Building and Exiting A Desirable Business

By Ryan Binkley, President of Generational Equity

TabLe OF CONteNtS
The Makeup of a Desirable Business World of Change Sustain or Exit Historical Examples Companies that Succeeded Companies that Failed People Aptitudes and Passion Innovation Return-on-investment Mindset Is Your Business Buyer Ready? Internal Preparation External Orientation Sustainable Future Conclusion About the Author 3 4 5 6 6 8 9 11 11 13 14 14 15 16 17 18
Copyright 2011 by Ryan Binkley, Generational Equity

Building and Exiting A Desirable Business

The Makeup of a Desirable Business

When were born, we have an innate need to be desired we want to be picked first for the kickball team or we want the cute boy or girl to ask us to the dance. We take pleasure when others envy us, and were flattered when they strive to be like us. Bottom line: we want ourselves and everything were associated with to be desired. As we grow up, our situations might change, but the longing to be picked out of the crowd and be recognized above the rest does not. Instead of a school playground, we find it shifting to the workplace. Owning or running a desirable business is a goal shared by all business executives. What exactly is a desirable business? Its made up of a talented team thats passionate about their work. Its a place where employees want to be. Its a product of the owners lifes efforts.

Its an organization that external entrepreneurs are envious of and would like to create themselves. And, of course, its profitable. How do businesses get to the desirable stage? Ive indentified four core values that all desirable businesses have to focus on. 1. 2. 3. 4. People Aptitudes and passion Innovative spirit Return-on-investment mindset

desirable (adjective): having pleasing qualities or properties: attractive; worth seeking or doing as advantageous, beneficial or wise: advisable.

Building and Exiting A Desirable Business

The foundation of a desirable business starts with exceptional PEOPLE. Hiring the right ones major-league, Grade A, topnotch, best-of-the-best people that represent themselves and your company well is key to building a desirable business. Your employees strengths should complement one another. They should encourage and motivate those around them. And they should share the values and goals that you have set for the company. An exceptional staff demonstrates APTITUDE AND PASSION. Not only do employees have the capacities to continuously expand their knowledge, but they actively search for new ways to do so. Their brainstorming knows no limits, and they are always trying new things. Passionate employees
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consider themselves artists of their craft. They take pride in their work and look for methods to push the companys limits and their own. A desirable business has an INNOVATIVE SPIRIT. Fostering creativity, providing an open forum for all employees, and creating a safe place to create and spread ideas allow for innovating thinking. Not possible and I cant are phrases that dont exist within an innovative company. An innovative company finds ways to make things happen. Employees at a desirable business also have an ROI MINDSET. In addition to finding avenues to satisfy their thirst for knowledge, they are always on the lookout for new revenue streams. Theyre conscious of the time and cost investments it takes to roll out new products and services. Theyre always asking themselves, What will the return on my investment be? Staffers with an ROI mindset realize that sometimes its best to let an idea go, even after millions of dollars have been spent on research, because sometimes projects arent worth the price of full development. These four things people, aptitudes and passion, an innovative spirit, and an ROI mindset are at the heart of every desirable business.

weather, economies, ecosystems, technology, people everything. And everything is tied together more than ever. Sometimes nature causes change. A 9.0 magnitude earthquake in Japan followed by a tsunami crushing its coast causing the largest nuclear disaster since Chernobyl. The natural disasters effects were felt around the world, as production was crippled in the automobile and electronics industries. Sometimes people cause change. This year alone the world has seen opposition uprisings in Egypt, Tunisia, Libya and Syria. The uncertainty about Middle Eastern countries futures, along with a host of other things, has analysts predicting that gas prices will reach the record high of $4.11 per gallon set in 2008. From May 2010 to April 2011, consumer prices rose 3.2 percent, the most since October 2008. None of these types of changes is new. These things happened decades, and even centuries, ago. The United States had a revolution in the late eighteenth century. The United States economy was in the dumps during the Great Depression. By the way, the devastating Dust Bowl occurred during that time period as well. Even though the changes arent new, our technology is. Because technology has advanced exponentially think Moores Law
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World of Change
We live in a world of change. Everything is always changing
Building and Exiting A Desirable Business

 our world is the most connected its ever been. Think about doing business. Connecting with people on the other side of the world is as easy as sending a simple email or calling through Skype on the Internet. But there is a consequence from doing business with people stationed throughout the world: your company is now affected by changes going on in those respective countries. This places a premium on adapting and innovating. The Japanese earthquake shook up the production of electronics everywhere. The desirable businesses will adapt and come up with solutions. An undesirable one wont. Many traditional business owners immediately create an exception mentality for change in their business due to the fact that they are in a perceived low-tech business. However, this is a huge mistake. Green initiatives, for example, are having a drastic impact on the construction business. With new leadpaint removal laws, barriers of entry to the labor force have changed, as painting now requires skill, experience, and Federal certifications. For the construction industry, the change impacts product selection, code compliance, interior design, and even the way that warranty costs are viewed. This is just one example of change being key to survival. A second area of change that cannot be ignored is social change.
Building and Exiting A Desirable Business

Social change is influencing consumer behaviors generating complex ripple effects throughout the consumer marketplace. From the clothing people wear to the food they find desirable, their spending habits are creating both challenges and opportunities for business owners. Lets take the American hamburger. It doesnt get any more lowtech than this favorite. Despite the simplicity of a burger, the modern consumers palette is becoming more complex. Yes, even in the truck stops and corner burger cafs, the consumers taste is changing. This has brought on new entries in the competition for market share in the American burger market. Businesses are bringing to the market new, faster, more casual concepts, featuring hand-cut fries sprinkled with mixtures created from salt and cilantro produced in more sophisticated cooking equipment that impacts everything from taste to delivery time. We may not be able to anticipate specific changes in our world, but we can anticipate one thing: change will happen. Those that accept it and adapt will survive and possibly thrive; those that dont, well, wont.

Sustain or Exit
If you have ever worked in a sales organization of a corporation, youve experienced the Q1 phenomena where you face a net new quota that is higher than the year before; the accolades and the
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attainment of the prior year become a thing of the past. This situation isnt limited to big corporationsit is reality for most small- and medium-sized businesses as well. The difference is that the pressure is on the business owner. If they fail to sustain the business, they are the first to come off of payroll and are faced with situations such as writing a personal check to cover expenses. Regardless of how successful a business has been in the past, the success must be sustained. Sustaining a business is hard work. Sustaining a successful business in a changing world, however, is flat out risky. Business owners are faced with a number of hurdles that are a result of a changing world. Elements of change that make sustaining a business the most difficult include an increasing competitive landscape, cost fluctuations, natural disasters, and increased regulation. A study commissioned by the Small Business Administration shows that the regulatory costs alone for small businesses are 45 percent higher than that of larger businesses. The business owner lucky enough to survive the effects of economic change, natural disasters, and an increasing regulatory environment still has to face competition from larger organizations who have easier access to capital for growth and innovation. However, if a business owner has created a desirable business, they are afforded an opportunity to exit the business via an acquisition.
Building and Exiting A Desirable Business

This option is not available to all businesses, only to those that are desirable in the eyes of buyers. Strong financials are not the only desirable feature of a business. Keep in mind that the acquirer of a business does not purchase the past; they purchase the future. Though every industry and business differs in what makes their future desirable to an acquirer and it is beyond the scope of this e-book to examine these, there are four characteristics that all desirable businesses have in commoninnovative people who apply a ROI mindset to their passions and aptitudes.

Historical Examples
In order to better illustrate the role that the aforementioned core values (i.e., people, aptitudes and passion, innovative spirit, and ROI mindset) play in building and sustaining a desirable business, we will now look at some real world examples of organizations that have either failed or succeeded in the last decade.

Companies that Succeeded

AppLe: In the mid to late 80s, advances in technology fueled commercial efforts to put personal computers in homes and on the desks of small business owners. Apples differentiator is that they focused on the end user and can largely be credited for the adoption of the concept of a graphical user interface (GUI). Though they lost the first phase of the battle to Microsoft,
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whose dominance in distribution eventually landed them in the crosshairs of the Department of Justices Antitrust Division, Apple remained true to its values of design, image, and meeting the needs of its customers lifestyle. As Apple resurfaced into a consumer technology market whose needs had largely been ignored since the late 90s, Apples advertising has focused largely on promoting brand image and consumer lifestyle rather than specific products. The initial print ads and television commercials featured famous historical figures including Martin Luther King Jr. and Albert Einstein, along with the slogan Think Different. Throughout its history, Apple has continued to promote a strong identity as an innovator in the industry. The personal computing company thrived on differentiation by focusing on the creation of a lifestyle, identifying with everything that is currently considered to be cool and hip. From the trademark white headphones to the brightly colored packaging that function as status symbols, Apples intention was to make the user feel like a member of this exclusive club of people who, not only think different but also (according to Apples advertising) look and feel good doing it. Apple even created specialty stores, which uniquely and exclusively sell and maintain Apple products, that staff only highly trained (and brand loyal) employees. Furthermore, Apple
Building and Exiting A Desirable Business

iPods, iPhones, iPads, etc., are created to appear user-friendly and familiar to consumers. The individual who has owned an iPod (with a low entry cost of $49 for the iPod shuffle) is likely to later purchase a larger, and more expensive, item that offers similar packaging and user interfaces. Furthermore Apple-exclusive software programs and products, such as iTunes and the corresponding iTunes store, facilitate both upgrading and simultaneous use of several gadgets, while at the same time discouraging the use of competing brands. In this sense, Apple consumers are likely to stay loyal to the brand that they can count on to continue offering products that are familiar, are easy to use, stay true to the Apple identity, and yet are always a step ahead of the competition. WaLt DiSNeY COmpaNY: The Walt Disney Company exemplifies the principle of an organization building on its aptitudes and passion. The Disney Company began in the 1930s with the production of several animated cartoon films such as Snow White, Pinocchio, and Fantasia. Over the years, Walt Disneys business venture expanded to include major theme parks, several television channels, a number of clothing and merchandise collections, and even travel and cruise lines. The secret to the companys endurance and success? While Disney stimulated progress and sought innovation, the company
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maintained a steadfast commitment to Walt Disneys original passion and vision to bring a smile to a childs face and preserve the Disney Magic. As you will further glean from the following section regarding Kmart, the key to Disneys success was continuity through innovation and expansion. The message is clear: Disney never attempted to be everything for everyone, but rather capitalized on Walt Disneys original goal to provide family-oriented products and services. Along the way, they have continued to hire and train employees who share similar values and, therefore, have a genuine interest in the organizations everyday and long-term success. Despite the overall size of the company and its employee base, it has continued to deliver from an operational perspective as it enables every level of employee. It is often said that the white-gloved groundskeepers who whisk away the smallest of wrapper at the Magic Kingdom are valued as equally as the executive leadership team.

identity and culture. They have remained true to their core consumer. Such is not the case for a company like Kmart, which lost its appeal when it failed to clearly and consistently identify and communicate its core goals and values. In an attempt to widen its consumer base in the face of new competitors like Walmart and Target -- Kmart attempted to provide products and services for everyone. Lacking a strategic marketing plan, the low-price retailer pushed a number of brands such as Martha Stewart and Joe Boxer, which were geared to a more upscale target audience, one much more likely to be shopping at a store such as Macys. In turn, Kmart ignored its actual consumer base of value shoppers who were likely confused by too many products and services, as well as disappointed by the companys ability to truly meet their needs. Lack of continuity in management has further complicated matters, leading to confusion (and frustration) among store staff as well. Lacking a well-defined, unifying company identity has contributed to diminished consumer and employee loyalty, employee apathy, burnout and turnover, and ultimately financial devastation. BLOckbuSter: As any person living in America can attest to, it is not rare these days to see yet another Blockbuster store shut down in the neighborhood. Whats interesting is that its indeed very rare to meet someone who has never heard of the Blockbuster name. So, what exactly went wrong for this once
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Companies that Failed

Kmart: What Apple and Disney have mastered nearly to perfection is precisely what Kmart failed to accomplish. Apple releases a new product about once per year, and Disney continues expanding into various ventures, therefore magnifying their consumer base by appealing to a wider audience. However, both of these companies have consciously maintained a strong brand
Building and Exiting A Desirable Business

very successful organization? Unlike Kmart, Blockbuster is an example of a brand that created and maintained a strong identity. However, over the last five years or so, several competitors (e.g., Redbox, Netflix, etc.) have entered the market, offering consumers similar products that are easier, faster and/or significantly cheaper to obtain. Despite the competitions increasingly growing appeal and success, Blockbuster has failed to appreciate and catch up with their innovative edge. For instance Netflix offers consumers the opportunity to receive their movies by mail and to watch them instantly online. For only $1, individuals can visit a Redbox location and, in under five minutes, have in hand a new release movie to watch that night. These options can be a lot more appealing than searching through Blockbusters stores for a movie that may or may not be in stock due to the limited supply (while paying three times the price).

end, it doesnt matter whether your business is in a cuttingedge technology industry or provides simple services such as automobile oil changesit is imperative to employ the right people. Every person you interview or employ should be screened to ensure they have the necessary skills and experience for the job at hand. If they do not possess the skills, you may choose not to hire them. If they do, you still have to ask whether they are a good fit for the company. Do they share the same values as you and your staff ? Will they fit into the culture? If they dont, regardless of their skills, you should think twice before you hire them. If the candidate does not have the skills and experience you desire for a given position, you should still ask whether they are the right fit for the company before you chose to not hire them. If you determine they are good for the company, you can evaluate whether you are willing to invest in growing their skills on the job or whether you simply want to keep the resume on file for a position that better suits their skills. The logic above can also be used to evaluate existing employees. All too often an employee is dismissed for performance reasons when they truly are a good fit for the company and are simply in the wrong job.
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People
People make a business run. They produce your products or oversee the machinery that does it for you. People interface with your customers and build relationships with your suppliers. People are human beings. They have good days and bad. They show moments of brilliance as well as flat out failure. In the
Building and Exiting A Desirable Business

Lets look at an example with a hypothetical commercial restoration business that is looking for a field manager that has specific experience in flood damage cleanup and mold remediation. That is a pretty specific skill set and experience combination that the company needs. The interview process produces a candidate that lacks the specific flood experience and mold certifications; yet, he is a perfect match for the companys values and work ethic. Moreover, he is passionate about learning and growing. Should the company hire him? Should they pass on him for this role but consider him for another position? Should they attempt to grow an area of the business specifically to accommodate him? Good people are hard to come by so you have to ask these questions as a business owner. Hiring and growing the right people does not mean that a company has to create an aggressive up or out environment. Companies can create teams that consist of part-time employees including students who eventually look to grow beyond the company. The key is hiring an employee whose combination of skills, interpersonal abilities, values, and life stage is a match for your employment opportunity. A security firm, for example, should not be on the lookout for another newspaper reader that sits at a desk. They should look for a detail-oriented person who has good people skills. A
Building and Exiting A Desirable Business

grocery store should not hire a big idea person to work in the checkout line. A cashier position is about accuracy, details, and people skills. It also has some limits to its growth. Just because a company isnt in explosive growth mode or a dynamic industry, it does not mean that employees cannot experience growth. A store cashier, for example, could be trained in basic Spanish skills in order to better communicate with a diverse customer base. The dead end nature of a job can also be somewhat removed. Take Carlson Companies. Carlson Companies is a privately held business most famous for their restaurant chain TGI Fridays. Decades ago they created an amazing aspiration for their bartenders called The Ultimate Bartender Championships. It actually served as the basis for a scene in the movie Cocktail staring Tom Cruise. The contests goal was to provide a platform for individual contributors to develop a set of technical bartending show skills and compete on both a national and international basis to determine who was the best. Every business will have its own culture and needs for its personnel. A desirable business will formulate a set of company values and a clearly defined set of roles and positions in the company. Leadership in a desirable company will inspire and grow the skill sets of their employees regardless of the level
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of the position or the opportunity for advancement. With good people, desirable things will happen in every business.

supervising and policing adults. He also had a lifelong passion with the Chinese martial art of Kung Fu. Lastly, he realized that his personality wasnt satisfied with the rather-defined career ladder that is typically present in a police department. So, he followed his passion and used his aptitudes to accelerate in a different line of workinstruction of traditional Kung Fu. This alone resulted in his startup business heading down the path to becoming desirable.

Aptitudes and Passion

If you want to see an employee fail, put them in the wrong position. Put them in a position they are not passionate about. An instant recipe for employee failure is placing them in a role that requires them to perform tasks they cannot stand to do or have no aptitude for performing. The same applies for a business owner. Weve all seen the doctor who cannot stand the health care system but sticks with it for the money. Weve also seen the business owner who cant wait to put the Closed sign up at 4:59 p.m. so he can go home. This doesnt happen, however, when business owners and employees are working in a business for which they have the right aptitudes and are passionate about their work. Though you can make a business work without passion or possessing the required aptitudes, the business will not accelerate and will be constantly competing with (and losing sales to) companies that have passionate employees with necessary aptitudes. I once met a police officer that was thinking about leaving the force to pursue his passionopening a traditional Kung Fu studio. Though he was good at being a cop, he realized that he had an aptitude for working with and teaching young people versus
Building and Exiting A Desirable Business

Innovative Spirit
One of the biggest mistakes that business owners can make is believing that innovation is only for science and technologyrelated companies. It is true that innovation that makes the headlines of prestigious periodicals like The Wall Street Journal is usually related to one or the other. Still, innovation can and should exist in every business no matter what the industry is. One lucrative area of law in the past decade has been bankruptcy. This area of the law requires attorneys to have knowledge of both Federal and State bankruptcy code for either businesses or individuals. Though bankruptcy is often considered an ugly word that signifies failure, it is actually a very strategic tool for erasing overburdening debt for individuals or companies. I am going to use the bankruptcy to highlight an example of innovation. Around 2006 there was a set of Federal laws that changed adding a level of stringency to the bankruptcy filing process. It was one
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of the first major changes the industry had seen in years. The bankruptcy law area of the legal industry is not an industry that would normally be associated with innovation. After all, there isnt much change in the industry and in most states the legal profession is regulated, which plays a role in the rate of change. Still, every industry faces change and those who innovate come out ahead. In late 2007 bankruptcy attorneys began to realize that the economy was entering a collapse and they needed to scale their operations. Most attorneys offer a free consultation with prospective clients. In these free consultations the attorney will generally answer the same questions over and over. The result was a loss of billable hours since an attorney can only work so many hours in a day. Second, the free consultation gave a prospective client just enough information to conduct proper research and potentially sign up with another firm who was more aggressive in their advertising efforts. Most bankruptcy attorneys began to pour their money into television and radio advertising during this timeframe. Smart attorneys began to invest in their online presence. Law firm websites are generally regulated by state bar associationsinformation posted to them have to go through an approval process in many cases. For that reason, most law firms have fairly stagnant websites that are brochure like in nature.
Building and Exiting A Desirable Business

Still, in 2007 smart attorneys began to realize the amount of research that potential customers were conducting online. Thus, they invested in elaborate question and answer sections of their website. Some even created videos that presented reenactments of key milestones like a mandatory meeting of creditors. The result was prospective clients came to free consultations with less general questions and concentrated on the few specific questions that applied to their case. As a result, attorneys spent less time in free consultations and saw higher closing rates as potential clients were generally ready to retain legal services during their first office visit. The example above demonstrates a few things. First, innovation does not have to be limited to the high-tech and healthcare industries. Simple, but impactful innovation can be created by any business owner who has a desire to improve. Second, innovation doesnt always have to be about increasing profits. In many cases, the best innovation cuts cost and simultaneously increases customer satisfaction. This is classic do more with less innovation. As a business owner, you should prime your mindset by listening to your customers. Find out what they really want in this changing world and evaluate how your current business model meets their needs. In the bankruptcy attorney example, customers wanted to have the uncertainty of a stressful event removed. Smart law
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firms used the Internet to provide prospective customers with the information they craved to put their minds at ease. Listen to your customers and work with your employees to introduce small, innovative changes in your business. If you fail at your attempts at innovation, make sure it is a controlled failure and that it does not cost your customers or put you at financial risk. Big swings for the fences in terms of innovation can often lead to strikeouts, which will result in the exact opposite outcome you desired for your business.

as customer satisfaction, employee turnover, increased sales, or even higher profits. If done so in a friendly and approachable way, both the business owner and employees can integrate this mindset into their daily thinking. After all, a business that converts expenditures into returns is a lot more desirable than one that doesnt. Lets suppose an employee asks you if she can start a blog for the company. If you are the type of business owner that is intrigued by the world of social media, you might immediately say, Yes. If you are confused or intimidated by the online world, you might immediately say No. However, if you apply a return-oninvestment mindset, your response will likely be in the form of pointed questions for the employee. These will include: An estimate of hard costs and time investments required for the idea Ideas of how this will impact key profit or cost metrics in the business Some general research items for the employee to further build their case One key point when discussing returns on investment is the time required to be successful in the endeavor. Time has two costs associated with it. The first and most simplistic one is the payroll cost. The second, less definitive, is the opportunity cost or a list of alternative ideas that could provide more benefit for
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Return-On-Investment Mindset
One of the best things you can do for yourself as a business owner and for the growth of your employees is challenge your team to start thinking in terms of return on investment. It not only can have a profound impact on key metrics of the business but it is also a great exercise for growing and challenging employees. The phrase return on investment is a calculation often used in the financial services industry. Return on investment, or ROI, refers to the amount of profit that will be returned by a capital investment. Though expressed in a very specific ratio or percentage in the financial services sector, this phrase can be greatly simplified when applied to a privately owned business. In place of ratios and percentages, a business owner can simply map an investment or cost incurred to increases in concepts such
Building and Exiting A Desirable Business

the business. Back to the example above, your employee might respond that starting a blog is free and wont cost you anything. When you drill into the fact that it will take an hour a day to manage the blog, your employee might say that they intend to do this in the afternoon, a traditionally slow time of the day. The opportunity cost of doing this is that the employee could use the time to call existing customers in an attempt to do anything from increase satisfaction to collect on outstanding receivables. This is simple to do. Ask yourself and your employees how various expenditures of time and money provide a return for the business.

The buyer rarely buys what the seller thinks hes selling.
-Peter Drucker, management guru

External Orientation Has the seller created a culture that looks outwardly? Sustainable Future Has the seller anticipated the future and its changes? Each of these plays an equal role for buyers as they seek to discern if a specific target is buyer ready. Sellers need to pay attention to each of these, for they all play critical roles in giving buyers a level of confidence confidence that the transition will be smooth and operations will continue once the owner exits the business.

Is Your Business Buyer Ready?

Management guru Peter Drucker once said, The buyer rarely buys what the seller thinks hes selling. This statement implies that the features you find attractive about your company may not ultimately be the same features a buyer finds important. So what are buyers looking for? What makes a company buyer ready from an acquirers point of view? In general, there are a number of common items that buyers look for when examining acquisition targets. They fall under three categories: Internal Preparation Has the seller positioned the company for sale?
Building and Exiting A Desirable Business

Internal Preparation
Too often business owners become so focused on the day-today operations of their companies that they forget to develop strategies to prepare for their eventual exit. Ignoring internal preparation in the long term can be seen as a serious weakness in the eyes of buyers. Addressing these issues long before
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contemplating the sale of your company will effectively position your company to be buyer ready. Here are some general ideas:

Develop a solid middle-management team As mentioned, hiring the right people who are passionate about what they do is critical to sustain a company. This is especially important in developing and grooming managers to replace you. Find people with the skills, drive, desire and aptitude that will give buyers confidence that once you are gone, the business will operate smoothly. Document what your company does right Too often key operational procedures are located between the ears of the owner and are not documented anywhere. Help your company be buyer ready by taking the time to develop documentation that shows what you do well and what is unique about your process. Every business has these, but not every business documents them. Buyer ready businesses document. Show who your skilled people are Dont just simply create an organizational chart with boxes and lines document the skills your employees have. Brag about them and their passions and skills. Dont imply that the success of the business is all because of you. Make the success of your business about your people and tell buyers more about them than about you! Know what your business is worth This is made up of two parts: the economic value based on projected

earnings and the value to a buyer based on those features that are synergistic with his/her operation, synergies which generate economies of scale that surpass your projected future earnings. The first valuation is critical. Hire a professional and find out what that number is. The second is a challenge and will vary from buyer to buyer. The buyer ready business owner knows what the economic value is and looks for buyers willing to pay a premium over it because of these synergies.

External Orientation
Buyer ready businesses are continually evaluating where they stand in relation to their external environment. This goes far beyond the standard SWOT (Strengths, Weaknesses, Opportunities and Threats) analysis you learned in Management 101. Your evaluation of the outside world must take into account where you are today in relation to it and where you need to be five years from now based on ever-changing circumstances. This is how you become buyer ready: Know your market position Buyer ready companies can clearly define where they are in relation to the competition and the market. Are you a market leader with a dominant position or are you a follower with lots of room to grow? Both have their plusses and minuses to specific buyers. Do you have plans to take advantage of your market position? Buyer ready companies are constantly evaluating these
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Building and Exiting A Desirable Business

questions. Who are your customers today and who will they be tomorrow? This goes back to the question of innovation. You are not a buyer ready business if you believe that the products/services you are providing now will be the same ones your clients will want five years from now. Buyer Ready businesses regularly review the needs of their customers and analyze how effective they are in meeting those needs today. They also anticipate how their customer needs will transform as the world continues to change and they plan accordingly. Develop a brand that identifies you Buyer ready businesses have name recognition in their market (and a reputation that follows) that is the envy of every buyer who looks at the business. It takes years and years to develop a recognized brand and buyer ready businesses have been doing so from day one.

Sustainable Future
As discussed earlier, buyers arent acquiring your past, they are buying your future. They are looking for future earnings that are solid, defensible and with additional capital, can be grown beyond your internal projections. Buyer Ready Businesses know this and look for, and document, plans to create growth that can be maintained beyond a three year pro forma: Develop revenue streams that are recurring As you
Building and Exiting A Desirable Business

plan for your eventual exit, be sure to never become satisfied with your current sources of revenue growth. Buyer ready businesses look for revenue streams from guaranteed contracts, long-term customer relationships and product uniqueness to sustain their growth. Buyers look for revenue that is not a one-time blip on the radar screen but revenue that will exist after the owner departs. Develop those sources of revenue and document them. Insulate your organization from future threats Buyer ready businesses are constantly scanning the horizon and are looking outward to determine where the next threat to the market, industry and organization may come from. The more you can make your organization, products, and processes unique and innovative, the better you will be insulated from future threats. This will give buyers an added layer of confidence in the future. Diversify your customer base Buyer ready businesses know that customer concentration having too much revenue generated by one client will be a concern to potential buyers. Be sure to continue looking for new clients all the time. Dont become complacent and expect a buyer to reward you. Diversify your supplier base You may find it convenient that most of the materials that you purchase come from a single supplier. Buyer ready businesses have the opposite view and are constantly looking for new sources of
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materials. They know that buyers will be looking for a solid supply base, not one that is overly dependent on a single source or region just look at what happened to manufacturers around the world after the tsunami hit Japan in March of 2011. Promote and reward your best and brightest innovators As we have mentioned, creating a spirit of innovation in your company is vital for your future. Look for the innovators in your organization, look for the risk takers and reward them for their ideas. Buyer ready businesses have a cadre of innovators in their midst. Reward and develop that in your people. Buyer ready businesses are owned by entrepreneurs who have made the successful transition from business founders to managers and finally to leaders. While doing so, they have built organizations populated with innovators who have an ROI mentality. These are the companies that do not fall into the trap of not knowing why buyers are buying. Owners of buyer ready businesses know exactly what buyers are looking for because they have been preparing their organizations to be buyer friendly from day one.

innovative spirit, and a return-on-investment mindset. Without passionate, skilled people that are encouraged to think creatively in an environment that emphasizes a high return on investment, your business cant get to the desirable stage. But once you get there, our world of change tests your ability to sustain your success. Some companies, such as Apple and Walt Disney Company, have been able to do this better than others like Kmart and Blockbuster. If you decide that you want to exit your business, you need to make it buyer ready before you even think about that decision. To prepare your business to be sold, you must position the company for sale internally, create a culture that looks outwardly and show that your future earnings are solid. By following these guidelines, you can be on track to creating a desirable and buyer ready business. And when your business is sold, youll get that rush that you had when that cute boy or girl asked you to the dance in high school because youll have an affirmation that somebody desired what you created.

Conclusion
To build a desirable business, your company must have the four core values that Ive discussed: people, aptitudes and passion,
Building and Exiting A Desirable Business 17

About the Author

Ryan Binkely is president of Generational Equity, a mergers and acquisitions advisory firm that sponsors the news site, The Private Business Owner. Generational Equitys professionals have worked with middle-market business owners who are contemplating selling a business or seeking merger and acquisition opportunities. We assist owners in all areas of stock or asset sales, mergers, or divestitures. Our highly experienced merger and acquisition specialists provide insight and strategies on questions such as: When is it the right time to sell? Should all or part of the business be sold? Is the company buyer ready or should the focus be on building value for a future deal? For most business owners the sale or other transition of a business is the single most important, and perhaps the largest, financial event that occurs their lifetime. Most small or middlemarket business owners do not have an exit strategy. Selling at the wrong time or without the right information can substantially lower the value of your business. We regularly conduct informational one-day conferences that provide business owners with an overview of the process necessary to successfully sell a private business for maximum value. The information presented in the conference will be a vital part of a strategy to sell your business for the highest possible price.
Building and Exiting A Desirable Business

Our seasoned M&A professionals can help business owners anticipate challenges and understand what needs to be done at every juncture of a transaction. For each owner, we can prepare a customized marketing strategy that presents your business to the most appropriate potential buyers while maintaining strict client confidentiality. We also have access to thousands of buyers who are actively seeking to acquire middle-market companies. Please call 972-481-2801 between 8:00 a.m. and 5:00 p.m. Central Time for information on a conference near you and to determine if your business qualifies to attend.

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Building and Exiting A Desirable Business

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