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Tip of the Spear Ventures

Venture Capital | Private Equity | Business Consulting

leading your business

30 Days to ETA | Day #29 – Leading Your Business | The ETA First 100 Days

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If you’ve been reading along in this 30 Days to ETA series, you know that in the Day #28 post I shared that by this time in your Entrepreneurship Through Acquisition (ETA) journey you have found a business, determined how you are going to fund it, and successfully conducted due diligence under Letter of Intent (LOI)… Now all you need to do is purchase the business with the ETA Purchase Agreement (PA) (You can read the previous post by CLICKING HERE). Congratulations, you made it to Entrepreneurship Through Acquisition (ETA)! Before you start popping those champagne bottles, you’d better have a plan for the next day of running your business. As an Acquisition Entrepreneur you should have the first 100 days lined out! So, in today’s 30 Days to ETA post, we’re going to explore Leading Your Business | The ETA First 100 Days… Enjoy!

30 Days to ETA - Leading Your Business | The ETA First 100 Days

Leading Your Business | The ETA First 100 Days

After the formalities of document signings at the closing table, the business broker or M&A Advisor will often arrange and sometimes pay for a celebratory dinner. If your transition expert sets up a dinner, they will usually schedule closing in the late afternoon so that everyone can leave the closing table and go directly to a nice dinner. I’ve been to many of these celebrations where the ETA Professional Team members, employee team members, friends, and family members attend to commemorate the moment of success… Entrepreneurship Through Acquisition has arrived!

Many times, these particular events aren’t that dissimilar from a wedding celebration except you’re the best man, and the bride is your business. Most likely, you’ll get up and give a speech. Maybe you’ll tell funny stories about highs and lows you experienced in your search for a business. You’ll even recognize key people who helped you along your way. You may even receive gifts from certain employees, advisors, and others.

But don’t get drunk on too much champagne or feelings of goodwill… You have a business to run that is now owned by you — So you should probably get going!

Leading Your Business

I remember my first business acquisition. I signed the documents, and I went out with some friends to celebrate the accomplishment. It wasn’t until I got home and laid down for the night that it hit me… “What did I just do?” You know, I just bought a business. Did I make the right move? What do I do now? Worries and questions ran through my head all night long. And honestly, a minor panic attack ensued.

You’re probably going to be in the same boat I was. At the end of the day you acquire a business, you’re going to experience a myriad of emotions. Everything you’ve worked for has now come to fruition. Your friends, family members, advisors, planners, and employees will probably be there throughout the day to celebrate with you. By the time you get to the end of the day, the adrenaline will wear off. Things will settle down, and anxiety may creep in.

Obviously, you’re going to experience excitement and happiness. I mean, you’ve planned this day for months/years and isn’t it great that the day finally arrived? However, you’ll probably second guess your decision, too. So whenever you reach this point in ETA, remember that it’s just the start. There is so much more to life! No matter how old or young you are, there is so much more to live for, and now you have a business to run in addition.

The ETA First 100 Days

On July 24, 1933, Franklin Delano Roosevelt gave a radio address in which he coined the term “first 100 days.” For our recent acquisition, it’s an important perspective to take into account. On that day, Roosevelt famously said “We all wanted the opportunity of a little quiet thought to examine and assimilate in a mental picture the crowding events of the hundred days which had been devoted to the starting of the wheels of the New Deal.” Congratulations… Your new business is your New Deal!

Over the past months, you should have been compiling the pages to make your ETA First 100 Days playbook. Within this playbook, you should have four main components:

  • Strategy
  • Execution
  • Cash (Revenue Drive!)
  • People

Unfortunately, at Tip of the Spear Ventures’ Mergers & Acquisitions practice I see leaders all the time that take over a business and have no plan. Perhaps the plan is to run it the same way the previous owner had. Perhaps they plan on “winging” it. But both of these “perhaps” will lead you nowhere fast!

When you first identified the business that you just acquired, you should have developed a list of potential levers — areas of improvement that if you bought the company you could flip to dramatically increase the revenue of the business. What are those levers?

The ETA First 100 Days is a time when you should have these levers and components pre-developed for an action plan. When you take over the business, while late, is not a good position to be in to start to assemble the plan. What are you going to do? Who will you need to do it with you? Why will what you’re doing align with your new organizations mission, vision, and values? These are but a few of the ETA First 100 Days you’ll want to identify well in advance of the first day of ownership.

At Tip of the Spear Ventures, we’re famous for aggressively setting out to accomplish goals during The ETA First 100 Days. However, and this is a nod of respect to the previous owners, we spend the first week (7 Days) attempting to seek first to understand, then to be understood. In other words, even though we’re default – aggressive in this time, we want to understand why things have been running the way they have. With a firm understanding, we then set to implement/execute our plans for ETA First 100 Days.

SUMMARY

Congratulations are in order… You made it to Entrepreneurship Through Acquisition (ETA)! As I previously cautioned, before you start popping those champagne bottles you’d better have a plan for the next day of running your business — You should have the first 100 days lined out! So, in today’s 30 Days to ETA post, we’re going to explore Leading Your Business | The ETA First 100 Days… Enjoy! Ultimately, a closing isn’t the end, but your new beginning.

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