4 Companies Followed This Secret Formula. Now They’re Valued at $50 Million or More.


Opinions expressed by Entrepreneur contributors are their own.

My 20 years in the Entrepreneurs’ Organization have provided me with a front-row seat to significant business creation and operational strategy. Of the hundreds of entrepreneurs I know, four Portland, Oregon-based leaders hit home runs and exited at company valuations of $50 million or more: the founders of Ruby Receptionists, Survey Monkey, Jive Software and DW Fritz Automation.

Because I knew those companies very well, I wondered whether they all took similar actions to create that level of success. What did they have in common? Is there a formula other founders could follow to hit similar financial home runs?

The answer is a resounding “yes.” The four founders who sold their companies for more than $50 million each did these four things:

  1. Created significant value for customers in a distinct way within their niche.
  2. Developed super-clear branding around their unique product.
  3. Created extremely robust company cultures.
  4. Timed their exits precisely to maximize company value.

Each company created significant “enterprise value” — value inherent in the way it did business and its future earning potential. Aside from hard assets like cash or real estate, millions of dollars of value existed in their business models and operational expertise. As a result, serious buyers recognized that fact and paid generously for it. That is a rare distinction among small businesses.

So how do you create a business with such obvious enterprise value that big buyers will pay millions for it?

Replicate the following four “million-dollar ideas.” If you are able to implement even one successfully, by itself, it will create over $1 million in sales value for your company.

Related: Are You Sitting on Top of a Million-Dollar Idea?

1. Deliver a ton of value customers can’t readily get elsewhere

I saw billionaire, James Williamson, interviewed on his private jet on YouTube. When asked how he became that rich, he didn’t hesitate: “Find a niche. Crush it. Deliver more value than anyone else.”

All four companies identified a unique product or service that customers both needed and valued. Or, they delivered a more standard product with a tweak or in a way not readily available elsewhere.

Here’s the key: Whatever your differentiators, your offering must be unique in three ways or more. Not just one or two — at least three.

If your primary product is not totally distinct and unattainable elsewhere — like a restaurant or electrical contractor — you can develop your three uniques. Maybe it’s a better product, lower price, different delivery method, more intuitive interface, unusual spin, friendlier service or a more personalized, memorable brand. It must be essentially better than everything else and also distinct in (at least) three ways.

Each of the four company product offerings was truly differentiated, and the company knew in what way — and pushed harder for further differentiation all day, every day.

2. Develop crystal clear branding around your specific differentiation

These companies knew what they were offering. They saw customers piling up and recognized why. Their marketing was clear about what they offered that others did not.

Maybe more importantly, they knew what they were not — and each was most definitely not everything to everyone. Only certain customers were right for them, so they focused on those and forgot the rest, even if the rest was a considerable number. That is to say, they served a specific market segment and did it better than anyone else but left the rest of the market to others.

Related: Beyond Logos and Colors — How to Create a Compelling Brand Identity

3. Create a super strong culture focused on customer success

These companies created cultures you could feel when you walked into their offices, like a personality unto itself. You knew it was something special and different. The people were happy, motivated and focused on driving the company forward.

Each company’s core values were extremely focused. In all cases, half of the values concerned the customer and what the company was doing to benefit that customer. Things like “practice wowism” or “find a better way,” not just generic values like “trust.”

Each team member was hired because they matched those values. All were clear on what the company was, where it was going and how they could help it get there. They personified the strategy of rowing in the same direction. In a fundamental sense, they were a “cult” focused on creating unique value for customers and success for each other and the company. Their energy level approached frenetic.

4. Time your exit precisely to maximize sale value

My observation on business exits: Timing makes all the difference. A company that can barely sell on contract for $1 million at one point in the cycle could garner $10 million all cash at another. At times, specific business types are hot and highly sought after; at other times, they’re not. There can also be a long time between peaks in the cycle. Because of that, timing the cycle — and, therefore, demand — is probably more important than your personal timing and plan. The two seldom line up perfectly. These four owners struck while the iron was hot.

In all four cases, the companies sold to an entity that wanted to take the business to a higher level. One interesting note: Because of that, both historic actual profitability and cash flow were basically irrelevant. What the buyer thought they could do with the company in the future mattered most. They sold on what is known as “pro forma” value.

Angel investors, private equity or venture capital groups bought three of the four companies. In all cases, when one group showed interest in buying them, the company solicited other groups (often through a broker). That generally increased the first buyer’s interest and ultimately enabled the entrepreneur to exit at a 30% to 100% higher price than if they had worked solely with the first buyer. The buyers then took the companies to new heights, either by going public or selling to a larger strategic buyer. One of the four companies sold directly to a larger strategic buyer.

Even in their exits, the four shared significant commonalities.

Related: When Should Business Owners Start Developing an Exit Plan? Here’s What You Need to Know.

Devise the perfect setup to catch lightning in a bottle

When I connected the dots between these four companies, it almost felt like being struck by lightning. I could not believe how common their trajectory was and, more importantly, how they got there. These four caught lightning in a bottle — and while some luck is always necessary, you can’t deny that their playbooks were quite similar and well-executed.

If your company can implement any (or all) of these ideas to their fullest potential, you will create millions of dollars in enterprise value.



Source link: https://www.entrepreneur.com/starting-a-business/4-companies-followed-this-secret-formula-now-theyre/456877

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