I Wanted To Scream
Ambition, realism and a valuation…they’re the start points for a successful business exit. You need all three components.
My early experiences of helping people work towards an exit from their business were accompanied by an overdose of ambition and a marked absence of realism and any sensible valuation on the part of the vendor.
The ambition can come from a number of things:
- It’s the right thing to do
- It’s how to realise the value of your work
- The desire for a lifestyle change
At the same time, you need your feet on the ground. What is going on elsewhere? Is there sector growth? …and so on. This is reality.
And then there’s the valuation. The number of times I’ve seen people decide on a valuation of their business after receiving an offer is incredible. Alternatively, there’s the valuation plucked from thin air, mostly based on emotion. Both of these approaches defy logic.
I learned early on that deciding on a valuation, or price, for your business is an essential early stage of exiting. This can be calculated from a number of directions and can, and should, take into account sector peculiarities. One reason for this is that if you are the one to anchor the price first, i.e. set a deal price expectation, you are the most likely to get the deal you want.
One of my most frustrating experiences was the business that had ambition, realism and a good valuation. The business was valued at £6m. The plan was for the two owners to step down ownership and extract value over time. The initial stage was to sell 30% of the business for £2m. We got an offer in for this with lightening speed. It was rejected with the owners saying, “If we can get an offer like that so quickly, we’ve probably undervalued the company.”
I wanted to scream. And the outcome? No sale of shares was achieved then or since. The business has been in decline for the last 10 years and has a valuation of less than £100k now.
This reminds me of the Yahoo! mistakes:
Yahoo! refused to acquire Google for $1m
Yahoo! realised its mistake and offered $3bn
Google requested $5bn
Microsoft offered $50bn to acquire Yahoo!
Yahoo! rejected the offer
Yahoo! was acquired for $5bn
The value of Google was around $545bn
One of my mantras since has been to advise people to run their business as if they want to sell it…all the time. This might seem odd at first, but this usually means that the business is run efficiently and effectively all the time. Therefore, it is more profitable, delivers better shareholder returns and is likely to actually be a saleable business with a lot less effort.
Organising your business for succession plans and exit is mostly just good business. The difference is that you are operating a level or two above the day to day of sales and delivery.