And Other Myths That Destroy Wealth
I was meeting with some investment bankers the other day. These are the Mergers and Acquisitions Intermediaries (a tongue twister… I prefer M&A people) that represent business owners (sellers) to buyers – private equity groups and strategic buyers (other companies), or entrepreneurs.
As an aside, I once said to an M&A guy that I felt sorry for him. He looked incredulous. “Don’t ever feel sorry for us. We aren’t the ones that suffer.”
I guess he didn’t see his job the way I do.
Their job is akin to that of being a consignment shop retailer.
Welcome to the M&A Consignment Store
In this shop, they show many beautiful one-of-a-kind items that their clients bring them. Loved. Gently used. Perfect for the wearer, in its day.
But alas, it doesn’t quite fit the seller anymore for a variety of reasons.
Enter the buyer searching for something cool, unique, a perfect fit for his or her vision and a great deal. They flit around the store, turning over displays, unfolding the nicely folded, asking about the objects’ vintage, the health of the fabric, cleaning, and always wanting to know if there is a story behind why that item is now in the store.
Suddenly their eye catches something sparkly, over there. It is tried on. Paraded around for all to see and then the final look, the weighing of the pros and cons.
The M&A consignment shop owner doesn’t hold his breath. He’s seen this song and dance many times over.
“No, I don’t like the (fit, color, smell, price, back story). Its not what I was looking for.”
And the item is put back on the rack to await the next shopper.
Buyers who love consignment shops love the art of shopping. They love the hunt, the excitement of finding just the perfect piece.
If it’s not at this shop, they know their desired result will be at the next place.
You see the chances that a buyer will find something they love in this M&A Consignment shop are slim. The buyer knows that. The shop owner knows that.
As a seller, why should you care about the M&A guy and the parade of shoppers he will have to entertain?
One day, when you feel like exiting, you will put your successful business ‘up for sale’ and enter the competition to catch the buyer’s eye. Your business will sit on the rack until it catches the eye of the shopper.
Do you know what happens to items in the consignment shop that sit on the shelves for a long time? Their price is reduced. And then reduced again until the item either sells or is returned to the owner marked “unable to sell”.
So whose fault is this sorry state of affairs?
Are the M&A people not making good inventory choices?
They are at the mercy of the people who enter their shop with their ‘loved, gently used, perfect fit for them, but not wanted anymore’ items. What walks in the door is the inventory.
The M&A people are picky about whose items they will carry. They know the trends. They won’t accept torn or aged items. But in the end, they have no control on the quality that walks into the store. They have no control over when the seller decides that they are ready to part with that loved and gently used item.
What about the Buyers?
Maybe they should stop being so picky. Why do they only want things that are the perfect fit for their vision? We should all ask ourselves that question. I think we know the answer.
And so we are left with the Sellers.
The sellers have all the control over whether their item stands out in the store and is what a buyer is looking for and is offered at an ‘easy to say yes to’ price.
So what can the Seller do to increase the odds they will be the bright shiny object that attracts a buyer?
1. Educate yourself on what it takes to become selected by buyers these days.
2. Don’t assume that what is successful, gently loved and a perfect fit for you is a perfect fit for a buyer. Do your research on your ideal buyer years before. Then remodel, re-align and remove yourself from your business. Remodel and realign it so it is what the buyer is looking for to be a perfect fit. Be in the market they need to get into. Replace your role on the management team with someone who will grow with the business you will be leaving. Transfer your knowledge and relationships to them.
3. Start 2-4 years before you want to sell. How many years did it take you to become successful? You and your team need the time to now make it transferable.
4. Come to terms with the truth about your situation. If your company is not seen as the bright shiny object the shopper has to have, what will you do? Go to another M&A shop? The same problem follows you there. Keep running the business until you can get a general manager to run it for you? You have to make the same remodeling changes described in #2 and #3 to make this work. Close the company? What a shame: no return on your investment other than what you saved all these years and pink slips for employees.
Time to Let Go of these Wealth Destroying Myths
Your business is a separate entity. It is an asset that needs to be managed to get a return on your investment.
Your company is successful for you. That does not mean it will be successful for the next owner unless you make it transferable.
Value is in the eye of the buyer. It’s your job and totally within your control to add that value that buyers seek.
Why would you want to? Today your company might be worth a few million dollars… but wouldn’t attract a buyer willing to pay that.
Make it saleable and your business is worth 2 or 3 times more and in demand by buyers looking to spend trillions.
It’s your call. Now you know, what will you do with this information?
Start now. Buyers shop when they want a solution for their growth goals, not when you are ready to sell. Learn how HERE.