Podcast Summary
Goose and eggs in business: Identify and keep the valuable but hard-to-sell aspect of your business while selling the more tangible parts to maximize your exit potential
When building a business with the intention of selling it, focusing on the wrong aspect can lead to missed opportunities. The speaker, who has sold nine businesses, including one for $46.2 million, emphasizes the importance of understanding which parts of your business are the "goose" (the valuable but hard-to-sell aspect) and which are the "eggs" (the sellable aspects). Using the example of a man who built a successful event rental business but tried to sell it as a coaching business, the speaker advises that it's essential to identify the value creator and keep it while selling the more tangible aspects. The speaker also mentions the story of the goose and the golden eggs as a metaphor for this concept. By recognizing the goose and eggs in your business, you can build towards a successful exit while keeping the valuable, hard-to-sell aspect.
Sellable asset: Identify and focus on creating or acquiring a sellable asset within your business, such as a component that is not dependent on you, recurring, and has low key man risk, to make it more valuable and attractive to potential investors.
To make your business more valuable and attractive to potential investors, focus on creating or identifying a sellable asset within your business. This could be a component that is not dependent on you, recurring, and has low key man risk. For instance, selling Amazon stores as a bundle to create a sellable asset is a good example. Look for areas in your business with high mergers and acquisitions activity as an indicator of a market for that type of business. By understanding what is your "goose" (the valuable, sellable asset) and what are your "eggs" (the dependent, less valuable parts), you can make informed decisions to build a more valuable business. Acquisition.com offers a workshop to help businesses increase their value through this process.
Business Appeal to Investors: To attract investors, minimize 'key man' risk by having a clear business model, strong leadership team, recurring revenue, and a well-defined brand or franchise structure.
When looking to sell your business or attract investors, it's crucial to understand what makes your business appealing to them. This means identifying the differences between your business and those that have successfully sold or attracted investment in the past. One key factor is the level of involvement you have in the business. If you're too closely tied to the business, it may be considered a "key man" risk, making it harder to sell or attract investment. Additionally, having a clear business model, a strong leadership team, and recurring revenue are attractive to investors. Another important consideration is the structure of your business. For example, a business with a strong brand and a franchise model may be more appealing than one without a clear brand or franchise structure. Ultimately, it's essential to consider the investor's perspective and position your business in a way that minimizes risk and maximizes value.
Valuable business asset: Having a valuable business asset like a large media presence or stable of talent can be monetized for growth and eventual sale, but maintaining control while allowing external investment can also increase value before exit.
For businesses looking to grow and eventually sell, having a strong and valuable asset, such as a large media presence or a stable of talent, can be the key to success. This asset can be monetized through the sale of products or advertising space. However, if the business owner is not a star or the asset is not easily separable from the business, it may be more difficult to exit. Instead, the owner may choose to use external investment to fuel growth and increase the value of the business before eventually selling. This strategy allows the owner to maintain control while also benefiting from the financial resources brought by investors. Elon Musk's approach to maintaining ownership while allowing public participation is a good example of this strategy in action. Ultimately, having a valuable asset and the ability to monetize it is crucial for businesses looking to maximize their value and achieve a successful exit.
Consolidation in high-margin industries: In high-margin industries, consolidation and collaboration can lead to higher valuations and profitability through economies of scale and fewer, larger deals for private equity buyers.
In certain industries, particularly those with high recurring revenues and high net margins, the value lies in consolidation and collaboration rather than competition. In the accounting industry, for instance, the hardest part is acquiring new customers, but keeping them is relatively easy once a good job is done. The real value comes from aggregating multiple accounting firms together and selling them as a larger entity to private equity buyers. This strategy allows for higher valuations due to economies of scale and the preference of large investors for fewer, larger deals. The key to success is recognizing that everyone benefits from collaboration and focusing on building a larger, more valuable entity together, rather than competing against each other. This mindset shift can lead to significant growth and profitability.
Collaboration and future growth opportunities: Collaborating with competitors can lead to significant cost savings and access to future growth opportunities, but it's important to understand which part of the business generates recurring revenue and which part represents future growth potential.
While competition can seem intense and even personal in business, collaboration can lead to greater financial gains. A prime example of this is the dental association co-op, where dentists came together to buy supplies in bulk and negotiate discounts. This not only saved them money, but the annual membership cost was outweighed by the savings. The most valuable part of the business, however, were the potential future clients or "eggs" in the form of other dentists in the association. PE groups recognized this and bought up multiple businesses in the same industry to secure a steady supply of clients. To build a valuable enterprise, it's crucial to understand which part of the business is the goose (recurrent revenue) and which is the eggs (future growth opportunities).