Context

Keywords

Highlights

• If you run a service business that’s highly dependent on a small group of important clients who in turn only want to deal personally with you, and you compete with other players who provide similar services — your business does not have a lot of worth

• Figure out what kind of projects you are really good at

• Systemize and automate your process as much as you can, so that you can add value without spending a lot of time by yourself

• Don’t accept too many different kinds of project and focus on a niche. With this, you’ll be really good at one small thing. Moreover, if you just focus on one thing, you can hire specialists instead of generalists, who will be much better

• Relying on a very large company helps you with your cash flow, but will make it very difficult for you to sell your firm and scale it properly. If you want to sell your business, have a diverse group of clients where one company never makes more than 10-15% of your revenue

• Create a standardised product/service offering, a consistent process fit delivering our product and service, and made sure that the product/service was something they clients would need on a regular basis — thereby leading to recurring revenue

• When you’re pitching a generalist solution, you’re a price taker. When you’re pitching a new solution that you are experts in, you can be a price setter

• If you want to sell, the founders cannot be the business. The business has to work without the founders

• When you have a product, people expect to pay for it in advance. When you have a service, they typically pay 60 days after invoice is received

• Clients will always test your resolve. They are used to bossing their service providers around, and will always ask for a customised solution. Stand your ground and don’t give in. Clients will never see you as serious about specialisation if you also accept other work

• Provide SOPs and instruction manuals to your employees

• Always hire at least 2 sales reps. Sales people are naturally competitive. Hire people who are good at selling products. Not services

• Given a choice, a client will always want customisation. Stand your ground

• Worry about cashflow and not gaap revenue

• When selling products, you are going to take a short term hit to revenues

• You need at least 2 years of financial statements with a standardised product/service model before you sell your company

• Build a management team within your company that is outside of you

• Long-term incentive plans are generally much easier to implement than equity

• When selling, find an advisor/boutique m&a firm for which you’ll be neither their biggest or smallest client, and understands your industry

• Avoid an advisor who wants to broker a discussion with a single client. You want to ensure there’s competition for your business

• Your business is worth far more to strategic buyers than to financial buyers. Find out which companies have the most synergies to exploit

• While you are trying to sell your business, make sure your business is going well and that you keep your eye on the ball

• Replace the word “client” with “customer”. Make sure that you use the right words when talking to potential buyers. Appearances matter a lot when someone is trying to acquire you. You want to be in the “product business” box, not the “services business” box when clients think of you

• Stock options really complicate the sales of your business. If your employees have stock, they have minority shareholding rights. Keep it clean. Just give your management team a one-time cash bonus when selling your business

• When someone asks why you want to sell your business, don’t tell them it’s because you want to cash out. Tell them that you see a grander future for what you’ve built, and that they can help you achieve it

• Tell buyers that you’re proud of the growth you’ve achieved, and you would like to achieve some liquidity for the value you’ve created so far + have an opportunity to participate for some of the upside in the business

• When you’re selling, there’s a high chance that the price at which your business will be acquired will be less than what was originally agreed