Earning a Return From Your Business

They weren’t trying to sell. We prepared them anyway

We were at a wine tasting event for business owners. Lots of energy, lots of capable, ambitious leaders excited to explain what they’ve built and achieved.

These were not start up owners. Each had built a business making more than $5M per year. Some more than $100M per year.

I had conversations with a few of them. First question: do you have any investors. Each said no, they hadn’t or didn’t need investors.

Then I asked why they wanted to grow.

The answers had a similar theme: I’m going for the challenge (the journey), (the adventure). Then that would be the end of the answer.

That’s it. Nothing else? Similar response themes: Well the money isn’t the big thing. It’s not an ego thing.

What about a return on investment from all the effort? Is that important? Well yeah… how does that ROI thing work?

Think about investors. When you buy a stock, what do you hope for? Return on that investment right?

“When do you get it”, I ask.

When I ask this question, people get a far away look in their eyes and then sigh “when they sell it.”

Right. So you need to decide if you are an investor in your business or you just own it and don’t intend to sell it one day. There is no problem with either path by the way.

But if ROI is important for legacy, for financial certainty, for reward and for the longevity of your business, you have to make ROI your goal now and build the plan.

Pick your path now. You need to know what you are aiming for to get that return.

Some owners when I have this conversation become very quiet and want to end the conversation quickly.

Others are totally curious about it.

Regardless the answer to the question of ‘why grow’ hangs in the air. Discomfort with the thought that ROI comes from selling. Discomfort that they didn’t know the answer, and didn’t know much about how to get it.

And that is why most owners can’t convert that effort of building a business into an asset that delivers a return when it matters most… they didn’t get curious, decide what’s important and build a plan for it from this point forward. So most owners are left with few options.

This is not a random problem. Less than 10% of all business owners ever sell their companies. Because they didn’t decide a return on investment was important enough to find out how to prepare and aim for that outcome.

And yes, you can earn ROI without selling. But that is a different strategy and requires different preparation and execution. Same problem, different outcome. ROI requires a plan that starts now.

Many owners think exit planning starts the year they suddenly decide they want out. The light goes on, urgency heats up and so does the anticipation of life after ‘they get out’.

If ‘that ‘getting out one day’ is the goal, it must start much earlier. BUT WAIT!

“Getting out” is not a goal that delivers a desired return on investment. It’s a dopamine driven state of mind where the goal is ‘not doing this anymore’.

Give yourself the time to really think through these questions as if you, your return and your business really matters.

A retailer originally wanted predictable dividends, continued growth, and maybe the option to sell someday if the right buyer appeared.

He was in no hurry to sell. But his family told a different story.

What really caught the family’s attention and sharpened the interest of the founder was this:

We evaluated the business through a buyer’s eyes. By doing that we identify the red flags that make a company hard to grow and also hard to sell. Solving these red flag issues with an eye to also attracting an ideal buyer means the business would be saleable at all times.

Becoming saleable is also the solution to growth that is stalled or growth that doesn’t deliver predictable, stable and secure dividends critical to building and sustaining family wealth. Now that was very interesting to the family.

They then became curious about what drives growth attracts ideal buyers:

• What would attract an acquirer?
• What would reduce value?
• Which risks would concern buyers?
• Which strengths created competitive advantage?
• How could today’s decisions improve tomorrow’s valuation?

We identified red flags, growth opportunities, leadership gaps, and value drivers.

The objective wasn’t to sell, just yet. But just in case this became important one day, if something happened to the founder for instance, they decided as a family they didn’t want to carry the risk of Dad suddenly not able to work in the business. It was time to become saleable at all times. This goal was worth the certainty it gave them. And the founder’s needs were met by maintaining and growing value for employees, customers and just as importantly the current investors – the founder and his family.

The objective was to build a business that would be attractive to an ideal so they were prepared for all outcomes.

Lesson Learned: Companies that are have been made ready to sell are usually healthier, stronger, and more profitable long before a transaction ever happens. This strategy and focus delivers returns to the owner now, whether they want to sell in the future or not. Now you are not betting on hope that you’ll receive a return on your investment only by selling one day. That’s gambling your financial future on a low-probability event: Most companies don’t sell. Only companies that have been made attractive to ideal buyers sell: your business solves their growth strategy problem.