The opinions expressed by the associates of the entrepreneur are their own.
My 20 years at the Entrepreneurs’ Organization have provided me with a front row seat to significant business creation and operational strategy. Of the hundreds of entrepreneurs I’ve known, four Portland, Oregon-based leaders have made it out of the water and walked away with company values of $50 million or more: the founders of Ruby Receptionists, Survey Monkey, Jive Software, and DW Fritz Automation.
Knowing these companies very well, I wondered if they all took similar actions to create that level of success. What do they have in common? Is there a formula other founders could follow to achieve similar financial startup runs?
The answer is a resounding yes. The four founders who sold their companies for more than $50 million each did these four things:
- Created significant value for customers in a unique way within their niche.
- They have developed a super clear brand around their unique product.
- They have created an extremely robust company culture.
- They timed their exits precisely to maximize the value of the company.
Each company created significant “enterprise value” — value inherent in the way it did business and its future earnings potential. Beyond hard assets like cash or real estate, there were millions of dollars of value in their business models and operational expertise. As a result, serious buyers recognized this fact and paid generously. That’s 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?
Repeat the following four “Million Dollar Ideas”. If you are able to successfully implement even one, it alone will generate over $1 million in sales value for your company.
Related: Are You Sitting on a Million Dollar Idea?
1. Deliver a ton of value that customers can’t easily get elsewhere
I saw the billionaire, James Williamson, interviewed in his private jet on YouTube. When asked how he got so rich, he didn’t hesitate: “Find a niche. Break it. Deliver more value than anyone else.”
All four companies have identified a unique product or service that customers need and value. They either delivered a more standard product with modifications or in a way that is not readily available elsewhere.
Here’s the key: Regardless of your features, your offering must be unique in three or more ways. Not just one or two – aat least three.
If your primary product is not completely different and unattainable elsewhere – such as a restaurant or an electrician – you can to develop your three uniques. Maybe it’s a better product, a lower price, a different delivery method, a more intuitive interface, an unusual twist, friendly service or a more personalized, memorable brand. It must be fundamentally better than everything else and also different in (at least) three ways.
Each of the company’s four product offerings was truly differentiated, and the company knew how – and pushed harder for further differentiation all day, every day.
2. Develop a crystal clear brand around your specific differentiation
These companies knew what they were offering. They saw the customers crowding in and recognized why. Their marketing has been clear about what they offer and others have not.
Perhaps more importantly, they knew what they weren’t – and each one most certainly was no everything to everyone. Only certain customers were right for them, so they focused on them and forgot the others, even if the rest were quite a lot. That is, they served a certain segment of the market 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 have created cultures that you can feel when you walk into their offices, like a personality of your own. You knew it was something special and different. 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 value was about the customer and what the company did for that customer. Things like “practice wowism” or “find a better way”, not just generic values like “trust”.
Each team member was engaged because they fit those values. It was clear to everyone what the company was, where it was going, and how to 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. Measure your output accurately to increase the value of the sale
My observation about business outings: Timing makes all the difference. A company that can barely sell a contract for $1 million at one point in the cycle could raise $10 million in cash at another. Sometimes certain types of business are hot and in high demand; at other times, they are not. There can also be a long time between peaks in the cycle. Because of this, cycle timing — and, therefore, demand — is probably more important than your personal timing and plan. The two rarely match perfectly. These four owners struck while the iron was hot.
In all four cases, the companies were sold to an entity that wanted to take the business to a higher level. One interesting note: this made both historical actual profitability and cash flow basically irrelevant. What the customer thought they could do with the company in the future was most important. They sold at 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 sought out other groups (often through brokers). This generally increased the interest of the first buyer and ultimately allowed the entrepreneur to exit at a 30% to 100% higher price than if he had only worked with the first buyer. Buyers then took the companies to new heights, either by going public or selling to a larger strategic buyer. One in four companies was sold directly to a larger strategic buyer.
Even on their dates, these four shared significant similarities.
Related: When Should Business Owners Start Developing an Exit Plan? Here’s what you need to know.
Create the perfect setting to capture lightning in a bottle
When I connected the dots between these four companies, I almost felt like I had been struck by lightning. I couldn’t believe how common their path was and, more importantly, how they got there. These four caught lightning in a bottle — and while a little luck is always necessary, you can’t deny that their manuals were pretty similar and well executed.
If your company can implement any (or all) of these ideas to their full potential, you will create millions of dollars in enterprise value.