Tip of the Spear Ventures

A Family Office that behaves like Venture Capital | Private Equity | Business Consulting

Sam Palazzolo, Managing Director

30 Days to ETA | Day #4 – Your ETA Competitive Advantage

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In my most recent post in this 30 Days to ETA series, The ETA Business Plan, I shared that you can go anywhere you want with your business, but you’ll get there faster if you establish a Business Plan. The adage “A goal without a plan is just a dream” has never been more true (You can read the post by CLICKING HERE). Part of that plan, and foundational to the process, is identifying your ETA Competitive Advantage. Thinking strategically about the value your business brings to the market and the benefits it provides should be advantages you look to capitalize on. And your ETA Competitive Advantage should be identified/contingency planned while looking at businesses to acquire!

30 Days to ETA Day 4 Your ETA Competitive Advantage

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What is Competitive Advantage?

Regardless of business type that you explore purchasing, there are probably thousands (if not hundreds of thousands) of similar businesses already in existence and potentially starting. So what will make a customer choose the business you’re considering purchasing over another? Why would someone travel further, pay more, or overlook small personal inconveniences to get your product or service? What makes you so special? What sets you apart from your competition? These questions drive to the heart of your ETA Competitive Advantage.

In simple terms, this advantage is what makes your business better than its competition in the minds of your customers.

What Does Your ETA Competitive Advantage Look/Feel Like?

To be successful as an Acquisition Entrepreneur, you need to be able to articulate the benefit you provide to your target market that’s better than any of the competition. You must have something or do something unique to draw customers to you right now and to entice buyers in the end. This does not mean blending in with the thousands of other competitors that are out there.

So as intuitive as this sounds, why do so many struggle with the concept? Your ETA Competitive Advantage doesn’t just sell your product or service — It multiplies the value of your business.

You can compete on cost as a business owner, but you’ll lose every time!

Sam Palazzolo, Managing Director @ Tip of the Spear Ventures LLC

Six ETA Competitive Advantage Examples

I’m not going to lie… Identifying a business competitive advantage is not that difficult. What is difficult is executing on that identified competitive advantage! I’ve seen hundreds of business leaders that perceive an advantage exists in their mind, only to have said advantage be nowhere to be seen. So, with that your ETA Competitive Advantages in mind I compiled the following list of six ETA Competitive Advantage examples:

1. People

This advantage isn’t about the number of owners, managers, or employees your company has. It’s not about your company’s gender, age, or ethnic ratios. This competitive advantage is about the loyalty of your team. One of the strongest competitive advantages a business can have is a remarkable team. If you invest in your team and include them in your vision, they will buy into your goal. They will want everyone they know to experience your product. If you get buy-in from your team, you have a rare, valuable commodity.

2. Organizational Culture

According to the Society for Human Resource Management (SHRM), Organizational Culture can be defined as follows:

“The proper way to behave within the organization. This culture consists of shared beliefs and values established by leaders and then communicated and reinforced through various methods, ultimately shaping employee perceptions, behaviors and understanding. Organizational culture sets the context for everything an enterprise does. Because industries and situations vary significantly, there is not a one-size-fits-all culture template that meets the needs of all organizations.”

Society for Human Resource Management (SHRM)

A company’s people show customers how to use your products or services. A successful owner will identify his individual employees’ strengths and teach his entire team to model those attitudes and behaviors. The company will streamline common expectations for its team if it excels in organizational culture. Companies that create value through organizational culture do so through many months and sometimes years of intentional training. They recognize employees’ unique knowledge, skills, and abilities. Then they teach each to work in a similar way for a common goal. Together, they accomplish something greater than one alone can achieve.

3. Processes and Practices

While many companies can make or sell related products or provide comparable services, companies can set themselves above their competition by creating unique manufacturing methods or service processes. Processes and practices in regards to your ETA Competitive Advantages are not only the what’s and where’s, but the how’s regarding execution.

4. Products and Intellectual Property

Your products or services are new and innovative in design or technology. They are unique, meaning you must protect your rights to that intellectual property through patents, copyrights, or trademarks. Without legal protection, competitors can replicate your product and take away your competitive edge.

If your business has a product, a system, or a design that isn’t easy for your competitors to replicate, you’ll want to direct your focus on these areas to protect yourself. If you can show your product’s unique design or your service’s unique process, you’ll add value to your product/service via intellectual property. Important to keep in mind that when your product’s value increases, so does the valuation of your business.

5. Capital and Natural Resources

Maybe you don’t have unique people, processes, products, or services. But you do have money. Cash capital is important in running your business, as poor cash flow management is the number one reason most small businesses fail (operationally, of course). Social capital can be achieved by creating a good name for yourself. Think of this as your business reputation. Your reputation is capital your competitors can’t purchase or achieve overnight, and makes your business more valuable as a result.

Obviously there are natural resources that may exist if the business you are exploring buying has land. Competitive advantages like oil, natural gas, ore, or coal are natural resources that add value.

6. Technology

The last advantage we’ll discuss combines intellectual property and capital in the form of Technology. Technology evolved into a powerful business asset during the Industrial Revolution at the turn of the 20th Century. Today, Technology is ever-evolving and plays an ever-increasing role in competitive advantage. If you are searching for a business in the tech space (software or hardware), or even if you’re not new technology or technological systems that none of your competitors can easily replicate can provide you with a valuable competitive advantage.

SUMMARY

Your ETA Competitive Advantage is an important aspect to consider when acquiring a business. How will you differentiate yourself from your competitors, those present today and those soon to arrive in the market. We discussed six ETA Competitive Advantages that you can look to employ, or screen for when searching for a company to acquire. It is precisely these competitive advantages that will increase the value of your business. The concept is simple – the harder it is for your customers to leave or the harder it is for your competitors to duplicate what you do, the more valuable your business is to buyers.

Sam Palazzolo

30 Days to ETA | Day #3 – The ETA Business Plan

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In my most recent post in this 30 Days to ETA series, Leading Your Business, I explained that you can’t begin a business if you don’t know how it’s going to end. You have to identify where you want to go and why you are going there before you can figure out what type of business to acquire (You can read the post by CLICKING HERE). You must think strategically about the value of your business and then work to increase, or accelerate that value tactfully. And one of the best ways to start that process is by building a plan… The ETA Business Plan!

30 Days to ETA Day 3 The ETA Business Plan

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Plan More… Achieve More!

Have you ever scratched your head and wondered why some businesses achieve more? It would appear that for some businesses, nothing holds them back from achieving more: more money, more clients, more contracts, more products, more everything! While those entrepreneurs are taking the bull by the horns, other business owners are getting run over by the bull. They can’t get out of the trenches (or the bull’s way!) They’re stuck in the everyday business muck and mire, and they’re getting trampled right out of the business.

What Do Business Owners Who Achieve More Do Differently?

When I talk to business leaders, I always make a point of asking them what it is that they do to achieve more? The response that gave me the most insight (or most recently) said, “It’s pretty simple… I think we do a better job of implementing what we plan.”

In writing and reading that response, and sharing it with a few thousand friends since the conversation this leader was spot on. The difference between success and failure often comes down to being in the right place at the right time (If you’ve read any of my previous works, you know I love the quote “80 percent of success in life is just showing up” credited to Woody Allen. I’m convinced that preparation prior to showing up is the key. In other words, preparing your business plan consisting of business goals and outlines on how to achieve them. As a business owner, you have to start somewhere. So lay the original groundwork for success by developing a thorough business plan.

A goal without a plan is just a dream!

Sam Palazzolo, Managing Director @ Tip of the Spear Ventures

What’s In a Business Plan?

A good business plan is essential and a foundational piece to your business’s success. But what is in a business plan? Here is an overview of Business Plan basics:

  • Company description
  • Market analysis
  • Management and ownership
  • Service/Product line
  • Marketing & Sales
  • Funding
  • Financial projections
  • Appendix
  • Business Summary

I wrote a comprehensive article about exactly what needs to be in a good business plan. If you’d like more information drop me an email at info@tipofthespearventures.com.

The Purpose of a Business Plan… Global Domination (or to Become the Foundation for Your Business)

In order to acquire a business, creating a business plan at the beginning of your journey AND at the beginning of each year is fundamental to knowing what you’re trying to accomplish. I’ve heard it said that knowing what you want to achieve determines how well you succeed (as well as when). How do you know you’ve reached your destination if you didn’t have one in mind? What determines your business’s success if you’ve never defined success for yourself or your business?

Yes, a business plan is time-consuming and frustrating, and that’s not what we entrepreneurs want to hear. We have an amazing opportunity to buy a business with equally amazing products and/or an incredible service. We want to jump right into business and get that product or service to our customers who must be desperate for what we have to offer. Let’s make big money now!

Regardless to how tempting it is to push forward in business, remind yourself to take the time to create a business plan. Creating a business plan and keeping it at the center of everything you do will reap benefits in the long run.

The Foundation Drives the Business’s Success

At this acquisition phase, you won’t reach success by creating a one-and-done business plan and walking away from it. Theory became practice, and then practice became routine. I would encourage you to develop one-year revenue, product, service, improvement, and sales goals. Each team member contributes their thoughts and ideas, and agreement should be had (i.e., buy in) before we put them on paper. You needed the whole team pulling/pushing in the same direction.

SUMMARY

Remember that end game is selling the business that at this point you haven’t yet acquired. With this in mind, every business has to get their leaders, team members, to buy-in to your future business goals. If everyone on the team gets it, they’re happier, fulfilled, and motivated to hold each other accountable to achieving your business goals. They propel you to greatness and your business to success.

Sam Palazzolo

30 Days to ETA | Day #2 – Leading Your Business

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In this 30 Days to ETA post, we’ll explore the topic of leading your business. Sounds pretty simple/straightforward, but there is a twist to consider! Specifically, if in Day #1 we tackled the decision of Startup or Acquisition (You can read the post by CLICKING HERE), in this post we’ll look at leading your business so as to create value or increase business valuation. Why? It’s keeping in line with our identification of the desired endpoint of the business. A business that you lead effectively should increase in value, and therefore be worth more to prospective buyers when you ultimately determine to exit. Understanding business valuations will help you as you start out on your Entrepreneurship Through Acquisition journey!

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What Do Business Buyers Find Attractive?

In the book Walking to Destiny (2016), author Chris Snider gives business owners a plan to prepare their companies for sale where they the capital of their business. Driving the value of a business up will simultaneously increase net income. Increased value plus increased income are prime ways to increase profits achieved during the business sale.

Value Acceleration is the concept throughout whereby the focus is on value growth through the coordination of business, personal, and financial goals. I perceive Value Acceleration to be when business owners design and build a business that other people want to buy with purpose/intention strategically for sale.

So what characteristics are potential buyers looking for, especially if you can grow your company to a level where it “pops” on the radar of Private Equity firms? The following four business attributes appear at the top of every buyer’s wish list:

Top 4 Characteristics that Make a Business Valuable to Buyers

  1. Is it profitable – Does your business make significant net income?
  2. Is it competitive – Is your business beating the competition?
  3. Is it scalable – Can your business grow or downsize quickly to withstand ebbs and flows in demand?
  4. Is it sustainable – Can your business withstand economic and personal storms?

Your ultimate goal in getting into business, besides being able to be the hands-on leader running the organization, is to one day sell the business and live off of its proceeds. In order to do this, you must know how to make your company valuable to buyers. Business buyers look for profit, competitive advantage, scalability, and sustainability. These four criteria are cornerstones in leading a business blueprint.

Value creators work on their business instead of working in their business.

Sam Palazzolo, Managing Director @ Tip of the Spear Ventures

How Do Buyers Determine Business Valuation?

When you analyze a business, in addition to the operational efficiency, you’ll want to identify the accounting underpinnings. In other words, you’ll want to dig-in on the financial statements. I know this is not the sexiest part of leading a business, but you have to know your numbers. Here are a few accounting numbers to know:

  • Top Line Revenue
  • Cost of Goods Sold (COGS)
  • Net Earnings
  • Operation Expenses
  • Profit/Loss
  • Earnings Before Interest Taxes Depreciation and Amortization (EBITDA)
  • Average Multiples for Similar Businesses Sold

How Leading a Business to Sell with Value

How, then, do we make our businesses profitable, competitive, scalable, and sustainable to make them valuable to potential buyers? As we’ve talked about, Value Acceleration is a process that focuses on value growth by aligning business, personal, and financial goals. Essentially, it creates a roadmap to success.

Before we can focus on growing value within our business, though, in leading a business you must recognize that value already exists within your company through meeting your customer’s need(s). For example, you provide a service or a product that people just have to possess. That’s valuable. You’ve already identified a need in the market that your competitors haven’t met, and you’ve seen the profit that can come from meeting that need. Over time, you’ve put together a team of people to help you reach your target market and take care of your consumers once they find you. You’ve even purchased insurance plans and the like to make sure that your company can weather storms. Your business, therefore, has value.

Business Cycles Effect on Leading a Business

Your business’s value exists when you open your company’s doors, and it exists within every cycle of your business’s life. Just like the national economic market, you’re going to experience expansion; you’re going to experience contraction. You’ll go through cyclical periods of recession, recovery, and expansion throughout the entire life of your business. Worth exists throughout those cycles, but the amount of your business’s value will rise and fall according to what period of the cycle you are in. However, you as a business owner determine the severity of value loss or the significance of value gain over the life of your business.

Successful business owners identify what their business is worth at all times, and they determine the worth they want their company to have. They keep that value goal at the top of their minds all the time. In other words, they have an end worth in mind.

SUMMARY

Successful entrepreneurs know their current worth and their goal worth, but more importantly, they take active steps to achieve those goals. The systematic approach to identify, protect, and build value is at the heart of this process. Creating detailed, written, systemized plan to increase company capital value comes through a relentless strategic plan and following thereof.

Sam Palazzolo

30 Days to ETA | Day #1 – Startup or Acquisition?

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My goal for this 30 Days to ETA Series is simply to walk you through the journey of sourcing, searching, and ultimately buying a business. However, make no mistake about this whole world of Mergers & Acquisitions… There is nothing “simple” about it! And in this Day #1 post we’ll explore whether as an Entrepreneur you should Startup or Acquisition — That is, should you start your own business from scratch (i.e., Startup) or buy a business that’s already in existence (i.e., Acquisition).

The Purpose of the 30 Days to ETA Series

If we want to take a trip, I’ll begin my travels with an end destination in mind. In order to leave my home in Las Vegas, Nevada to get to Seattle, Washington, we all know that I need to head northwest. But what route(s) should I take in order to get there? How will I be traveling to Seattle — Airplane, Car, Uber, etc.? It would be helpful if I had detailed directions from a GPS to outline the quickest route possible. Because of the distance between Las Vegas and Seattle, I’m more than likely going to run into delays and problems somewhere along my path — Wrecks, construction work, road closures, storms. Inevitably, my GPS will reroute me and get me to my final destination (I hope!)

30 Days to ETA DAY 1 Startup or Acquisition

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Mapping out directions for my trip is no different than you acquiring a business. You see, from my perspective it’s a matter of knowing what you want to happen at the end that should determine your focus at the beginning. Are you building your business to pass it down to the next generation? Or are you growing your company to sell it for profit? Do you hope to sell a lucrative business to your employees or to another entrepreneur so that it will continue into perpetuity?

You can spend 40-80 hours a week, 50 weeks a year, for an entire career working for someone else in their business helping them achieve wealth… OR you can spend the same amount of time creating your own wealth!

Sam Palazzolo, Managing Director @ Tip of the Spear Ventures

The whole idea behind this series is to help you understand the purpose of your business so that you can sell it for profit. Surely you don’t want to make just enough money to get by while you run a company. Don’t you want to make tons of money while you work and then make millions of dollars when you sell it? Is that even possible? Is it actually possible for you to build a sellable business?

What Happens at the End of a Business?

According to the Exit Planning Institute, or the EPI, 80% of companies below 50 million dollars in revenue never sell. 80%. Another statistic tells us that only 30% of family businesses survive into the 2nd generation. Do you understand that — There’s only a 30% chance that you will pass your business down to your children or have some other type of succession plan! What will happen to your company then?

The EPI has two other revealing statistics:

  1. 75% of the business owners (who make less than 50 million dollars) who actually sell their business aren’t even happy that they did after all is said and done.
  2. Three out of four companies will be changing ownership in the next ten years.

It’s The Opportunity of a Lifetime

So why are 75% of businesses changing ownership? Well, the Baby Boomers who wanted to sell or get out of business years ago ran into the financial recession of 2008. They couldn’t get out profitably then, so they’ve been holding onto their companies until they could recuperate a profit or until they’re just too old to continue. And now that we’ve just come out (🤞) of the pandemic recession on 2020, those that made it through the financial recession could, once again, slug it out to get through this recession as well. However, most Economists look for them to exit.

This presents entrepreneurs with a huge opportunity, or as I like to call it the opportunity of a lifetime. With all these Baby Boomers exiting the economy, they’ll be leaving behind the companies that they lead. Unless they have a clear path for succession (Kids that want to take over the business, relations that care to run the organization, and/or staff that want to buy the business from them) they’ll have to look for external sources to purchase the business.

I Lead a Startup… I have no Hair as a Result!

So here in Day #1 of the Series, appropriately titled Startup or Acquisition you may be wondering why I’m not telling you to start a business (Startup) as opposed to buying one (Acquisition)? The reason is that buying a business is a much better path to successful entrepreneurship. Why? The Small Business Administration (SBA) sites that less than 2% of startups achieve a private equity exit. Furthermore, about 90% of startups fail. 10% of startups fail within the first year. Across all industries, startup failure rates seem to be close to the same. Failure is most common for startups during years two through five, with 70% falling into this category.

The technology startup I lead was one of the few that succeed (I guess I’m a 2%’er!) So if startups are not a good opportunity to flex your entrepreneur muscles, what is? In my mind, the answer is simple — Acquisition or Entrepreneurship Through Acquisition!

Sam Palazzolo

30 Days to ETA Series | Overview

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Welcome to the “30 Days to ETA” series with Tip of the Spear Ventures. Within the next 30 posts, I’ve created a roadmap entrepreneurs can follow to drive toward successfully acquiring their own business – A destination I’d like to call “Success!” We will travel along the journey of sourcing, searching, and ultimately buying a business… for profit. I’m going to outline some of the most efficient routes I found while working within our Mergers & Acquisitions (M&A) framework at Tip of the Spear.

Entrepreneurship Through Acquisition (ETA)

There are thousands of small businesses that are currently for sale, and there will be thousands more coming in the next few years. I’ll share my personal stories to help you maximize your time and money. Along the way, I’ll highlight fuel stops you can take to increase your M&A value regardless of your industry and organization focus. I’ll show you how to work on your search so that you don’t waste time working in your search.

30 Days to ETA by Tip of the Spear Ventures

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Let’s make this easy, or “financially sound” if you will. I’ll show you the steps to the successful acquisition of a business, and how to get there quickly and profitably. 

What advice would I give my 25-year old self? Get to Mergers & Acquisitions faster in your career path (It’s the most fun I’ve had in my entire career!)

Sam Palazzolo, Managing Director @ Tip of the Spear Ventures

As part of our mission of teaching the Entrepreneur through Acquisition (ETA) leader how to make their search a valuable asset (not just believe it has value). The goal is to take you through steps of how to source, search, and ultimately buy a business. In my years as an entrepreneur, in both startups and M&A, I have seen many common trends – some successful and unfortunately unsuccessful business owners. In this 30 Days to ETA series we will discuss both — and other topics in between — in easy-to-understand and simple terms. I want you to understand how you can buy a business and SHOULD do so now rather than later.

Go Fast Alone… OR Go BIG Together!

Why would I share this ETA information? It’s simple… If you like what you read then you can do one of three actions:

  1. DIY – You can go out and attempt to buy a business on your own. Afterall, you’ll know just enough to be dangerous!
  2. JOIN ME – I’m always looking for top-tier entrepreneurial talent that wants to own/run a small business. Partnering with you is my best strategy to grow our M&A practice. You can go fast alone, or you can go big as a team! Drop me an email at Recruiting@TipoftheSpearVentures.com.
  3. DO NOTHING – You’ll gain a lot of valuable information here in this 30 Days to ETA Series. Maybe you’re the type that likes to learn and never take action?

I hope you enjoy the series!

Read 30 Days to ETA | Day #1 – Startup or Acquisition

Sam Palazzolo