If I was advising business owners getting ready to sell, the single most important thing that you can do to drive a premium multiple is to create something that is differentiated in the marketplace. That differentiation can be that you’ve created the next greatest widget. So, the proverbial new product that is differentiating because of product features and benefits. Or it could be that you’ve done a better job of marketing the product and service that you’re selling.
Dollar Shave Club is a great example of this. Razor blades are a commodity, but Dollar Shave Club has differentiated themselves because the marketing they have done is making them very unique. Differentiation can come in the form of where there’s actually something different about the product, or the consumer believes there’s something different about the product because of the marketing.
Nike sells workout shirts. You can buy the same workout shirt for a third of the price of a Nike shirt, but because it has the Nike logo on it, people are willing to pay a premium. Again, to go back, from our research of 13,000 businesses, what we see is the single variable that is most highly correlated to getting a premium offer is, "Do you offer something that is truly unique in the market place or is it something that your customers could get virtually anywhere."
If you’re in the business of hawking commodities, or if you are selling something that people can get from 50 different vendors, then nobody is going to want to buy your business. Anyone can just so easily replicate that business that there’s no point in buying the business. If they wanted to compete in that industry, they just need to set up and compete with you on price. They don’t need to buy your business.
Either your product is unique or it's not. If you are a financial services provider, or you offer generic service like cutting hair or mowing lawn, it’s kind of hard to think about, "How do I create the better mousetrap?". You can’t really cut a lawn better than the next guy or do something really differentiating. That’s when you’ve got to defer back to the marketing of the business and often times, and in particular in the service industry, that’s going to be creating differentiation through productizing your service. When I say productizing, I’m talking about taking a generic service like "I cut lawns" into a product. So name the system you use to cut lawns. Give it the five step approach to cutting lawns. Productize it so that the brand always appears and people seek out your five step system to cutting lawns, which you own. This will differentiate your company as opposed to, "Yeah, I cut lawns," which anybody can do and compete on price.
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Written by John Warrillow
John Warrillow is the founder of The Sellability Score and author of the book "Built to Sell: Creating a Business That Can Thrive Without You". Throughout his career, John has started and exited four companies and is a sought-after speaker and angel investor.
John's new book, The Automatic Customer: Creating a Subscription Business in Any Industry, is scheduled to be released in February 2015.Full Bio