Recently, two entrepreneurs started up an Internet business. Their idea was big. They were going to change the utilities market for the little guys - for small businesses and for consumers.
Their idea was quite simple: create a shop where customers could compare water, power and telecom packages and then buy the one that best suited their needs (if you’ve ever tried to compare these kinds of packages you’ll know how hard this is!).
Great idea. And originally the two entrepreneurs had drafted a phenomenal list of functions and buttons that would appear on the website. But, after just a few days of thinking and planning, they came to realise that the principal driver behind the success of this site was going to be a combination of personal service and comprehensive supplier knowledge. The website was merely to be a means of delivering that service. This may well be the case with your business, too.
A business is not viable merely because it trades on the Internet. The net is a medium, nothing more, nothing less - like the phone or the radio - so let’s not get dazzled by its special features. Why, then, does every daily newspaper contain a business section on the net? Why does every billboard advert and every TV commercial carry a web address? Why do the European and American technology stock listings Easdaq and Nasdaq even exist?
Still today, senior business figures, political leaders and many entrepreneurs focus on the ‘e’ - the medium. Because it’s growing fast. It’s visible. It’s different from other media. But more important, much more important than the ‘e’, is the ‘Commerce’.
The days of the overvalued dotcom companies are largely gone. Good thing, too. The inflated price of technology-based companies in the stock market has been responsible for gold-rush fever. But seven in ten Internet start-ups fail. Of course, we read only about the success stories. Nobody brags about his or her incompetence.
Yet many entrepreneurs (and many non-entrepreneurs!) in the last few years have run before they could walk; rushed at initial flotation before they could genuinely offer investor value; thrown good money after bad; started sites that have failed badly.
Happily, we have reached a first-stage maturity in net software, and technology is no longer the battleground - value is. Value is king now. And how familiar that feels! We spent the last two decades in business driving up value - cutting costs, innovating, marketing, building quality and listening to customers. Your business probably participated in these development programmes. So you’re probably comfortable with value already. That’s a nice starting point, isn’t it?
The mantra from the late nineties’ net gurus was ‘digitise or die’. Microsoft proudly proclaimed, “If you’re not online you’re lunch”. The informed forecast was hyperbolic growth of e-Commerce and the resulting extinction of the offline business. That means your business!
Hmm. You’re still here? You’re still trading? Sure, maybe you could do grow faster, trade more profitably - but you’re hardly bankrupt, are you? Even if you have an e-Commerce site, your business is probably largely offline even now. Lunched on or even outperformed by superdigital net-only businesses? Doubt it. So where did the forecast screw up?
The netheads focused on technology. It’s worth pointing out that many of them were technology suppliers themselves and so had a vested interest in your believing their shrieks. To focus on technology is to focus on the means, not the ends, of business.
And other means include telephone, newspapers, TV, radio and direct mail. When these media were first adopted by businesses, the in-media experts also forecast a revolution in business methods. “Running a radio campaign is like turning a sales tap on,” said many (delighted) first-time advertisers.
But did a new breed of post-apocalyptic business survivors emerge? Hardly. More like normal companies with new telesales teams, to deal with the spikes in demand caused by national advertising. Sure, they traded a little differently. Their strategies altered. And eventually their methods and structures changed as the volume of their new-media sales rose. But this was evolution, not revolution. And, without doubt, the ends topped out over the means as the key drivers of these changes.
Today, as ever, the end in any business transaction is value. And value starts with the customer. So as always, the key to a successful business is developing value for your customers. That hasn’t changed, and never will.
Thursday 21 August 2008
Friday 8 August 2008
How To Get The Best Price For Your Business
Selling your business at the tight time, and for the right price, can be a very difficult thing to get right.
Too many small business owners make the mistake of going on for too long, only to find their business loses value because they no longer have the energy to drive it forward.
Others are forced into selling suddenly because of personal reasons and are, therefore, not in a position to secure the best price.
For most, it is the single most important business decision they must get right. Many firms just eke out a living for their owners – and only when they sell do they make the sort of ‘real’ money that makes the whole process worthwhile.
The first two to four years are usually all about set-up and start-up costs, the next four to seven making a little money and paying back those costs. It is only in the last period that any real money is made, when the business is sold.
Most business experts agree that preparation is the key to achieving a successful sale and this can begin a year or more before you intend to sell. It might be that you have fantastic revenues from clients but have no contracts with them. You may have staff but they are all somehow self-employed. You need to make everything legal and above board because otherwise it won’t stand up to the test of due diligence. You should also look at cutting your unnecessary costs to make the figures look good.
Many small business owners worry that the process of putting up a business for sale could undermine confidence among customers, suppliers and employees. They are also worried about competitors, who are notorious for posing as buyers to find out commercial information.
Sometimes, one of the best ways of selling your business is to make direct approaches to people who you think might have an interest.
Another option is to hire a business sales agent, of which there are many, some specialising in particular sectors. These use advertising and approaches to contacts in order to achieve a sale.
However, some try to persuade you to hire them by talking up the sale price they might achieve.
Where the anticipated sale price is £2 million or more, it may be worthwhile to approach a corporate finance specialist firm. These will tend to produce a sales document and identify potential buyers for you, making approaches on your behalf. Interested parties will usually need to sign confidentiality agreements.
Yet many sellers are so delighted to have potential buyers they become nervous about asking them searching questions. You really need to do your homework on them. A simple thing to do would be to credit reference them. It may only cost you £50 and it would be money well spent. Find our just how they intend to pay for your businesses.
If it is by a bank loan, get them to show you the offer letter from the bank. Serious buyers will not be put off by these questions.
Selling does not always have to be a one-off event: it can be done over a period of time. You could sell some of the equity and work with the new shareholders over a period of time so there is a minimum of disruption.
Whatever route you choose, however, try to make sure the sales process does not cause any interruption to the business, because this may undermine its value.
Too many small business owners make the mistake of going on for too long, only to find their business loses value because they no longer have the energy to drive it forward.
Others are forced into selling suddenly because of personal reasons and are, therefore, not in a position to secure the best price.
For most, it is the single most important business decision they must get right. Many firms just eke out a living for their owners – and only when they sell do they make the sort of ‘real’ money that makes the whole process worthwhile.
The first two to four years are usually all about set-up and start-up costs, the next four to seven making a little money and paying back those costs. It is only in the last period that any real money is made, when the business is sold.
Most business experts agree that preparation is the key to achieving a successful sale and this can begin a year or more before you intend to sell. It might be that you have fantastic revenues from clients but have no contracts with them. You may have staff but they are all somehow self-employed. You need to make everything legal and above board because otherwise it won’t stand up to the test of due diligence. You should also look at cutting your unnecessary costs to make the figures look good.
Many small business owners worry that the process of putting up a business for sale could undermine confidence among customers, suppliers and employees. They are also worried about competitors, who are notorious for posing as buyers to find out commercial information.
Sometimes, one of the best ways of selling your business is to make direct approaches to people who you think might have an interest.
Another option is to hire a business sales agent, of which there are many, some specialising in particular sectors. These use advertising and approaches to contacts in order to achieve a sale.
However, some try to persuade you to hire them by talking up the sale price they might achieve.
Where the anticipated sale price is £2 million or more, it may be worthwhile to approach a corporate finance specialist firm. These will tend to produce a sales document and identify potential buyers for you, making approaches on your behalf. Interested parties will usually need to sign confidentiality agreements.
Yet many sellers are so delighted to have potential buyers they become nervous about asking them searching questions. You really need to do your homework on them. A simple thing to do would be to credit reference them. It may only cost you £50 and it would be money well spent. Find our just how they intend to pay for your businesses.
If it is by a bank loan, get them to show you the offer letter from the bank. Serious buyers will not be put off by these questions.
Selling does not always have to be a one-off event: it can be done over a period of time. You could sell some of the equity and work with the new shareholders over a period of time so there is a minimum of disruption.
Whatever route you choose, however, try to make sure the sales process does not cause any interruption to the business, because this may undermine its value.
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