At Divestopedia, we have had the privilege of interviewing some of the best and brightest on the subject of building valuable businesses. Here are some of our favorite pieces of advice from these experts:
Jay Turo, Co-founder and CEO of Growthink
“In terms of lessons, I think around company culture and people and creating entrepreneurial structures within an organization for people to succeed. Your best people are always going to have a strong mindset of entrepreneurship, of proactivity, and your challenge as a business owner is really, if you’re going to build a business of lasting value you have to have the people around you have structures that allow them to be entrepreneurial and be successful. That’s a huge lesson about getting, I think when you start out as an entrepreneur that it’s very much about you and your experience, but the really, really successful folks, the really admirable folks, the greatest entrepreneurs of our time – the Richard Bransons and the Steve Jobs, the Bill Gates – they create these cultures where people are able to do the best work of their lives. I think that’s a key thing, to build or to create a culture to do that.” Full podcast here.
“One thing you need to do is really position your company to be a strategic acquisition instead of a kind of commodity revenue acquisition. The difference is that if somebody looked to acquire your business, take it over and merge with you they’re either going to look at your revenue and just do the math and just say, “Well, I want to pay up in three, five or seven years and give you an offer for that amount,” or if you can be a strategic addition to their business and give them access to a new market, help their branding, position them, get them more leads everyday for their business, then you might be worth far more than what your revenue is.” Full podcast here.
“The best way I think that you can get in the right mindset for thinking like an owner when you’re looking at your own business is to start to think of the business as an investor.” Full podcast here.
“That probably has the most profound impact on the attractiveness of a company is having some annuity-based revenue. Subscription model companies are the real darlings of the economy so clearly guys like salesforce.com and others have subscription revenue.
But there are other ways to create subscription revenue. Apple has got their one to one service that they sell. Amazon is now offering various subscription services for groceries even. The more I think business owners can think through what’s the subscription model, what is the reoccurring engine that gives a buyer enough confidence that the business is going to continue after the owner steps away.” Full podcast here.
“I think the most valuable thing that owners need to know is that creating value isn’t a black art. It’s not a mystery. That there’s a structure and a process to building valuable businesses; that if you follow a structure or follow a framework that you will be, you know, 90-95% successful in doing it because it’s not a mystery. So much of it, people think it’s a black art but really isn’t. It’s a process. It’s a process that anybody can follow if they care about the value their other business.
Sort of the most interesting thing is if you look at companies. If you look at companies that built based on value model, meaning the owners and CEO’s measured their success by the value of the enterprise; you get really great companies. You get well built companies. You get valuable companies. You get all the things that you always care about. If on the other hand you look at businesses over the long term that are built strictly on profit maximization thing, trying to maximize the profit; what you see is in the early days the businesses grow, they flatten and they tend to go downhill.” Full podcast here.
Josh Patrick, Founding Principal of Stage 2 Partners
“I think the most important thing a business owner can do to create value is to make themselves a passive owner. Whether you’re going to keep your business or you’re going to sell your business, under either case, if you’re not involved in the day-to-day operations, you make your business significantly more valuable. If you’re going to sell your business to a third party or try to transition it to somebody else, the buyer or the new owner is going to be really interested in your team members. He’s going to be interested in your senior management team. They are not interested in you.” Full podcast here.
“Unless the business can provide future cash flow, it’s of little value to anybody. Therefore, in order to make cash flow sustainable and transferable, there must be an individual or a group of individuals that can make that happen when the owners no longer in the business.” Full podcast here.
“The arbitrage is awesome if you can get it. That does come with scale so you can get a larger turn if you actually create something that’s either in somebody’s way or has a more meaningful market position than where you start. That’s part of the equation. The other thing is to really stick to your macro thesis through thick and thin. Understand what your business is. Don’t get distracted by adding on a whole bunch of different pieces that don’t really fit with your core and become hard to manage, and just really focus on being excellent at what your primary thesis is.” Full podcast here.
“They need to educate themselves on what are the drivers of value in their business and what makes it attractive. By doing so, they’re going to protect their personal wealth and financial independence.” Full podcast here.