As a small business owner, you probably don’t spend a lot of time thinking about building the value of your business, but you probably should. The realities are:
- You’re probably going to want (or need) to sell your business at some point in the not-too-distant future.
- Your business, without a focus on “value-building”, may not be sellable.
Some Sobering Statistics
According to the 2023 National State of Owner Readiness Report published by the Exit Planning Institute®, 75% of privately-held business owners would like to transition their businesses within the next decade. Considering that there are more than 33 million small businesses in the U.S., that’s a lot of small businesses!
Unfortunately, of the many transitioning owners who will attempt to sell their small business, most are likely to fail. What little data is available suggests that 80% of “for sale” businesses never sell; and, of those that do sell, 75% of selling owners have regrets.
In other words, only 5% of selling owners will consider their transition to be successful, mostly because they were unable to get the price they expected.
The Founder’s Curse
The more valuable an owner is to their business, the less valuable the business is to others. That is the Founder’s Curse. If your business is highly dependent upon you, as the owner, especially for generating sales, it may have little – if any – value to prospective new owners because the recipes for success – past, present and future – are undocumented and “locked-away” in your head.
Create an Owner’s Manual
The starting point for alleviating the Curse (and increasing value) is to standardize and document all of your business’s core systems and processes. What’s the process for generating leads and closing a sale? Write it down! How are your products and/or services produced and delivered? Write it down! How are the books closed, reconciled and analyzed every month? Write it down! Standardize and document everything, from your Core Values to your Unique Selling Proposition to your goal setting (and goal getting) processes.
Avoid the Hub & Spoke
As your business grows and you add people to your company, make sure their roles, accountabilities and the processes they’re responsible for are well-defined. Doing so will enable you to slowly-but-surely delegate decision-making authority to others so that you can begin to remove yourself as the hub of day-to-day operating decisions. Again, the intent is to increase your company’s ability to operate without your constant presence.
Niche Down
The most valuable businesses are those that have the greatest prospects for future growth. And the fastest-growing companies are often those that have a clearly defined and highly focused niche, a defensible competitive advantage and a truly unique selling proposition. In addition, they tend to find ways to simplify their product and/or service offerings so that they realize higher margins which, in turn, can provide the cash flow that’s necessary to fuel growth.
Install an Operating System
A business operating system is a formal set of tools and processes that help ensure that all of your goals – both short- and long-term – are attained. Importantly, it will also help you keep a pulse on your business even when you’re away from it (which, in turn, helps to further alleviate the Founder’s Curse). There are several good business operating systems on the market including the Michigan SBDC’s no-cost program – FocusFour.
Take a Vacation
If you can’t escape the office for more than a day or two at a time, your company is far too reliant on you. If you’re able to get away for a week at a time, that’s better but, ideally, your business should be able to run without your constant presence for 4 to 6 weeks at a time. Sound impossible? It may very well be today; but we’re talking about preparing for a future that could be many years away.
You Need a Long Runway
While there is more to “value-building” than reducing (or eliminating) The Founder’s Curse, doing so is probably more important than profitability when it comes to turning your business into a marketable asset. And, as you can see, doing so is a time-consuming process: you’ll probably need a minimum of two to three years of focused effort to build a company that is truly valuable to others.
Even if you don’t plan to transition your company within the next few years, you should start “value-building” now. Not only will doing so help your company grow its sales and profitability more quickly, it will also help ensure that your business survives if one of the “Five D’s” (death, disability, divorce, disagreement, and disaster) should strike.
We’re Here to Help!
The Michigan SBDC has a great deal of experience helping small business owners build value in their companies (and plan for their profitable exits). And, like all of its service offerings, value-building and exit planning are provided at no cost to its registered clients.
To get started, simply complete the Request for Business Services form.
Mike Gay
Growth Team Business Consultant
Michigan SBDC
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