Become a buyer magnet: Answer these 10 questions to sell your business
Tuesday, November 28, 2017/
When selling a business, there are effectively two types of buyers: financial and strategic. Financial buyers assign a value to the future profit generating power of your company. The second and much more valuable buyer is strategic, where value is based on exploiting all the underlying assets and capabilities of your company.
Become a buyer magnet by identifying and developing strategic assets and strategic capabilities a larger company can exploit. It may not matter whether your business is making a profit, or has high revenue, or even growing.
Who is a strategic buyer?
The best strategic buyer will be another company much larger than yours — five to 50 times. In this case, size really does matter.
It is any company that produces or sells goods or services that complement your goods or services.
How to find strategic acquirers
Critical thought around these 10 questions will help you identify businesses, or entire industries complementary to yours who could be a potential acquirer.
1. Who makes money when you make money?
Someone who distributes the products you sell, a supplier, a customer, or even an independent distributor.
2. Who does not make money when you make money?
Buying a competitor may provide multiple benefits such as increasing the customer base for existing products, reducing pricing pressure, improving sales processes by adding new products or services, upgrading or integrating products/services. A buyer may cross-sell new products to existing customers, acquire your technology or research and development capability, or your entire customer base.
3. Who can make more money than you can from your products?
A company with a much larger capacity to scale that can easily introduce your products or services into existing customers or distribution channels.
4. Who can remove a constraint on your business?
If you want to grow your business, five or 10 times your current size, identify one or two roadblocks constraining your ability to do that. It could be location, distribution channels, export capabilities or finances?
The strategic buyer is the one that can overcome that roadblock.
5. Who has a problem you can solve?
Your buyer may lack capability or capacity in some new area, technology, or process. Sometimes the quickest way to solve the problem is to simply acquire it.
6. What threat can you reduce or eliminate?
A threat occurs when a company or industry has a potential, or an actual decline in revenue. By acquiring already available products or services the threat may be eliminated or reduced.
7. Who sells to the same customers you sell to?
They may be able to cross-sell or utilise their own distribution channel to move new products or services.
8. Who uses the same technology you use?
If the use of some specific technology, especially if that’s an expensive or difficult technology, acquiring another company may increase capacity or allow entry to new markets.
9. Who needs your customer base?
Your customer base can be a truly valuable asset, especially if it provides opportunities for the buyer to sell additional products or to break into a new sector.
The customer base is not just about a list of people, it’s about the relationship you’ve built with those people.
10. Who needs your technology or your people?
If you have specialised technology, especially if it’s protected with patents or highly skilled staff with deep focused knowledge, this provides a buyer with a huge scalable opportunity.
You will become a powerful buyer magnet by creating strategic value in an asset or competency within your company that a larger corporation can leverage to solve a major problem or use to generate significant revenue.
Sydney-founded RangeMe acquired by US-based marketing company ECRM: Co-founder Nicky Jackson’s top tips for selling your startup
Wednesday, June 14, 2017/
RangeMe co-founder Nicky Jackson has had a whirlwind 12 months.
This time last year, the Sydney-founded online marketplace startup had just closed a $5.5 million ($US4 million) funding round that included the likes of Eventbrite founder Kevin Hartz, Uber advisor Steve Jang, Freestyle Capital and Transmedia Capital, and which reportedly valued the business at $16 million.
Now, three years after RangeMe was founded, it has been acquired by US-based marketing company Efficient Collaborative Retail Marketing (ECRM) for an undisclosed sum.
For Jackson, who will continue to work in the business, the experience still feels a bit surreal.
“You always read about it happening to other people. We were talking about a potential partnership, and the CEO of ECRM just asked us ‘would you be interested in acquisition?’” Jackson tells StartupSmart.
RangeMe is an a two-sided marketplace that connects retailers with products and suppliers on-demand. Originally founded in Sydney in 2013, it wasn’t long until Jackson moved the business to Silicon Valley to capitalise on the disruption Amazon had created in the US retail market.
“The US retail market is much more competitive than Australia: Amazon is a big threat, and for retailers to survive in today’s climate they have to innovate quickly with new trends. They’ve wrapped their arms around RangeMe because we are finding innovation at pace,” Jackson says.
It was the startup’s unique industry position that disrupted the market, making RangeMe’s offerings strategically important for ECRM, who was a direct competitor.
Jackson believes achieving this strategic market position was key to getting acquired, and something she suggests other startups should strive for.
“When you’ve got something compelling and are capturing a unique opportunity, people are looking at you, tracking your moves, and the offers will come,” she says.
Her advice for other startups waiting to get acquired is simple.
“Stay at your own pace, keep your heads down, make yourself strategically important in the market,” says Jackson.
Jackson also notes that it’s important for founders to not hold onto their startups for too long, but instead balance founder and shareholder interests.
“You’ve got to recognise the benefits of acquisition early — some companies stay on too long and raise so much capital that it’s hard to sell. The IPO or billion-dollar business is a needle in a haystack,” she says.
“Nine out of ten startups fail, so if someone wants to acquire you, it’s a great opportunity.”
Before its acquisition, RangeMe had expanded to a team of 10 in Australia and 13 in San Francisco. Its marketplace had more than 65,000 suppliers, with 1,000 new subscribers coming on board each week and more than 250,000 items in the marketplace.
The startup’s move to the US had “opened the floodgates” and Jackson contends these numbers wouldn’t have been possible had RangeMe stayed in Australia.
“One of our early-stage angel investors said to us, “‘you’re wasting your time in Australia, you need to go to the US because no one is doing what you’re doing’,” she says.
“Moving to the US was the best decision — you learn, you grow, you iterate. It was about seizing the opportunity for moving into a market with more scope and competition.”
This isn’t to say that relocating to the US is the only hope for Australian startups. In fact, Jackson says RangeMe’s Australian-based tech team was a huge drawcard for venture capital investors in Silicon Valley.
“We were initially told having tech in Australia was going to be a barrier to investment, but VCs appreciated you could get great resources and teams there. Having a Silicon Valley tech team is now a deterrent,” she says.
“In Silicon Valley it’s too expensive to hire engineers because you’ve got the likes of Google and Facebook competing for and poaching the top engineers.”
While it may be beneficial to keep a tech team back home, for those founders looking to follow Jackson’s steps and make the move, preparation is key.
“Do your research, understand the market before you take that big leap, know if you’re solving a problem,” she says.
“Australians have a great reputation for creating awesome startups in Silicon Valley. There’s a great name for tech created in Australia,” she says.
How Jordan Grives sold the company he founded when he was 18 for $30 million
Friday, October 21, 2016/
Brisbane entrepreneur Jordan Grives says it hasn’t quite hit home that he has sold the business he created less than 10 years ago.
Grives today revealed he has sold telecommunications provider Fonebox Group to an undisclosed NASDAQ-listed firm, after what he describes as an intense due diligence process. Grives will continue on with the company, while also pursuing other ventures, including as an investor in other tech-based businesses.
“I don’t quite know when it will sink in, perhaps when more and more responsibility is taken away from me,” the 27-year-old told SmartCompany this morning.
“It’s a really good feeling and it is slowly becoming a little bit more real. It’s really humbling.”
A regular fixture in SmartCompany’s Smar50 Awards in recent years, the telecommunications provider found a niche in the market for 13, 1300 and 1800 inbound phone numbers by offering customised solutions that incorporated inbound numbers and call routing, tracking and phone answering services.
The Fonebox Group appeared at number 33 on the Smart50 list of fast-growing companies in 2013, jumping to 20th position in 2014, and again making the cut at number 26 last year, with $6.4 million in annual revenue in the 2014-15 financial year.
The company has continued to grow since then, recorded revenue for the 2015-16 financial year of $9.5 million.
Grives, who co-founded the business in 2008 at the age of 18, is not disclosing the large company that has purchased the business, or confirming the sale price. However, the Courier Mail has given the sale a price tag of $30 million and speculated the buyer could be J2 Global, which already has a presence in Australia and New Zealand.
Grives has always been a self-starter and was channeling his entrepreneurial side even while still at high school; while in ninth grade, the 15-year-old started selling cans of Coke and Sprite out of his locker, pocketing a couple of hundred dollars a week from his schoolmates from a venture that was eventually shut down by the school.
“I’d cart [the cans] in on the bus, like 100 cans on the bus, and I had a spare locker that I’d set up as, I guess you’d call it a shop front, I’d lined it with ice blocks,” Grives told SmartCompany in 2014.
“Back then, in school, when no one has a job, a couple of hundred dollars was great … I wanted to leave school straight away to start making money.”
How the deal was done
Grives readily admits as a young business owner, exiting his business was not something he gave a lot of thought to until recently.
“Being young, you don’t think about it like that,” he says.
“Your brand is sort of your baby.”
But having surrounded himself with other successful entrepreneurs in the telecommunications space, Grives says over time he began to consider potential exists, including listing the business or being acquired.
“It was never something that was on my mind, but now I see where you can take a business, it does change your perspective,” he says.
Grives began exploring a potential sale of Fonebox in 2015 and says getting the right advisers on board early was critical. He was advised on the sale by Ben Wilson and Matthew Foote of Deloitte Corporate Finance and Tim Sayer and Heath Manning from law firm Talbot Sayer.
“You know your business better than anyone else,” he says.
“I had the right people around me from an education perspective … who were making sure the nitty gritty part of the deal was looked after while I focused on the broad strokes.”
Grives says for a sale to go ahead, the business owner must “be in a position when you’re ready to sell”. The next step is then to find the right partner.
“You’ve got to want to be acquired and they’ve got to really want the business, for whatever reason,” he says.
And that means not rushing into a deal, and making sure the appropriate due diligence is done.
“Just take your time,” he says.
“A lot of people rush out and get excited and infatuated.”
It’s also important not to let a potential deal distract from continuing to run – and grow – your business, the entrepreneur says.
“You’ve got to be careful it doesn’t take away from the day-to-day running of the business because pretty quickly, it becomes a full-time job,” he says.
Grives says he was fortunate to have a team at Fonebox that were able to keep the business on track while he was spending more time out of the office or taking meeting with advisers.
Investing in the future
While Grives will still have his hands full at Fonebox, the young entrepreneur is starting to turn his attention to finding other businesses that he can invest in and help to grow.
He is establishing his own venture capital fund, Capital J Investments, and plans to appoint an advisory board over the coming six months.
He says it is too early to tell as to what sectors or businesses that will spark his interest, but technology based companies are likely to among his investments as he sees technology as one of his strengths.
As much as it is about “injecting some cash” into these businesses, Grives says his focus is on finding ventures that he is passionate about and ones he feels he can contribute too.
Why I didn’t go through with my Shark Tank deal and ended up selling my business instead
Monday, June 6, 2016/
Back in 2013 I decided to start a business selling underwear to Australian males via a subscription service. Subscription was a business model that I really liked, with the ability to acquire a customer and keep them as a customer.
The business was a very simple one and I knew I was not the first to invent the wheel, but it had a twist.
Almost two years into running Three65, I was invited to pitch on Channel 10’s Shark Tank. This was an opportunity to expose my business to over 700,000 people at the one time.
Wow, what an opportunity for free marketing. In November of 2014, I walked away from the set of Shark Tank with both Janine Allis (Boost Juice) and Naomi Simson (RedBalloon) as new investors in Three65.
What most people don’t know about is the due diligence period that comes after the show. A plethora of information shared around and generally information that allows both parties to ‘slightly’ renegotiate the pre-agreed deal. A lot of ‘on set successful’ deals fall over at this stage.
Come February 2015, Three65 had passed all due diligence and all parties met up to talk next steps.
I remember having Steve Baxter tell me “you can’t run both startups’ at once”. Being an entrepreneur, I was stubborn and backed myself enough to disagree. But when it came time to take the deal with Janine and Naomi, I realised what he meant.
Whilst I still believe I could have run both business at the same time, having investors brings another added dimension.
At the same time as this was happening, I was closing a capital round much closer to the seven figure mark with Sports Performance Tracking, the other business I started up a year earlier.
I then realised that whilst my businesses were both running well at the time, this wasn’t always going to be the case and they would both require equal attention.
My time now started to sway towards a business that had much larger revenue and had attracted investment of more than 15 times that of Three65. I realised I couldn’t take Janine and Naomi’s investment and be true to them as a founder of the business.
It was a hard call telling them I couldn’t go through with the deal. They were fantastic about it and appreciated the honesty in the end.
Over the coming year, the initial investors (Cyril Rioli, Edward Vine and James Ding) started to help me look for candidates that could manage the business part time as I needed to put more of my time into SPT.
This became a bit of a nightmare in itself. Be it applicants that didn’t follow through with what they said, or changing their minds constantly, I decided that I had to see an exit personally.
It was early March that I approached a business broker that my accountant had said good words about, and within a matter of days we were discussing the terms of sale.
A lot of people talk about exiting your first business and talk about the emotions behind it. For me this was only part of the case. With emotions as a founder divested from Three65, even though there is still a lot of love for the business model and the product, it made things easier.
Yes, it was the first time I could sit back and reflect on the mistakes, successes, ups and downs, but I didn’t want to do this for too long. I still had a goal and Three65 was now out of my mind and out of my path to achieving my goals.
During my three years, Three65 took me from my family garage to Sydney’s Channel 10 studios.
It got me in front of the sharks, founders and CEOs of startups and big business in Australia, discussing global partnership deals that inevitably fell over.
It allowed me to open the door to the startup world and gave me valuable insights and experience in business and how successful people deal with standard startup shit.
So after my three years, I can now sit back and say “See ya later Three65!”
This article was originally published on SmartCompany.
How to sell your small business for big bucks
Tuesday, January 13, 2015/
So, you’re thinking about how to sell a business. You’re not alone.
In fact, figures showed an increase in the number of businesses for sale in Australia in 2014, hitting an all-time high of 41,200 enterprises up for grabs in October last year.
But in an overcrowded market, how do you get the best price for your business? And more importantly, how do you make a play for the big bucks?
SmartCompany takes a look at all your burning questions.
So, I think I want to sell my business. Where do I start?
When SmartCompany asked the experts, they resoundingly told us the first thing you need to do when selling your business is prepare yourself – mentally.
Nicole Kersh, who successfully sold her e-commerce site 4Cabling for an undisclosed sum in September last year, told SmartCompany the financial aspect of selling your business is just one side of the coin.
“The emotional part is huge,” says Kersh. “It can be a very confronting experience because you do lose a little part of yourself.”
Kersh, who believes she suffered separation anxiety when she let go of the business she launched at age 21, says the best way to prepare yourself mentally is to think about the end game long before you decide to sell.
“As an entrepreneur, you need to think about it at the start. You always need to know your exit strategy,” she says.
Zoran Sarabaca, principal of Xcllusive Business Sales, agrees a business owner should think about selling long before they are actually ready to get out or don’t have an alternative option.
Sarabaca say the best place to start is by asking yourself a few important questions.
“Consider, what’s your starting position? What’s your exit position? What is the deal below the one you ideally want, or your lowest acceptable offer? And what’s the plan if you don’t get that?” he says.
He says the key to preparing a business for sale is to look at it from the seller’s point of view.
Okay then, what are buyers actually looking for?
Sarabaca believes the most attractive businesses are those with the least amount of risk and uncertainty for the buyer, and those that rely as little as possible on the owner.
“The least reliant it is on you, the more people can buy your business,” he says.
Jason Cunningham, the founding partner of full-service financial firm The Practice, agrees buyers look for a business that does not rely on its current owner – as well as some other wish list items.
“A great business for sale has also got kick ass employees, the best type of clients, the right people following right process and the most amazing cash flow,” says Cunningham.
“Someone will give you a dirty big, life changing cheque for that sort of business, so drive towards that and, if you don’t sell, it’s not so bad to have a business like that, is it?”
He says sellers should keep an open mind about the type of buyer they will appeal to, pointing out buyers can range from your employees, existing competitors or bigger listed companies that will happily “swallow you up”.
All right, then how do I work out how much my business is actually worth?
The broad value of a business can be determined by multiplying a business’s earnings before interest and tax (EBIT) by the growth potential of the business, and Cunningham says increasing that multiple is the key to getting a good sale price.
“How do you increase the multiple? Multiples will be higher if there’s an expected continuity of the business once the owner exits, if your customers are coming back, and if there is regular cash flow.”
Sarabaca says a more specific way to determine the value of your business is through a combination of the profit the enterprise generates and the risks associated with the venture.
He says while profit can be easily calculated, determining the risks for a potential buyer is not an exact science.
“For most business owners, it is unrealistic to know all the risks,” says Sarabaca, who suggests reaching out to as many sources as possible to help determine this intangible factor.
He suggests talking to more than one adviser when getting an independent valuation of the business; including your accountant, an independent accountant and a business broker.
“All the knowledge then combines together and you can figure out what your market value is.”
Sarabaca says just like in the real estate game, one of the biggest mistakes you can make is overpricing a business, leaving it to go stale on the market.
“If you were the buyer and not the seller, would you pay the amount? If you’d say yes straight away, it’s too low. If you’d say no, it’s overpriced. If you’d say yes but I’d want to check all the numbers, you’re in the right spot.”
But if I’m trying not to overprice my business, how will I know I’m getting the best price?
Our experts say the easiest way to know if you’re getting the best price is to watch the market and look at other comparable sales, just like house hunters do.
Cunningham believes the type of buyer also plays a big role in determining the best price.
“If I sold my business to a like business, you might be looking at three or four times EBIT. But a bigger business may be six to ten times,” he says.
Kersh says she was approached by a few competitors in the lead up to the sale of 4Cabling, which gave her an indication of how much she should be looking at.
“Every industry has different multipliers, and for us as a tech startup, the nature of the valuation always changes,” she says.
“But you need to align expectations with reality. It’s like selling a house, always try to get the best possible price while being grateful and realistic.”
So, when is the best time to sell?
Sarabaca says most businesses go through four phases: startup, growth, maturity and decline.
“The best point to sell your business is just at the start of the mature stage,” he says.
“Don’t wait for the decline of the industry, the product or the business. Don’t think about it [selling] during the startup stage when you’re just trying to stay alive. The best time is somewhere between the growth and the maturity stage – don’t wait until you’re on the other side.”
Cunningham reminds business owners there is never an ideal time to start or exit a business.
“You might miss the boat if you wait till it’s perfect. It’s never going to be perfect, so just do it when it’s right for you.”
I’ve seen businesses in my industry sell for a motza. What do the companies that go for the big bucks look like and how can I make my business as appealing?
Cunningham says it’s a combination of all the elements of your business that will attract the big offers, including your product development, marketing, sales, fulfilment, support and even your admin.
“Look at your business from horizontal perspective. The financials are important, but it’s the drivers of those financials that are vital.”
Sarabaca says the variables that will get you the big bucks include:
- having good management structure in place, such as a board of directors;
- still having an ‘upside’ to go in terms of growth;
- having high barriers to entry or being not easily able to be copied; and
- being within an expanding or niche industry.
“The list is long but anecdotally, the ones that really sell quickly and for a good price are the businesses with a niche.”
And, just in case I don’t get that hundred million dollar takeover bid, how do I avoid my business being left on the shelf?
Xcllusive Business Sales last year did a survey of 700 buyers that didn’t end up buying a business after looking at the market for a period of 12 months.
Asking the buyers why they hadn’t purchased a business, Sarabaca says only 20% said they couldn’t find what they wanted.
“Around 40% said they found businesses they liked but they couldn’t get enough information to determine if they should proceed or not, because the owners were too secretive to open up their books. Another 40% said they found a business they liked, but it was overpriced,” he says.
“If you do those things right – you give the right information and you don’t overprice the business – you will really improve your chances to sell your business, and sell it for more.”