Posts tagged with: most value

Owners: How You Should NOT Spend Your Time

In an analysis of more than 14,000 businesses,
a new study finds that the companies with the most value,
take a contrarian approach to the boss doing the selling.

Who does the selling in your business?

Who does the selling in your business? My guess is that when you’re personally involved in doing the selling, your business is a whole lot more profitable than the times when you leave the selling to others. How you spend your time is critical to maximize the value of your business.

In some ways, that makes sense because you’re likely the most passionate advocate for the products and services your business provides. You have the most industry knowledge and the widest network of industry connections.

Conflicting Goals

If your goal is to maximize your company’s profit at all costs, you may have come to the conclusion that you should spend most of your time out of the office selling, and leave the dirty work of operating your businesses to your underlings.

However, if your goal is to build a valuable company, one you can sell down the road, you can’t be your company’s number one salesperson. In fact, the less you know your customers personally, the more valuable your business becomes.

The Proof: A Study of 14,000 Businesses

Another analysis of a pool of 14,000 businesses at the end of 2014, asked if owners had received an offer to buy their business in the last 12 months, and if so, what multiple of their pre-tax profit the offer represented. They then asked the following question:

Which of the following best describes your personal relationship with your company’s customers?

  • I know each of my customers by first name and they expect that I personally get involved when they buy from my company.
  • I know most of my customers by first name and they usually want to deal with me rather than one of my employees.
  • I know some of my customers by first name and a few of them prefer to deal with me rather than one of my employees.
  • I don’t know my customers personally and rarely get involved in serving an individual customer.

2.93 vs. 4.49 Times

The average offer received among all of the businesses we analyzed was 3.7 times pre-tax profit. However, when they isolated just those businesses where the owner does not know his/her customers personally and rarely gets involved in serving an individual customer, the offer multiple went up to 4.49 times pre-tax profit.

Companies where the founder knows each of his/her customers by first name get discounted, earning offers of just 2.93 times pre-tax profit.

Therefore, as counter-intuitive as it is for owners to let someone else be the face of their company to their clients and customers, it is essential to let go if your goal is to add value that will command higher multiples when it’s time to cash out.

When Value Is the Enemy of Profit

Who you get to do the selling in your company is just one of many examples where the actions you take to build a valuable company are different than what you do to maximize your profit today.

If all you want is a fat bottom line, you likely wouldn’t invest in upgrading your website or spend much time thinking about the squishy business of company culture. You would not reinvest profits to grow the business.

To make your business more valuable, you can no longer limit yourself to measuring revenue and net profit.

Obviously, how much money you make each year is important. But how you earn that profit will have a greater impact on the market value of your company in the long run.

Owners, do not spend your valuable time building your personal relationship with your company’s customers. Hire and train others to do that so you can focus on what will make the business more valuable to potential buyers.


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