You’d expect, from the title of NEXT Upstate’s latest Founders Forum, “Setting Your Company Up for a Successful Exit,” that the talk would be focused on the acquisition aspect of selling your company.
But Hagen Rogers, founder of Watermark Advisors, focused on how to build and lead a successful company, with tips and strategies that would serve ANY startup founder or business leader, regardless of your plans to sell.
Having a business worth buying means, says Rogers, excelling at 8 key attributes. If you can score an 8 or 9 out of 10 in each of these areas, then you’re running a business that will attract buyers who see the value and potential of your company.
Here are the key areas, and what Rogers said about them during his talk at NEXT’s Founders Forum this Wednesday:
“It’s not enough to have an innovative product or leadership,” Rogers says. You need to ask yourself about whether your product truly has a competitive advantage, in a way that positions your shareholder value to increase. Ask yourself four key questions: Is what my business offers valuable? Is it rare? Is it costly to imitate? And lastly, is it non-substitutable?
Your potential buyer needs to know that your business isn’t something they can just copy and build on their own. They need to buy your business, and pay a premium for it, because it offers a product or experience that can’t be substituted and is valuable.
Rogers offered a case study in Starbucks, which focused on executing a unique, ambitious vision that went beyond the scope of a coffee product. “They wanted Starbucks to be the third place you go to in a day,” he says. “You start each day at home. You go to work. And Starbucks is your third location. That goes beyond good coffee — it’s a model that’s hard for someone else to replicate.”
Strategy is the number one most important aspect of a sellable business, he says. And there’s a wealth of resources out there for founders interested in tools for strategy, such as Strategyzer and Blue Ocean Strategy.
Look at the market you’ve chosen to enter as a sandbox, says Rogers, and ask yourself these key questions: What’s the size of the sandbox? What’s its compound annual growth rate (CAGR)? What’s your market share within the sandbox? What adaption rate are you seeing? And are there additional markets from your exhaust that you can utilize?
Think about your leadership style. How well does is hold up to the A.U.R.A. test? A.U.R.A. stands for Authentic (which builds trust with stakeholders), Unique (unique aspects of yourself that draws people to you), Reality-based (are you closing the gap between how you think of yourself and how others think of you?) and Authority (are your decisions based on facts with multiple sources?)?
Another leadership tip for founders: Be realistic with CEO pay. If you overpay yourself, ask yourself why you’re not choosing to reinvest that salary into your company. From a buyer standpoint, it’s more sustainable to own a great team, rather than have your company rely on superstars the company is dependent on. “The markets don’t care about superstars,” says Rogers.
Are there systematic processes built into your company to train team members on their job responsibilities given employee turnover? Evaluate your company’s financial, operational, customer, sales and marketing processes.?“Once you think you’ve done enough with process, you’ve done a quarter of what you need to do,” Rogers says.
Cash flow is the key driver of investment, so calculate your company’s cash flow in the following way: Take your EBIT (earnings before interest and taxes), plus depreciation and amortization, minus taxes, minus capital expenditures, minus changes in net working capital.?Buyers like companies with good cash flow.
Some companies are driven by thought, others by action. Some are reliant on individuals, others on teams. Some companies value rules and procedures, while others are more dynamic and take more risks. Consider the type of culture — the collective vision, beliefs and behaviors of your team — that your company needs to thrive in your market. It may not necessarily be the culture you prefer yourself.
Is your business built around disruptive innovation or sustaining innovation? Disruptive innovation starts at the bottom of the market and relentlessly moves up the market, displacing competitors. Rogers’ example for this is Tesla. Sustaining innovations aren’t creating or destroying markets, but rather evolving existing ones with improvements. Rogers’ example is Apple, with its consistent releases of iPhones with new features.
Rogers says the first step toward gaining momentum is overcoming barriers to competitive advantage. Next, move toward a highly-attractive, addressable market, position your “bench” to take more responsibilities, build in processes to let you step back from the day-to-day functions of your company, then, finally, with strong historical financial results, your company official has momentum and is primed to be sought after by buyers and investors.
Rogers ended his presentation asking where your company is on a scale of 1 to 10 in each of these areas. Grade your company on each of the above, and see if there are areas where it would be useful to seek help. That’s what StartupGVL’s Resources page was built for: an introduction to the Greenville startup ecosystem, which offers funding, mentorship, education, networking and a wealth of other resources to get your business as close to 10 out of 10 in these eight key areas.