate and or less usable assets, you’ve narrowed your buyer pool. You always want as large a buyer pool as possible.

Be Creative!

While our advisors work hard to have a curated list of trusted buyers and sellers handy, sometimes a business needs other strategies beyond emailing reliable people. Recently we were dealing with a home health care business in a rural area. Because that industry is consolidating, we thought it would make sense to put together a basic flyer and direct mail other home health care companies in the region. Sure enough, that flyer stirred up some interest, which led to offers and an eventual transaction. Direct mail still has its uses!

Participate in the Transition

A similar approach was utilized when we were representing a very niche energy consulting firm. The sellers recognized due to the nature of their business, a longer transition period would likely be required and that the buyer was probably someone already in their industry. They decided to put the business on the market a few years before they reached retirement age, allowing them a great deal of flexibility for transition. Direct mail was again used to proactively contact potential industry buyers, resulting in a transaction where the buyer’s synergies create greater profits than the sum of the parts and where the sellers’ post-transaction participation will allow them to share in the financial benefits of these synergies.  

Do you have a unique business or know someone who does? We can come up with a unique strategy to sell it!