Create equity value with every step.

You may be an architect or doctor or other professional managing your business, knowing that the end game value of your client or patient list is small and not easily transferred to any buyer without attrition.  In such a case, there is little advice here unless you think outside of your day-to-day profession and create a valuable leave-behind encasing your knowledge and experience that can be replicated and scaled to a large business – even if by others.

Most businesses fall into the class of those that can be sold someday to a willing buyer.  Even small community service-providers can be sold to buyers hungry to get into a business already in revenue with a steady customer base.  And many businesses are created with the express purpose of growing them in size and attractiveness to be ready to sell someday to create some degree of wealth for the shareholders.  Accepting venture or angel money is to create a contract between the investors and the entrepreneur that the business will someday be sold or even go public to create an exit for the investors.

[Email readers continue here…]  This insight covers all businesses and their management when thinking of the end game, as management should during each step in the process of building the enterprise. 

What creates value in a business?  Is your value proposition for an eventual buyer that you have some secret sauce that allows you to compete more effectively against competition?  Do you already dominate a niche, no matter how small, that a buyer will someday want for itself?  Do you have intellectual property that is valuable to you but might be more so to a buyer?  These questions are just a few that I’d ask during strategic planning sessions each year to fine tune the value proposition for an eventual buyer.  And I’d go further.  Investments into the company, whether from new money or reinvesting profits, should be directed first into areas that will increase the value of the enterprise at the end game.  You do this for yourself and your shareholders, and should be thinking of this regularly.

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1 Response to Create equity value with every step.

  1. Ben Goldberg says:

    Dave,

    This is great advice. It’s exactly what I tell my clients who are developing a business model and business plan. Just like planning a trip, where you start out knowing your destination and plan the best route, your business plan should start with your exit strategy and work back to the best way to get there.

    Thanks,

    Ben

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