Tip of the Spear Ventures

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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

Is Your Structure Prohibiting Business Entity Transformation?

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The Point: Business entity transformation can mean big results for business owners, regardless of entity size. Transforming a small company into a larger company with bigger revenue and market share can be a daunting challenge. It can also be time-consuming, costly, and ineffective if the owners don’t know what they’re doing. So in this post, we’ll explore a simple — yet insightful — framework for helping business owners understand their obligations to inform themselves as they prepare for, and successfully execute, a business entity transformation… Enjoy!

Business Entity Transformation

It’s All About Entity Transformation… But Where Do You Focus First?

Business owners — For our purposes, those that lead and own the business entity initiatives, regardless of if they are actually equity owners — are required to inform themselves about any and all changes in their business structure, product mix, or market shares through whatever means necessary. For example, a business may have recently incurred new technological breakthroughs and may now face new regulatory requirements. They may face changing market demands as customers demand more products and services with less money. Or they may have recently entered into an acquisition deal and now need to comply with new reporting and disclosure regulations. Each of these examples requires careful and detailed communication with key stakeholders. Failure to communicate properly and fully can result in fines or penalties, and can also result in potential harm to the business entity itself by diminishing its ability to protect and grow the business.

Business Entity Transformation Is More Than Strategy and Communication

It is not only the business that must be notified and informed of changes in its structure, product mix, or market shares (i.e., Strategy). Organizations engaged in transforming their business must also notify employees, officers, and other key executives. Business transformers should always remember that the first person in the chain of command, after the CEO and board of directors, makes the final decisions. Employees will likely be hesitant to question the new policies regarding pay and working conditions. Executives may also hesitate to raise questions regarding their own bonuses and stock options. By providing early and accurate notification of changes to all employees, the business can avoid this sort of crisis.

Business Entity Transformation From New Technological Breakthroughs

The business must also be aware of the potential impact that any new technological breakthroughs or regulatory requirements may have on its ability to operate and compete effectively. A major change in one technology can eliminate or reduce the need for certain functions, and require the development of new or additional technologies. Similarly, a change may make it necessary to retool the business’s methods to take advantage of the new technologies. The methods by which a business operates can change over time as well, if it is pursuing a strategy focused on market segmentation. Both of these scenarios can result in significant disruptions to a business’s operations and may require adjustments to business processes and employee routines.

Business Entity Transformation Is Change

Businesses also face the challenge of integrating changes with current practices. If the business has been successful in the past in the formation and execution of its strategies, it may prove difficult to change the same strategies and execute the same processes. For example, if the business has successfully established a balanced mix of internal and external resources, it may prove difficult to change to a new sales and marketing strategy if it is based on the same internal resources and practices. Likewise, if an existing procurement strategy is effective, changing to a new procurement process could result in a loss of competitive advantage.

Another difficulty faced by a business that wishes to convert to a different legal entity is that of change management. There are many issues involved in change management, such as identifying who will manage change activities, evaluating the impact of any new regulation, and ensuring that the new regulation complies with the corporate governance standards already in place. Changing the makeup of a board of directors or personnel to include new members while maintaining key personnel may prove difficult, if not impossible, once regulatory requirements are implemented. Moreover, there may be an added administrative cost involved in tracking personnel changes and making any other personnel changes necessary to implement the new regulation. Finally, the implementation of new regulations can have a negative impact on cash flows and liquidity and the need to obtain additional capital in order to support the new regulation. This risk could be reduced by better aligning company objectives with business governance standards.

Business Entity Transformation – Where To Get Help?

Businesses should seek assistance when they are in danger of changing their legal structure. The legal documentation for incorporating a new corporation, limited liability company, partnership, or corporation varies from state to state. It is important to identify the requirements of the state in which one wishes to incorporate and make sure that the legal documents are current and comply with the requirements. A business that wishes to convert from a C-corp to a S-corp will have to register the corporation, obtain special certificates, and pay taxes on the transfer of shares and assets. Business owners may feel overwhelmed by the rapidly changing corporate governance requirements and the potential costs and risks associated with these changes. Hiring a consultant can help reduce the stress and complexity of navigating the complexities of incorporating a new business entity.

SUMMARY

The most important thing that a business owner should remember is that a business entity is often very different from the “person” that owns and controls the business. A business is often a complex legal structure that consists of many different parties and relationships. Business governance is often referred to as “business code”, and this code is often very difficult to understand and follow. Consulting an attorney who specializes in business law can provide insight into the current requirements for incorporation and a review of the possible future changes that may affect a business’s structure and management. When incorporating a new business entity, it is important to hire an attorney who understands the complexities of incorporating and knows how to navigate the ever-changing business terrain.

Sam Palazzolo