About 94.6% of businesses started fail to sell and close at great cost to the owners, their families, and employees as they did not have a saleable business asset.
This should worry any business owner.
Aurik is currently working with a client who led the market in automated SME lending a few short years back, with two rounds of funding backing their development and growth. Today, they find themselves increasingly irrelevant, superseded by lending platforms that have AI and ML baked into their performance. They created the market opportunity, and competitors followed with advanced technology to outcompete their more traditional services. To lead again, they must rebuild their platform at a high cost, requiring another round of funding, diluting all parties further!
The lessons are clear. A business never stops needing innovation, and therefore investment, to stay ahead. It means a business owner invests continuously in their company if they wish to remain relevant and ahead of their competitors. There are always fewer buyers than sellers. Your business will be priced based on that competitive environment, with buyers spoilt for choice in a crowded space.
There are two paths to success worth talking about.
Build a business into an asset.
- It must meet the definition of an asset – i.e. deliver income AND capital growth
- It must be built to deliver the 5 levers of value and exit.
Build it to be a strategic asset.
- With the 5 levers in place, you must build it into a strategic asset for a group of 2 or 3 well-defined acquirers who preferably compete.
- Success here will see multiples rise rapidly. The deals are strategic rather than financial. Your company’s revenue contribution is nice but immaterial to a big player. It’s the strategic value of your business to that buyer that matters most – think Facebook buying WhatsApp at an eyewatering valuation of over $19 billion.
Selling to strategic buyers needs extensive forethought and deep knowledge of your sector and industry. It’s the 5th act of leadership in any business owner’s journey and one that few have the commitment and obsession to attain.
A well-built company that is a saleable business asset with $5m EBITDA can earn you a cool $35m. However, the same business sold to a strategic buyer can earn you $100 million in half the time. It’s worth getting right!