As investment bankers, we often find ourselves in the position of teaching our clients about how to sell their company. One of our (many) jobs is to dispense valuable advice to sellers with whom we work throughout all stages of the sale process. (You can read more about that here, here and here.)
In addition to the wisdom we have attempted to impart to our clients, we have also learned quite a bit from them. We seek to learn something from everyone with whom we work. Indeed, we have been fortunate to work with many great clients throughout the years. As a result, we have come away from many of our interactions having learned many important business lessons from those clients. These lessons call to mind the most important things a business owner must do when positioning their company for sale — create the perception of value in the market and the culture and business practices to sustain that value in order to ultimately orchestrate a sale transaction that meets their objectives.
What follows are some of the most memorable lessons we have learned from clients over the years:
No barriers to doing business. Customers often do business with a company based on how easy/low stress the company makes it to do business with them. For instance, does the company actually deliver on its promises? Is the company able to meet (or exceed) the customer’s expectations? Is it easy or cumbersome to do business with the company? Consider that a retailer with a no-questions-asked return policy is more likely to attract repeat customers because they have removed a primary barrier to doing business with them. In other words, by offering a hassle-free return policy, the company has made buying from them a near-riskless proposition for the customer. Of course, the company is at risk of potentially higher instances of return abuse, but ultimately, having a customer-friendly return policy in place will likely cost them less than they make from repeat customers. While it is not always practical for a business owner to give their customers exactly what they want, it is important to remove as many barriers to doing business as possible so the customer perceives the company as being easy to do business with — so easy, that they come back again and again.
Do not ignore your largest client just because they are your largest client. Put another way, owners should not diminish their focus on or stop developing new ideas for their largest and best client just because they are their largest and best client. The owner’s goal should be to build the business around that client and continue doing their best for them while adding to the business and bringing on new clients (always easier said than done) to diversify around their largest client. In this way, the owner continues to grow their revenue and customer base while providing the same high level of service to their “bread and butter client.” Client concentration reduces an owner’s sale options, so the owner should continue to serve their largest and best client while continuously seeking to add new clients. A corollary to this is owners should not ignore small clients, either, because small clients become big clients that will, eventually, refer the owner’s company to other clients.
Do not be shy about pricing for the value being provided. In short, the owner should create a perception and reality of the value they are providing to their customers, and get paid for it. If the owner’s business has a unique product/service offering, they should get paid for it. In other words, they should not price their offering as a commodity because it denigrates the value that they have created. For example, if an industrial customer — say a paper or steel mill — has a failed motor and they do not have a spare, it could potentially cost them hundreds of thousands of dollars a day to be offline. If the motor repair company can tear out, repair, and reinstall the failed motor faster than their competition — and they can repair it correctly so their customer does not have the same issue anytime in the near future — there is real value in being able to deliver that service. As such, the owner of the motor repair company should charge accordingly for that level of service, expertise, and value and expect to be paid for it.
Everyone should be wanted, but not needed (credit: JR). In other words, the owner should not be the only one who knows everything about the business and how it runs. They should push down knowledge throughout the organization and make themselves and their employees dispensable since such information is widely dispersed throughout the organization. Said a little differently, the loss of any one employee, including the owner, should not cripple the company. In addition, the owner should hire good people and let them do their job. It is important for the owner not to micro-manage their team, but instead be confident in the people they have hired and give them the direction and leeway to make decisions that are in alignment with their day-to-day responsibilities in helping the company achieve its goals.
Do not sell based on price; sell based on quality and performance. Sell a solution, not just a product or service. The owner should lead with the client’s needs and how their product or service can be valuable in meeting those needs. In so doing, price becomes less of an issue because the customer understands the value they are receiving for the price they are paying.
Take care of the people you depend on. Owners should be in front of what is important to employees: increases in salary and benefits, opportunities for advancement, and recognition — all characteristics that employees need to keep them happy at their current company, which theoretically will deter them from seeking or thinking about opportunities elsewhere. Said differently, owners should not give their employees reasons to consider opportunities at other companies or increase their receptiveness to consider opportunities elsewhere.
Hire forward. The company needs to be operating with a trained team when the business is strong, not playing catch up hiring/training employees when business is strong. If the owner anticipates their business is going to grow, they should consider hiring forward so that their employees are up to speed before that growth occurs, not while it is happening. Hiring employees in advance of growth is an investment (or cost depending on your perspective); however, the alternative is to have untrained employees at the wrong time that disappoint customers and create a negative perception about the company.
Consider the total profitability of a client. Owners should consider what the real profitability of the client is, not just revenue minus cost. For instance, is the margin on a particular client worth the trade-offs in the opportunity or actual costs of hand-holding, extra client visits, entertainment, etc.? Is the client higher maintenance? If so, the cost of those high-touch — and in some cases, high-cost — interactions may be driving down the client’s overall profitability. Our clients have taught us a great deal, and we feel fortunate to have had the interactions that have led us to these lessons over the years. Despite our vast experience, we have learned a lot, and will surely continue to glean pearls of wisdom from our clients going forward.
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