Growing Beyond Profits by Growing Value

Hi Founding Mom! Congratulations on your success so far. You’ve invested blood, sweat, and tears (literally sometimes) successfully growing your company, stewarding it through the ups and downs, and managing multiple goals, roles, and priorities over decades. It hasn’t been a sprint. It’s been a marathon.

You may also have invested in the market and other financial assets, yes, but you’ve likely reinvested more earnings back into your business than you’ve put into your retirement account. Somewhere down the line you hope your work today will support you in your retirement, which still seems far enough away. For most it’s at least three to five years before it’s time to look at exiting. Most founding moms have yet to determine whether the management team, a family member or the marketplace will end up owning their “baby “(of course we are talking about the business here).

Growing Value

As a Certified Value Builder™ Advisor, I’d like to share some information that has helped over fifty-five thousand business owners start looking at value instead of just growth, and profit greatly from the insights I’m about to share. My mentor, John Warrillow, author of Built to Sell (among other great books) and Founder of The Value Builder System™ (which I use coaching CEOs of multimillion-dollar businesses), offers eight things to consider that can drive up the value of your company AS you grow it, so you won’t be negatively surprised when it comes time to transition out. Before we address those eight drivers, you might be interested in Jill Nelson’s story.

After starting her career as a receptionist for a business brokerage firm, and progressing based on her intelligence and strong professional skill set to be a business broker specializing in the sale of internet service providers (ISPs) in the early years of the world wide web, Jill founded a company she named Ruby Receptionists, a network of people around the world who answer phones. She built her company up to $11 million in annual revenue by offering administrative support to small businesses. The administrative support category, which trades at about 1.8 times pre-tax profit, would make Ruby Receptionists a business worth around $1.8 million.

The Drivers

But, smart founding mom as she is, with all that business broker know-how, Jill sold her business for a much higher multiple than 1.8. The final sale price was $38.8 million. You probably already know that company size and industry will impact your company value and ultimate selling price. Let’s look now at the other factors that can increase value for your company like Jill experienced:

• Driver number one is financial performance. Specifically, the size of your revenue along with your past and expected profitability. A financial acquirer sees buying a business as paying today for a stream of profits in the future, which is why companies are generally bought and sold using a multiple of earnings.
• The second driver is your company’s hierarchy of recurring revenue. Identify any recurring needs your customers may have and how you can meet those needs over the long term with a recurring revenue model. This was huge for Jill when she wanted to start her business. She wanted a service business with a subscription.
• The third driver of value is monopoly control, or what Warren Buffett calls “a deep and wide competitive moat.” Customers see you as the source. Like Ruby Receptionist became the go-to source for a personal receptionist with high tech and high touch human connection, growing annually over 30 percent year after year. This allows pricing advantages that increase your profit margin, giving you more dollars for sales and marketing, which grows the size of the moat. Pursuing a strategy of “growing revenue at all costs” can take your focus off what a strategic buyer wants – a competitive advantage. Grow a business that’s hard if not impossible to compete with.
• Driver number four is your Net Promoter Score. Google it. Companies with a high Net Promoter Score are shown to be likely to grow at a rate much faster than the economy. This is highly attractive to buyers who are looking at the future income and growth potential of your business.
• Drivers number five, six, and seven are combined in one bundle that Warrilow calls the Switzerland structure. Warrillow named this driver after Switzerland because of the country’s insistence on independence. Businesses that have a high score on Switzerland structure are independent of any one customer, employee, or supplier (the three parts of the Switzerland structure). If a business is too dependent on a single customer, supplier, or employee, including you, dear owner, it’s going to be less valuable to an investor. Jill Nelson made sure that Ruby wasn’t dependent on other companies for their tech by growing their own tech, moving from a service company to a tech company.
• The last driver of The Value Builder™ model is growth potential. Jill grew Ruby by thinking about how they could scale up and what would be needed to do that. When it comes to your company, an acquirer will be asking themselves what it will take to jump in, take control, look ahead to the future of your company, and scale it by tenfold or more. How quickly could a buyer who applied significant resources, money, people, distribution, et cetera to your company grow it to the level they envision?

Many owners are very disappointed at their time to transition out, when buyers offer much lower values than they imagine their companies are worth. One tool that some owners use to increase value is the Value Builder assessment and program. Warrillow found that owners who complete their Value Builder score average 59 out of a possible 100. Of 55,000 businesses, all things being equal, the average will get an offer approximately 3.5 times pre-tax profit. Warrilow found, “Back to the data, for our users that achieve a score of 90 or greater, these would be our highest performers, they’ve gone through the Value Builder System, they’re working with a Certified Value Builder, who has improved their score up to 90 out of a possible 100, those businesses are trading at 7.1 times pre-tax profit or more than double the business starts at an average score of 59. By working with a Certified Value Builder, slowly improving your Value Builder score overtime, you can make a material impact on the
value of your company.”

Take the Value Builder Assessment

As a Founding Mom, you’re invited to take the Value Builder Assessment as my gift to you, at https://coachchristinerose.com/value-builder, learn even more at a Value Builder Coaching Workshop or Strategy Session, work with me one to one or even join a Value Builder Mastermind group with other CEOs.Of course, you can also go the do-it-yourselfer’s route. However you proceed, I strongly encourage you to leverage these value drivers yourself, to drive up the value of your business and the safety of your retirement. Jill Nelson is enjoying her life after her transition out, and so can you! Either way, the clock’s ticking. And those observing and those helping you as you prepare to exit will be cheering for you when you get full value out of all your work.

Guest Post: Christine Rose helps owners of SMEs grow leadership, effective teams, and profitable businesses.
Award-winning ICF-ACC, business coach, Certified Value Builder Advisor, Certified Psychological Safety
Coach, and member of Forbes Coaches Council, Christine’s insights are featured on Forbes.com, Public
Interest Radio and National Business Radio. She is co-Author of #1 International Bestseller Cracking the
Rich Code, Vol. 4, and author of Amazon #1 New Release Life Beyond #MeToo: Creating a Safer World
for Our Mothers, Daughters, Sisters & Friends, featured in the U.N. Foundation #EqualEverywhere
campaign.