Thinking of Selling? Check Your Growth Plan
"Growth is never by mere chance; it is the result of forces working together." — James Cash Penney
To net the best results for your sale and make sure you don't leave with regrets, develop a growth strategy. Buyers want to see an upside to your business, and the seller wants to go out with momentum, knowing they have done all they wanted.
Two Reasons You Need A Growth Strategy
One, it provides a plan to fill the gap from your current value to your desired value. Two, it can lead to a no-regrets sale that meets your personal and financial goals.
Fill the Gap for Sellers
Once they develop an exit strategy, owners often realize that there is a gap between what their company is currently worth and what they'd like to sell it for. A growth strategy can help fill that gap.
For example, one of our clients who owned a dance studio had a current valuation of $5 million but wanted to sell her business for $20 million. Unfortunately, this left a $15 million gap between what our client wanted and what a buyer would likely pay. To fill that gap, she needed a plan to grow the company and find additional synergies that would allow her to expand.
We helped this client build a growth plan. In this case, we looked at her current clients—dance students—and found an underserved adjacent market with similar needs: gymnastics students. We discovered that several gymnastics students were looking for training like the training our client offered.
By adjusting her marketing plan, repackaging her services, and expanding into the fitness and the gymnastics markets, this client grew faster in the same region using the same staff. This helped her fill the gap between what she wanted and what a seller would likely pay.
A Growth Plan Can Lead to a "No-Regrets" Sale
Without a growth plan, you may not know if you're going in the right direction or how to change directions to get what you want from the sale. A growth plan allows you to track and measure your progress, so you don't get burned out when sales decline, go down a path that leaves you without growth, or go down a path that is not as marketable or attractive to buyers, resulting in a smaller return when you exit. If you don't have a growth plan, you'll never know what you're getting, from where you're getting it, or where your business is going. If you don't plan your outcome, you may regret your outcome.
If you don't plan your outcome, you may regret your outcome.
Many sellers who think they want to sell develop an exit strategy, build a growth plan, and then think, "I actually don't want to sell." I'm not ready; maybe I can grow it faster now with a focused plan." They realize they love the industry they're in.
Sometimes, after building a growth plan, sellers find themselves more energized and want to grow and then look to acquire another company or bring on a new employee or partner to focus on their strengths and focus on the areas of the business they love. As a result, they decide not to sell now but to wait and grow first. You can build a growth plan that delivers your exit goals using the four simple steps outlined below.
Step One: Identify a Market
Look at your current client base. Are you selling your services to any similar businesses? Next, look at the products and services that each of your customers buys and ask, "Are they the same? If so, how are they the same? Do you work with competitors or possible partners that happen to work in the same industry? How do they market? How do they use your products and services?"
These questions will tell you if you can offer the same products to any adjacent markets—adjacent markets being clients that look similar to your existing clients. This can help you become stronger in the markets you're already serving while also allowing you to find new markets to offer what you are already offering to existing clients. After asking these questions, think about what you should be offering in addition to what you already offer.
To expand your list of potential clients, ask yourself, "What else might my current clients buy, and who else needs the same services?" Here are some questions to jumpstart this process:
How many customers do I have that are in the same industry or market?
What do they currently buy from my company?
Can I sell the same types of products and services to all of them?
Are there other adjacent markets that need the same types of offerings?
What do my clients need that I don't produce now?
You can get this data by sending a survey to key customers or asking them what other services they would like to see you offer. You can also suggest a new product and ask if your current clients might be interested in it. Here are 11 survey questions suggested by Forbes.
When you have a group of similar clients, you can market yourself as an industry expert instead of a generalist. This places you in a leadership position versus a position of being a jack of all trades and master of none.
It can provide the potential for you to sell more products to the same customers faster. When you become an industry expert, it's much easier to attend trade shows or other industry-specific events to learn more and directly target your prospects in attendance, and they will be easier to meet. This is like fishing in a barrel: you know the type of fish in the barrel and what type of bait they like. All you have to do is drop a line.
Once you establish yourself as an industry expert, you'll generate referrals from clients and other partners who want access to your clients. Expanding markets and doing more of what you already do within specific industries will make you more attractive to prospective buyers when you're ready to sell. Once you establish a market, look at what other market or client type is adjacent to your current clients or the products you already sell.
Step Two: Establish Market Size
After identifying a market to pursue, establish the market size: how big is the prospect base, and is the energy to market worth the return? This allows you to monitor your progress in terms of market penetration. For example, today, you may have 2 percent of the market for your offering, and you could set a goal to achieve 15 percent over a certain period. Do this by examining what your current clients spend for your products and using that to establish metrics.
For example, say hospitals buy your products. If they buy your products for each room they have, you can determine their annual spend ($50,000) by calculating how many rooms (100) they have and then dividing their annual spend ($50,000 divided by 100 = $500 per room) for an average room spend.
Now, find a prospect list through an association or list broker that gives you all the hospitals in your region, along with each hospital's room count. Next, take your current average room spend, and multiply it by each hospital's room count. Do this for each hospital, total them, and you've got a grand total for what your total available market looks like.
Step Three: Define Your Value Differentiators
You have a defined market and confirmed the market size is large enough to be worth your efforts. Start Step 3 by looking at your internal staff, clients, and competitors. Who else is in your market? What do they do better than you do? How can you compete? Essentially, this begins with your SWOT (strengths, weaknesses, opportunities, and threats) analysis.
Developing a SWOT Analysis (you can find many free templates online) for your business will help you determine what percent of the market your competitors have—as well as why they have it and what you need to do to increase your share of that market. This allows you to project what percent of the market you can expect to achieve. For example, just think about how a buyer will respond if you have $10 million in revenue today but have a growth plan and known market size to get you to $100 million. If the buyer thinks they can get your company there faster, you'll get a higher multiple from a buyer when you exit just by having a growth plan!
Step Four: Get Ready to Grow/Build Your Go-to-Market Campaign
Now that you know who you're marketing to, the size and spend of that market, what that market's buying habits are, and how you're going to be successful based on your SWOT, you need to develop a go-to-market campaign to reach that market. This goes into Marketing 101 and how to present your products and services via print, social media, email, trade shows, sales on the street, etc. Remember to build and track your plan and adjust as needed. It is not one and done. It takes an average of ten touches for a prospect to get to know you.
It takes an average of ten touches for a prospect to get to know you!
These four tips are a great start for developing a growth plan and will make your business more attractive to potential buyers. Remember, growth planning should be a part of your exit strategy early on.
If you're interested in developing a growth plan for your company, order your copy of GrowNOW ™ Your Fast Path to Growth. Or contact Paradise Capital, and one of our experienced Growth Advisors can work with you to develop a custom plan for your business. Paradise Capital developed its GrowNOW system to help you grow your business today and add value in the future.
Paul Niccum is a Business Strategist and author of No Regrets, How to Grow and Then Exit Your Business, Emotionally and Financially Strong! and GrowNOW! Your Fast Path to Growth.
After building six businesses and selling numerous companies to publicly held companies, Paradise Capital CEO Paul Niccum has faced the same fears and emotional concerns that all sellers face. He's both a seller and a buyer—Paul has also acquired eight businesses for his own companies and has been involved in selling over 100 companies during his career.