Tip of the Spear Ventures

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acquisitions

30 Days to ETA | Day #8 – Leading Yourself

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Most recently in our 30 Days to ETA series, I’ve been dissecting the business characteristics that maximize or multiply your future company’s resale value. I’ve shared how to master competitive advantage, make your business scalable, hire a great staff, and build a cash reserve to weather the business storms (You can read the previous post by CLICKING HERE). Before leaping from our business’s acquisition to its growth phase further, I want to talk to you about leading yourself — the personal side of your business’s sustainability — Your personal sustainability: your physical well-being and how it affects your business’s value. Why? A strong mind requires a strong body to achieve the final destination of success… Enjoy!

30 Days to ETA Day 8 Leading Yourself

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Strong Body | Strong Mind (You Need Both)

I work with a lot of entrepreneurs/leaders. They tend to fall into a couple of different camps. Camp #1 is the strong mind one. Here, the leaders believe that they are playing chess, while everyone else is playing checkers. In other words, they’re the smartest people in the room (every room!) The other camp is the one with strong bodies. These are the leaders who believe that if they simply wake up at 5:00am and workout like a Navy SEAL that they will get wherever they need to be in business/life. They are in great physical shape, and I am typically envious, but they fall short. In order to be a leader of a small business on this Entrepreneurship Through Acquisition journey you’ll need to have both strong mind and strong body.

You will have to anticipate the effects the long trip an Acquisition Entrepreneur makes when it comes to leading yourself. You have to prepare your mind and body to withstand the monotonous sitting and seemingly endless journey. Maybe you plan to entrepreneur trip with others who can take turns driving with you. Or maybe you plan stops along the way to walk around to stretch your legs and get your circulation flowing. Whatever you do, you have to take care of yourself in order to reach the destination you’ve already mapped out.

You only have one body and mind.. You’d better take care of them accordingly!

Sam Palazzolo, Managing Director @ Tip of the Spear Ventures

Reaching a Business Acquisition State

Buying a business is hard. Making a business sellable in the end, or attractive to the market will seem harder. It takes a lot of time and energy. Strength and resolve become more important than speed. These are the keys to getting yourself into a Business Acquisition State for Mergers & Acquisitions.

If you as a small business owner haven’t adequately prepared yourself for the grueling business journey, your physical body or mental stability could give out before your company does. If you want your business to survive trials and tribulations, don’t you want to make it to the finish line with your business?

Your business’s survival, its sustainability, is one thing. Your personal sustainability is another.

Personal Versus Business Well-Being

We entrepreneurs think we can accomplish anything and everything. Business owners are notorious for burning the candle at both ends. Typically, we spend 60, 70, and 80 hours a week working on our business. Since eating, sleeping, resting, and exercising don’t appear to contribute to our business’s immediate profitability or sustainability, we don’t make them priorities in our lives. Our personal welfare becomes the sacrifice on the altar of our business.I heard a statistic that in the recent COVID-19 pandemic the average person gained 20 pounds (Scary!)

However, ignoring your needs will eventually lead to a crash within your business. Your physical body cannot sustain lack of sleep, poor diet, and constant energy consumption. When your physical body starts to break down, your mind will begin to lose its clarity and sustainability as well. With both physical and mental fatigue affecting your abilities, your business’s capability will struggle as well. How can you make logical decisions with no sleep or direct your team from a hospital bed?

Personal Sustainability Ideas for the Entrepreneur Through Acquisition

pending time taking care of your physical health and mental well-being is important. As you make business plans, gather team members, and implement systems, you also need to plan time for yourself. Don’t just make a business plan; make a personal sustainability plan. Include time to:

  1. Sleep – If you have to, write down the actual time you should be in bed at night to get the recommended eight hours of sleep your body needs. More than that, don’t bring work to bed. Leave it. Turn your phone on vibrate. You’ll accomplish more tomorrow after a good night’s sleep than you will tonight with no sleep.
  2. Eat – Plan client meetings at restaurants during lunch. Or, have a team member bring in food at a certain time each day. Let sales’ representatives provide team lunches while they teach continuing education courses or do product presentations. Don’t leave meals to chance. Know what you’ll eat and where you’ll eat each day so that you don’t forget to eat or forget to eat well.
  3. Exercise – Even if a typical gym membership is not feasible for you, movement can be. You don’t have to lift weights or run five miles a day. You just have to move. Run up and down the stairs in your building once or twice every hour. Get your blood flowing by doing some jumping jacks at your desk. Walk to the mailbox. Find times and places in your normal day to add in movement. Don’t forget that exercise has the benefit of helping you sleep better, too.
  4. Meditate – Practice yoga, pray, have quiet time, read, spend an hour with a therapist or do whatever else you can to give your mind a break from the stress of daily business. Your mind can’t refocus without rest.
  5. Relax – This isn’t the same as sleeping or meditating. To me, relaxation is time spent doing something you love to do, something that makes you happy. Whether it’s spending time on a hobby, spending a day on the lake, or going to a movie, do it. Schedule a back massage or a lunch with friends. Your happiness should contribute to your business’s success, not be a victim of it.

SUMMARY

Leading yourself seems so simple. After all, who will listen to you 100% of the time and follow your direction? The answer should be you! You may think it’s a bit ridiculous, but take it from someone who’s been in business for 25 years. You’ll take time for yourself one way or another. Either you’ll make a plan for self-care, or your body will demand care. Whether your body shuts down, the good Lord stops you, or your family demands time of you, something is going to happen. You’ll make time one way or another. Why not do it on your own accord?

Why not take a little bit of time over the next few months or year and invest in yourself, starting right now before you own your business? It really is that simple. If you are not sustainable personally, your business will never be sustainable. Your team will fall apart. Even your family could fall apart. I’ve seen it all throughout my years working with clients. I’ve seen business owners file for bankruptcy and divorce. They’ve been hospitalized or stricken with preventable diseases.

This is just a gentle reminder to take care of yourself. Be prepared for whatever comes your way. Life has a way of balancing things out, whether you plan for it or not!

Sam Palazzolo

30 Days to ETA | Day #7 – ETA Financials & Cash Flow

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No matter how strong your 30 Days to ETA business plan is or how well you grow your team (You can read the previous post by CLICKING HERE), if your business does not have enough in its cash reserve to survive the ups and downs of the economy, black swan events, or minor financial storms selling your soon to be acquired business in the future will be a non-issue. In order to secure outside funding or know how much money you need to personally bring to the closing table, you must know how to calculate how much of a cash reserve your business needs to have on hand to withstand hard times. So in this post we’ll explore ETA Financials & Cash Flow and how they fit in with your 30 Days to ETA execution… Enjoy!

30 Days to ETA ETA Financials & Cash Flow

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Business Owner Myth #1,001 – Easy Money and Big Spending

When I had my first company back in 1997, I had the vision of making easy money and big spending in mind (along with a lot of time off to go and pursue my golfing passion). The reality of this vision was something completely different — Long hours, extremely difficult to come by money, and I didn’t see a golf course for several years!

Maybe I was lucky. The entrepreneurs that seemed to be all around me were making significant money, and as their cash income increased so did their spending habits. Eventually, the economy changed and some of them fell on hard times. As their revenues decreased and expense structures stayed high, they soon ran into cash flow problems. Luck was not on their side after all.

The bigger the squirrel, the bigger the nut. You do want to be a big squirrel, right?

Sam Palazzolo, Managing Director @ Tip of the Spear Ventures

Withstand the Economic Storms

A key, if not the key, to business survival, is to start with enough money to get through the tough times. To withstand the storms that will eventually come, we Entrepreneur Through Acquisition (ETA) business owners must build a company that has sustainability. In other words, we must have enough cash reserved to reach consistent profitability.

You may already be months or years into your business. In that case, your sustainability depends on your ability to squirrel away enough money during seasons of prosperity to survive the coming barren seasons. Inevitably, every business will face turbulent times. We Entrepreneur Through Acquisition (ETA) business owners have to build a business that can withstand the storms.

Without substantial resources to sustain profitability, businesses will most likely fail. But lack of cash can’t be the only reason companies fail. I’ve seen many clients begin a business with more cash capital than others will make in a lifetime. I’ve also seen those same clients go bankrupt and close their business doors.

What, then, causes businesses to fail? After doing my own extensive research, I there are ten top reasons small businesses fail, and you should be aware of them at the beginning of your Acquisition Entrepreneur journey.

10 Reasons Businesses Fail at ETA Financials & Cash Flow

  1. Product cost comes too close to its sale’s price.
  2. Owners’ stubbornness, perfectionism, or greed get in the way.
  3. Success happens too quickly for companies to keep up with demand.
  4. Owners with financial knowledge fail to oversee their accounts/owners without financial know-how try to handle their own accounts.
  5. Business does not have enough cash capital.
  6. The company fails to rise above mediocre customer service or product offering.
  7. Owners pay too much or too little for operational expenses like rent, equipment, and labor.
  8. Management fights amongst themselves or with employees.
  9. Owners don’t develop an exit plan.
  10. A company’s product or service becomes outdated or unnecessary in the current market.

While all ten reasons cause businesses to fail, I believe number 5 is the number one reason businesses go under. I find that many businesses simply don’t have enough cash reserves to weather storms that come.

Calculating Cash Reserves

That leads me to the next issue — Determining how much cash reserve will be enough to sustain us through the tough times.

In most circumstances, businesses can predict capital needed with a pro forma financial statement. The methodology within the hypothetical calculation applies to almost all types of businesses, so let’s go through this process together.

  • Decide how long it will take your business to move from start-up to profitability. – Let’s say it will take us two years before we become profitable.
  • Calculate anticipated recurring monthly, quarterly, and yearly expenses you will incur during that time frame. – Let’s assume we’ll spend $1,000,000 over that two year period.
  • Conservatively estimate the gross income you will receive during that time frame. – Hypothetically, we’ll earn $800,000 within that time frame.
  • Subtract the projected income from the predicted expenses to calculate the shortfall. – $1,000,00 minus $800,000 equals $200,000.

Our projected $200,000 shortfall is the bare-bones amount of cash reserve your business will need for sustainability, for survival amidst the forthcoming storms.

Don’t stop there, though. Notice that I said “bare-bones amount.” I like to add another 20% or 30% buffer into my projected business cash needs. Therefore, if my calculations tell me I need a $200,000 cash reserve, I might want to begin with $250,000 to safeguard myself against unforeseen circumstances.

Funding the Cash Reserve

By this point, you may be saying, “How in the world can I get this much money to start my business?” If you’re already in business, you may be wondering, “Do you honestly think I’m going to be able to save that ungodly amount of money when I’m barely getting by day-to-day right now?”

This ETA Financials & Cash Flow can work. You can find funding for cash capital and cash reserve, but the funding available will most likely depend on how realistic your pro forma is. With a strong, projected financial statement, you can:

  • Apply for a bank loan or line of credit.
  • Get a loan from the Small Business Association.
  • Reach out to an outside investor, or loan shark.
  • Tap into a rich family member’s pockets.
  • Save the money yourself.
  • Sell assets you already own.

Cash in the Mattress

Since you know that cash is king in business sustainability, your goal should be to keep it — Squirrel it away. Put it in a savings account or a CD you can’t get to easily. Protect it. Invest it. Pay yourself first. Give yourself 10%, 15%, or 20% of your business’s gross income each month to create an emergency fund. This is the ETA Financials & Cash Flow strategy that I profess you partake in initially.

Then, do whatever it takes to get more customers. When times are good, pour extra income back into marketing and advertising so more people know you’re around. Furthermore, take care of the customers who come through your door so that when customers have to be stingier with their money during the rough times, they’ll come back to you instead of your competitors.

Cash Out

So if the whole point of this “30 Days to ETA” series is to buy a business to sell it, we have to focus on business sustainability. Economic storms will come. Maybe they come during natural disasters like floods, earthquakes, or tornadoes. Perhaps they come when loved ones fall ill or family members begin feuding. No matter how the storms come, we know they’re coming and we’re prepared via ETA Financials & Cash Flow.

SUMMARY

Therefore, we stabilize our business’s scalable foundations with strong management systems. Then, we recruit the best team members we can afford to build the framework of our business’s value. But if we stop there, we’ll have no safeguard against the storms. Even if we build our business on the proverbial rock, without additional cash reserves, cushions, or protections around the structure, we’ll likely still be swept away by the waves or receive a pittance in return for our investment.

Sam Palazzolo

30 Days to ETA | Day #6 – The ETA Team

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If you’re following my 30 Days to ETA series, you know that my goal is to help you find a business to either merge with or acquire. In our last post, we explored how to add value to your company so that when it comes time to sell it, you maximize the sales price as much as possible (You can read the previous post by CLICKING HERE). In this article, we’re going to focus on what it really takes to be an Entrepreneur Through Acquisition, namely you don’t need to do it alone. Instead, you’re going to need to bring a team with you (Your ETA Team). Think of Your ETA Team as a group of specialists you hire to help you in your Mergers & Acquisitions endeavor, and you’ll want the best people on this team! We’ll also look at your organization team (Who will help you in running your business)… Enjoy!

30 Days to ETA Your ETA Team

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Your ETA Team

When it comest to 30 Days to ETA, you know the old saying “If you want to go fast, go alone. If you want to go big, bring a team!” is 100% accurate. In my own Entrepreneurship Through Acquisition journey, I know that I thought I could do it all. However, as the Letter of Intent (LOI) was approaching expiration, I realized that there was still way too much left on the “To Do” list than I care to admit. With this in mind, you’ll want to surround yourself with subject matter experts (SME) that can conduct their own portion of the due diligence process.

But who will you want on Your ETA Team? In my experience, you’ll want the following members on Your ETA Team:

  • Business Lawyer – Everyone needs a lawyer, especially when it comes to Mergers & Acquisitions. The difference between having a good one and none can be financially devastating. I know of friends who’ve signed LOIs that were intended to be intent-oriented but in reality were purchase agreements — meaning that they were on the hook for purchasing the organization regardless of due diligence findings!
  • Forensic Accountants – I’m an accountant by training, and even I recommend bringing in an accountant to do a second review of the books. Why? If the joke about CPAs around tax time is true (How many different answers will five CPAs give you on your tax questions? Six!), then having another set of eyes that can bring you a different perspective will be helpful.
  • Valuation Expert – You want a good deal when it comes to structuring your purchase. A valuation expert can provide Your ETA Team with the answers regarding what the valuation is right there/right then.
  • Buy-side Broker – I’ve often been on the Sales-side Broker situation, where no matter how “friendly” the broker was during the process, at the end of the day they worked for the seller. With this in mind, they were “selling you” the business. As an Acquisition Entrepreneur know that the broker does not represent you and is not looking out in your best interest. However, a buy-side broker will if you can find/hire one.

Go fast alone, OR go BIG with a group (i.e., the Team!)

Sam Palazzolo, Managing Director @ Tip of the Spear Ventures

Building Your Business Bench

If you’re like me when I first heard the question, “How strong is your bench?”, I thought about the bench full of second-string athletes at a football, baseball, or basketball game. These strong and talented athletes are just waiting for their chance to jump into position at a moment’s notice. Coaches constantly rotate players on and off the field, or on and off the bench, to showcase and preserve the strength of their overall team.

Essentially, I’m talking about that kind of bench, but this article is about small business owners, not football coaches. There aren’t any second-string team members in business. Every player in our business has to be an all-star (A-level player). You must hire the best people you can afford.

Recruiting Your All-Star Business Team

Where do you start? Sure, you see the need to find the “right” people for your business, but how in the world are you going to make that happen? Here is the method we follow at Tip of the Spear Ventures:

  • Identify the position, or team member, that will add the most value to the business. As business owners, our personal strengths will shine. At the same time, our weaknesses may be just as glaring to those around us. In order to strengthen the areas in which I’m the weakest, I tend to look for the person who can offset my own skillset. I want to hire someone to fill in the holes I inevitably leave so that my customers see no weaknesses.
  • Recruit that team member. Once you know what position you’re attempting to fill, you want to look for that team member. Either hire an agency to conduct the talent search for you, or buck up and do it yourself. If you use an agency, decide beforehand if you want to pay a flat-rate fee for hiring services or if you want to pay on a contingency basis when you hire the agency’s chosen employee. If your small business resources are slim, then you must do your due diligence to check your applicants’ references. You’ll have to review their social media profiles, conduct interviews, discuss job requirements, and agree on pay scales.
  • Interview multiple candidates. Choose several people whose qualifications fit your job requirements. Then, let them fulfill the job they’re going to be doing so that you can compare their skill levels for specific tasks. In their working interview, give them time to mess up to see if they can acknowledge their weaknesses and make corrections. I, personally, will always choose an employee with good character over an employee with impressive skills. Skills can be taught and improved upon; character and personality cannot.
  • Get a Second (or Third) Opinion. Structure your interviews so that you, as well as no less than one other person (preferably two) interview the same individual. Questions should be similar in nature for compare/contrast amongst the interviewers and should be qualitative — not subjective — in nature.

Once you master this hiring process, whether you go through an agency or hire the individual yourself, you’re going to repeat it until you’ve built out your entire organization. Yes, I said “organization.” You can’t stop after hiring one person. You’re trying to fill your team bench because you want this business to operate autonomously without you.

SUMMARY

You’re not going to win a championship right away, and you certainly are not going to win one all by yourself. Your business won’t sell for millions in the future if you don’t surround yourself initially with Your ETA Team made up of subject matter experts (SMEs) who can help you buy the business right. Thereafter, building your business with the right people who will buy-in to your business plan and know how to implement the best management systems becomes crucial to your success. Your business will grow, and that scalability will increase your company’s sellable value.

Sam Palazzolo

30 Days to ETA | Day #5 – Enduring Profitability

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If you’ve been reading this 30 Days to ETA blog series, you’ve learned that having a business plan is essential for end results for success and that you should have that “end state” mentality in mind as you look to acquire a business. We’ve also explored your ETA Competitive Advantage that should allow you to be strategic in your direction and tactful in your actions to execute that business plan (You can read the previous post by CLICKING HERE). But there’s a key organizational attribute that you should screen for while conducting your Entrepreneurship Through Acquisition (ETA) process, that being Enduring Profitability. So in this 30 Days to ETA post, we’ll explore the concept of Enduring Profitability and how it should form the cornerstone of your search criteria… Enjoy!

30 Days to ETA Enduring Profitability

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What is Enduring Profitability?

If you’re like me and most entrepreneurs around the country, you work incredibly long hours. Entrepreneurs Through Acquisition spend much of their personal time working in their business, and rarely take vacations. It’s not something they have “time” to do. But why are they killing themselves by working so much? Didn’t they go into business to have more free time? If so, why can’t they take breaks without feeling guilty? It’s like the harder they work, the better off they’d be. I would argue that part of this “workaholic” state is induced by the pursuit of Enduring Profitability. I would define Enduring Profitability as the consistent achievement of profitability by the organization. Year after year, regardless of pandemic or economic situation, the organization can show on their financial statements the achievement of profitability.

Unfortunately, hard work isn’t the key to success. Without a doubt, we have to work hard to be successful. You’re definitely not going to reach success without some sweat equity, but there’s something more important. To make your business successful enough for your end-game results (i.e., to sell it), your hard work must go into making your business scalable in nature. There is no better reflection of the hard-work you put in and the scalable nature than Enduring Profitability.

What does scalable mean? Simply put, scalability is the ability to grow your business. Growing your business doesn’t necessarily mean making it into a franchise and opening store fronts all over the nation or the world. How many companies actually do that? That’s not necessarily our goal.

Business growth in scalability revolves around revenue and profits. In other words, how can we increase revenue and decrease costs involved to produce that revenue? Essentially, how do we make profits high and costs low; how do we increase our margins? Remember, people buy businesses that make money, and scalable businesses that show enduringly profitable characteristics typically bring larger price tags.

To use a baseball analogy, it’s the consistent singles and doubles that win the business game. Rarely is it the attempt to hit a home run that results in success for Entrepreneur Through Acquisition (ETA).

Sam Palazzolo, Managing Director @ Tip of the Spear Ventures

The Building Blocks of Scalability and Enduring Profitability

Maybe your business is already making money. Perhaps your business is booming with good employees and exponential sales’ growth. Sure, but I’m assuming that you’re not content with where you are; you want to make even more money and experience more growth. There’s no better time than now to invest your time, energy and passion into developing foundational systems that will help your business reach long-term success.

Just like a house, your business has to have a sound foundation. From our previous post, you know that foundation is your business plan. But the building blocks of the foundation – the footer, the piers, the concrete, the rebar – are what make your business scalable. The following three aspects make a business scalable: Strong Management Systems, Scalable Product Solutions, and Strategic Thinking.

Building Blocks to Build a Scaleable Business

1. Management Systems

Deep-rooted systems help us maximize our business growth so that we can make as much money as possible while minimizing growing pains. So when the storms of employee issues rush in or the gales of family issues flood our business world, we’ll have systems built to withstand the storms. These systems usually come in the form of processes surrounding people and technology. Here is a list of seven technology systems I’ve used in my own companies that have dramatically increased their scalability:

  • Customer Relationship Management System, a.k.a. CRM System – In order to get customers and to keep them in your business, you should put a system in place that analyzes and manages your interactions with customers. This software, or this team, will collect data about your customers that includes their demographic information, what brought them to your business, what they’re buying from you, and how often they use you. The data alone doesn’t do anything for your business. You must have a team or a software program that can analyze the data with the goal of improving business relationships with customers, retaining customers, and up-selling to customers.
  • Financial Management System – You also need a system to track where your money’s coming from and where it’s going. Basically, this is your record keeping system for income and expenses. Some financial management systems have sister CRM systems that link and sync information. Other financial management software systems have CRM components built into their basic structure so that business owners can use one program to accomplish two tasks.
  • Sales Management System – In this third system, you’re going to need a team who knows how to use the data you collected from your CRM system to make potential customers actual customers. This system funnels clients from the wide “prospective client” mouth of the funnel to the narrow “actual client” part of the funnel to make the sale.
  • Legal Management System – Ultimately, your business may delegate the operations of this system to a law firm as you grow. But initially, you’ll need a computer program or a paper filing system in place to store your business agreements, contracts, correspondence, identifying information, tax records, and employment records. However, you can’t just use the system for storage. You must have a team in place who can stay up-to-date and compliant with ongoing legal changes on local, state, and federal levels.
  • Marketing Management System – Systems one through four focus on your current customers and financials, but this fifth system helps you reach new consumers. Once you review the demographics of your target market from your CRM, you can plan what type of media you need to use to reach the customer. Should you offer your products and services through social media, print advertising, radio announcements, or TV commercials? Have a program or team in place that can strategically get your product in front of your ideal customer.
  • Talent Management System – Usually called “Employee Management Systems,” this system is how you find, hire, manage, and retain talented people. Without a good team in place, you won’t be able to reach your business goals. Moreover, have eyes on your talent four years out. Don’t look for good people on the spur of the moment; recruit on-going, consistently, purposefully and methodically.
  • Operational Management System – Finally and most importantly, your operational system manages all the other systems. It’s the written documentation of how your company runs. Whether it’s as basic as a hand-written bubble graph on a yellow legal pad or as complicated as a programmed and editable flow chart, this outline details the systems you’ve put into place, who manages them, how they function, and the benefit they provide your company. This operational system is the way you can manage the company without being physically in the company.

2. Product Solutions

In the early days of business, money is often tight, and it seems like business owners constantly have less than we need (I’ve mentioned previously the importance of cash flow management). In addition, our time and expertise are in constant demand. Implementing systems will take you time and money, but this second building block will increase your business’s scalability without a lot of time or money. What I’m talking about is just taking a moment and identifying the things in your business that can be easily increased or reduced to maximize your business’s profitability and revenue.

So here are seven questions you can ask yourself as you screen for a business to acquire:

  1. What product/service do you offer that has the highest margins?
  2. Which product/service has the potential to reach double-digit growth rates?
  3. What product/service can the team easily explain to the marketplace?
  4. Which product/service can secure outside leverage?
  5. Is there a product/service easy to market?
  6. What product/service can be automated?
  7. Can a product/service be franchised, licensed, or duplicated?

Your answers to the questions will show you how to take a product or service offering and scale it up. In other words, what you learn about the prospective business’ products/services will help you identify opportunities to increase revenue and decrease costs. You now have potential scalable business solutions.

3. Mind Shift Toward Scalability

The third aspect you have to do to make a scalable business is change your way of thinking. You’ve got to learn to think strategically. If you don’t know where you’re going, you won’t know what road to take to get there. If you’ve gotten this far in 30 Days to ETA series, you should have identified your exact business goals and written them down into a business plan. You should now be looking at ways to make prospective businesses you’re looking to acquire more valuable than the competition.

In order to build a plan for scalability, you must take the focus off of yourself in the business. For the company to be attractive, it can’t be wholly dependent on you. You wouldn’t even be where you are in business if it weren’t for people around you. Take a step back to understand that you are building a business that can operate without you. Therefore, you AND the future team must be successful together.

So how do you change your thinking?

  • Let go of “This is Me” thinking. – You must turn the conversation of your business from “I” to “We.” Stop thinking, “I’m the business owner who started this.” Instead, start thinking, “We have an outstanding business.” Turn from “My” to “Our.” Go from “This is My” to “This is Our.” It’s a play on words you see, but it has such intrinsic meaning.
  • Be the coach, not the star. – You didn’t become successful alone. Somewhere along the way, someone invested in your life. Maybe it was a family member, a friend, a pastor, a teacher, or a coach. Or maybe you read an inspirational book or blog post that changed your life’s direction. Inevitably, somebody in your life has dedicated or sacrificed time, money, and energy to help you. It’s time for you to do that now. If you’re going to build a scalable business, you have to be the coach. You have to cheer your team on to the victory.
  • Build the right team. – If you’re going to coach people to take over the everyday parts of your business, you have to hire the right people. Don’t look for “cheap talent.” If you get people who are less than your best, you’re going to get less than your best results. Hire the best people you can afford because great people yield great results.
  • Get help. – Sure, you can run the company by yourself. For the most part, you know what you’re doing. But you’re still going to need somebody in your corner. You’re going to need encouragement and financial advice. You’ll need an objective person to point out your failures and motivate you to success. Whether it’s a professional like a CPA or CFP, a family member or friend, or a board of advisers, you’re going to need help for yourself.
  • Remember your family. – If you’re like most entrepreneurs, then you spend a lot of time building your business to the detriment of your family. You have to make time spent away from your family the exception, not the habit. If you’re going to build a scalable business, you’re going to have to walk away once you have all of your systems in place. If you’ve become a stranger to your family and friends, what will you do? Who will be left with you when you reach success and have time to enjoy life?

SUMMARY

Remember, the goal we’re dealing with first and foremost in this particular series is acquire a business in 30 days with the goal of ultimately selling it. If we’re going to sell our company for top dollar, then the business has to be scalable and reflect enduring profitability. We have to increase revenue and decrease the costs it takes to produce that revenue to attract buyers and to get the most money possible from the buyers. Are you prepared to buy then build a scalable business? Read on in the series (We’re early, right… It’s only Day 5 on the way to Day 30!)

Sam Palazzolo

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