Why there's never been a better time to turn your business into a valuable assetNov 13, 2020
Now that the dust is starting to settle on the coronavirus pandemic and we’re heading towards the “new normal”, it’s a crucial time to make the right decisions as an entrepreneur.
And while it might not feel like it if you’ve spent most of this year putting out fires and making tough decisions, I think there’s never been a better time to turn your business into a valuable asset.
You might not see it that way if your day-to-day still consists of dealing with the aftermath of this year’s events.
But read on to find out exactly why this is a great opportunity to sow the seeds of a wildly successful exit strategy.
Investors are looking for a sure bet more than ever
First, let’s step into investors’ shoes.
The next few years are set to be times of serious economic uncertainty.
Which means investors’ tolerance for risk is going to be at an all-time low.
They’re less likely than ever to take a chance on a business that hasn’t been consciously built into a sellable asset.
Of course, the flip side of this is that if you put in the work needed to make your company as appealing to buyers as possible, it’s going to be an incredibly attractive proposition to investors.
Plus, right now private equity is sitting on a keg of cash that they’ve been holding back on dipping into until the dust settles on the COVID situation.
So if you get it right, the money is definitely there for a big business exit in the next few years.
Take a step back
If your business isn’t as busy as you’d like it to be at the moment then it can certainly feel scary.
And I’m not going to tell you to focus on the positives if you’re having to make really tough decisions to keep the lights on right now.
But if the day-to-day has died down, you’ve been given the perfect opportunity to commit the time and headspace it’s usually impossible to come by to think about your strategy.
You won’t get a better chance to take a step back from your business and analyse it objectively.
Let’s face it: no one knows what the world is going to look like once the dust has settled on the coronavirus crisis.
But one thing’s for sure – we’re navigating some seriously uncertain times.
So if you want to future-proof your business – as increase what it's worth to investors – it’s essential that you take a step back and ask yourself:
What needs to change for my business to not only survive coronavirus, but come out the other end stronger?
Pruning the tree
Under Steve Jobs, Apple became one of the most successful businesses in history.
And at the time, its entire product range could fit on a table, as then-COO Tim Cook told Business Insider in 2010.
Instead of doing a lot of things poorly, Apple chose to ‘think different’ and do a small handful of things extremely well.
If you want to come out the other end of COVID with a business that’s more valuable than it was before it all began, it’s crucial you take a leaf out of Apple’s book.
Jason Fried, co-founder of Basecamp, calls this pruning the tree:
Before you start pruning, you circle around the tree and take in the shape. You have to step back and get a wide view in order to see the whole thing.
Then you start making some observations.
You notice this branch crossing and rubbing that branch. You see suckers shooting straight up taking energy from the healthy limbs. You see dead wood, you see thriving wood, you see leaders, and you see future problems. And depending on when you’re looking, you might see next season’s buds.
The cure for shiny object syndrome
A lot of us entrepreneurs have what I call ‘shiny object syndrome’.
We’re often guilty of chasing a new opportunity on the back of what is, if we’re totally honest, a knee-jerk reaction – a throwaway comment from a customer or a suggestion from the sales team.
My entrepreneurial story is certainly littered with examples of just that.
And as a result, your business’s bread and butter – the 20% of things that lead to 80% of your revenue – gets neglected.
Fried advocates the opposite. Take a step back and identify what’s really driving revenue in your business.
Then ruthlessly prune everything else.
Steven King’s famous advice to writers is "kill your darlings", but he could just as easily be talking to entrepreneurs.
It’s crucial to streamline your operations if you're serious about increasing what you business is worth – even if that means retiring projects you’ve invested a lot of blood, sweat, and tears into.
So ask yourself:
What are the products or services that aren’t making – or are even losing – us money?
- If we could only sell 20% of our products or services, what should they be?
- Which 20% of our sales and marketing efforts are driving 80% of the results?
- Which 20% of our people drive 80% of the results?
The answers to these questions might be hard pills to swallow.
But they’re also the roadmap to dramatically increasing the value of your business – no matter which type of business exit you decide is right for you.
Shift to a subscription model
After you’ve pruned the tree, you’ll be left with the core products and services that align with your customer’s needs.
Which in itself will have made your business a more valuable asset.
But you can make it even more appealing to buyers by figuring out how to deliver those services going forward in a way that provides a recurring revenue stream.
Investors love businesses with a subscription model, as they offer a guaranteed return on their investment.
You might not immediately see how this is possible, but I've yet to come across a business where there wasn’t an angle to turn at least part of it’s offer into a subscription service.
Put processes in place that remove you from the business
Then you need to remove yourself from its day-to-day operations.
Once you’ve streamlined your line of products and services, the next step is to focus on refining the processes involved in delivering them to the point that your business runs without you.
That way a buyer can rest assured that your business isn’t going to fall apart without you at the helm – and that it even comes with a user’s manual.
Take advantage of all the support available right now
Another reason that right now is a great time to invest in turning your business into a valuable asset is that there’s never been more support available for you to tap into.
For example, in the UK, entrepreneurs can currently get business loans on extremely favourable terms through the coronavirus Bounce Back Loan scheme.
It might seem crazy to be investing in your business during such uncertain times.
But as Warren Buffet says, it pays to be “fearful when others are greedy, and greedy when others are fearful”.
While your competitors stand still, you’re in a great position to capitalise on the opportunity by charging forward.
And if you want to build a valuable business you can sell at a premium, you need to invest in bolstering it if you want to leave it with the biggest possible payout.
Right now presents a once-in-a-lifetime opportunity to leverage money that’s typically much more difficult to kind of get your hands on to realise your vision for your business.
So be sure to search for what financial support is available in your country to see if there are any opportunities you can be leveraging right now.
While it might not seem like it on the face of things, I hope you can see why now is the perfect time to transform your company into a valuable asset.
If business is slow due to the pandemic, you’ve got an invaluable opportunity to dedicate the time and headspace needed to analyse your organisation and prune the tree, as Jason Freid would say.
Once you’ve streamlined your products and services, you can then work out how to bake a subscription model into your business, as well as refine your processes so you can remove yourself from the day-to-day running of your business.
You also have once-in-a-lifetime access to business loans on incredibly favourable terms that you can leverage to execute this essential work.
And if you build your business into a valuable asset while others are treading water, you’re going to be in an incredibly strong position a few years down the line when you come to exit your business.