The Core Four: The four foundations of a valuable business you can sell at a premiumMar 19, 2021
It’s hard to know where to start when it comes to increasing the value of your business.
But after going through the process of building a valuable business myself and helping dozens of entrepreneurs do the same for themselves through my courses and coaching, I’ve identified four areas that produce a huge return on investment.
- Remove overdependence
- Create a sustainable competitive advantage
- Build recurring revenue streams
- Establish strong systems and a first-class leadership team
Whether you’re looking to sell your company or create a business that runs without you, focussing on these four aspects will not only help you maximize your business’s value but also your freedom.
I call them The Core Four, and focussing on them will help you quickly create a business that:
- Thrives without you
- Gives you more time with family and friends
- Allows you to pursue other interests
- Is healthy and profitable
- Sells for a significant premium
- Gives you the freedom you dreamed of when you set off on your entrepreneurial journey
This is my complete guide to implementing The Core Four in your company – no matter where you are on the journey of building a valuable business you can sell for a premium.
Read on to discover absolutely everything you need to know to increase the value of your business.
Let’s dive straight in...
Why is it so important to build a valuable business right now?
A new wave of acquirers are in the midst of what investors are calling a 10 trillion dollar opportunity.
Plus, private equity is sitting on a keg of cash right now that they’ve been holding back on dipping into until the dust settles on the COVID situation.
This means the demand is there for established, owner-independent businesses with recurring revenue streams and a clear USP.
Get it right and the money is definitely there for a big business exit in the next few years.
But you’re not alone...
2.2 million baby boomers retire every year, according to The Pew Research Center.
And boomers own about half of all privately-held businesses in the United States, according to Project Equity.
Add the current economic climate into the mix and it’s safe to assume there’s going to be a flood of businesses coming onto the market in the coming years.
This means when you choose to sell your business you’re going to be entering a buyer’s market.
And that’s not all...
Only 20% of businesses that go to market end up selling, according to BizBuySell’s 2019 Insights Report
This means a shocking amount of entrepreneurs get nothing for the business they’ve spent their lives building.
After the sleepless nights, the long weekends, and all the blood, sweat, and tears…
Their business is literally worthless.
At least one thing clear:
If you want to be one of the 20% of business owners that pull off a successful exit, you need to do things differently from most entrepreneurs.
You need to remove overdependence in every area of your business by focussing on The Core Four.
Core Four #1: Removing owner overdependence
Overdependence occurs in The Core Four areas of a business:
- Owner overdependence (your business relies on you)
- Customer overdependence (your business relies on a small handful of customers)
- Supplier overdependence (your business relies on a single supplier)
- Employee overdependence (your business relies on a small handful of employees)
The thing that separates valuable businesses that sell at a premium from companies that are impossible to shift is that they don’t have an ounce of overdependence on any of The Core Four.
Why owner overdependence decreases the value of your business
On the surface, it makes perfect sense to be the one pulling all the strings in your business.
You know your industry and your products or services inside out.
You’re the one with relationships with your customers.
And your employees are loyal to you – and might even jump ship if you weren’t around.
Plus, you’ve got where you are today by steering the ship through stormy seas. If you weren’t at the helm who knows what would happen?
Especially given that none of your staff care about your business as much as you do – even your most loyal and longstanding employees.
And make no mistake – people love to follow passionate entrepreneurs who put in long hours every day, and that’s no doubt had a part to play in your success so far.
But remaining at the center of your business is not only a surefire way to guarantee you’ll have to work long weeks going nowhere fast for the rest of your working life.
It also causes a whole host of growth barriers and some big roadblocks between you and a fair price when you decide to sell your business.
Signs your business is owner-dependent
There are four surefire signs that your business is too owner-dependent:
1. You’re actively involved in selling your products and services
A common mistake entrepreneurs make is instead of replacing themselves as their business’s best salesperson, they stay on the front lines making sales calls for far too long.
If you want to realize your business’s full value, you need to stop working in it and start working on it.
2. Your business offers too many products or services
Us entrepreneurs often suffer from a serious case of “shiny object syndrome”. We jump every opportunity we get a sniff of – sometimes off the back of little more than a throwaway comment a customer makes on a sales call.
A bewildering array of products and services that not only distract you from your core revenue-drivers, but often operate at a loss.
The less focussed your product or service offering, the more you’re going to be dragged into putting out fires and less likely you are to be able to remove yourself from your business's daily operations.
3. Only you can deliver
If you're in any way essential to delivering your products or services to your customers then you’re running an owner-dependent business.
4. Customers expect to deal with you
If you're the face of your business then it's owner-dependant.
Why you need to fix your business’s owner-dependence
Most entrepreneurs run owner-dependant businesses. And for the most part, it works… just.
You’ll probably spend your days (and evenings, and weekends…) putting out fires and going nowhere fast.
You’re likely to have sleepless nights about sales, revenue, and cash flow because no matter what you try, your business never grows.
You might even live in fear that your whole business is going to collapse on top of you at any minute.
And when you come to sell you’re likely to get a hell of a shock when you discover what your business is worth.
But the real fun and games begin whenever you step away from things.
Customers receive substandard service, then start calling and emailing you when things go wrong.
Step away on the long-term – for a break or to tend to a family matter – and your revenue plateaus because you’ve become a bottleneck in your business and your resources are spread too thin.
Hardly the life we dreamed of when we set out to build our own business and master our own fate….
The five steps to removing owner-dependency
Luckily there’s a tried and tested five-step process to remove yourself from the day-to-day running of your company – one that I walk everyone who works with me through.
Implement these five changes and you’ll not only get your life back, but you’ll dramatically increase the value of your business as well:
STEP 1: Simplify your business
Most of us entrepreneurs are hellbent on growth. But growth for growth’s sake isn’t a good strategy.
Most of the time, it leads to us spreading ourselves a mile wide and an inch deep.
Of course, that’s never our intention. But here’s how it normally goes:
You might start out as a PR agency and, because you knock your core competency out of the park, a client asks you to help develop content for their website.
That’s an arrow in your business’s quiver, so you jump at the chance and do a great job of that too.
More than happy with the work you’ve done for them so far, your client then refers you to another business in their network who asks if you can help them revamp their website.
That’s a bit of a stretch for you – but if you hire a developer, you could offer that to other businesses going forward too.
And before you know it, you’re a generalist agency offering a swath of barely connected services to customers of all shapes and sizes across countless industries.
And along the way you’ve lost your USP – the one thing that keeps you from being another “me too” competitor.
This might sound counterintuitive, but you should say no to work if it’s going to take you away from your core competencies or company values.
Carve out a niche where you have an unfair advantage: one where you can add huge value to your clients, clearly differentiate yourself in the market, and build a deep moat around a core USP.
For instance, a PR agency might carve out a niche as the go-to firm for vegan start-ups, or for authors that want to get featured in major publications, or for small businesses that want to get coverage in the local press.
Apple is a perfect example of this:
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.
Another great example is MacDonald’s.
In The Founder, the Ray Kroc biopic, the MacDonald brothers explain that they looked at the books one day and realized that 87% of their sales came from just three menu items: burgers, fries, and soft drinks.
So they cut all other menu items – brisket, tamales, fried chicken – and niched down to those three items, which are of course still the core of its business today as a worldwide franchise.
So many business owners I work with have drifted away from their core value proposition.
But the most successful businesses in the world are all laser-focussed on staying within their core competencies – even as those competencies grow over time.
Take a leaf out of Apple and MacDonald’s books and ask yourself: Is this a core revenue-generating product, service, or initiative or is this sucking my time, energy, and money?
STEP 2: Setup for growth
Once you’ve tightened your niche, you need to set your business up to scale.
One of the best mechanisms for this is the scalability trifecta.
Look at each of your products and services and ask:
- Is it teachable? How easily could I teach an employee to deliver this product or service?
- Is it valuable? How valuable is this service in the eyes of my customers?
- Is it repeatable? How regularly do customers need to re-purchase the service?
Focus your energy on the products and services that tick all these boxes.
And for the rest, think of ways you could change the way you deliver them so they could land in the scalability trifecta.
Otherwise, you need to put a plan in place that allows you to drop those products and services.
Of course, this isn’t easy if a good chunk of your revenue is currently coming from products or services that don’t tick all of these boxes.
But as long as your business relies on these services, you won’t be able to extract yourself from its daily operations and transform it into an owner-independent business that could sell for a premium.
STEP 3: Governance: realize that systems and people run your business
Once you’ve found your niche and you’re focussed on the offerings in the scalability trifecta, you need to shift your mindset.
If you’re currently the owner-operator of your business rather than the CEO, you’re putting your energies into the wrong areas of your business.
Your spending too much of your time working in your business when your job as the leader is to work on it.
Right now, you’re the person staff come to with questions. You’re the person customers contact when they have problems. And you require sign off on every decision that gets made in your business.
In contrast, here’s how an owner-independent business runs:
- Processes run your business
- People run your processes
- You lead your people
To achieve this, you need to document the processes that run your business and empower your staff to own them.
Then you need to start seeing your responsibilities as:
Empowering your staff to work autonomously and make decisions on their own.
Creating and executing a strategy for scaling your business.
Helping refine processes and build new ones as and when needed.
This is a sea change for most owner-operators, who spend their days handling emergencies and solving problems for their staff rather than scaling their business.
STEP 4: Build recurring revenue
Baking recurring revenue streams into your business is one of the most surefire ways to increase its value.
Firstly, if you crack the recurring revenue code your business will become a whole lot easier to run.
Instead of having to constantly chase customers for late payments or guess what your future revenue is going to be when you’re planning business growth, you’ll have a lot more stability.
Plus, a guaranteed income each month – even if it's just a fraction of your total revenue – gives you the kind of peace of mind that’s worth far more than money alone.
On top of all this, a business with reliable recurring revenue is an acquirer’s dream. You’re likely to go to the top of every buyer’s wishlist when you take your business to market should you choose to sell.
Not sure where to start when it comes to building recurring revenue streams in your business? Check out my guides on:
- How to switch to a recurring revenue model
- Four subscription business models for your business
- Five more subscription business models for your business
STEP 5: Earn your freedom with your magic numbers
Business moves way too fast to be able to wait for the monthly, quarterly, or annual financial statements from your accountant to guide your strategy. By the time you get them you’re already dealing with the consequences of whatever problems may have arisen when you weren’t looking.
But trying to keep track of all the metrics in your business would leave you with no time for anything else.
That’s where the magic numbers come in.
These are the metrics that matter – if these are on track, success will follow.
For author Ryan Holiday, his magic number is “two crappy pages of writing a day”. He knows “published books come out the back-end” if he produces those two pages every day.
It might take a bit of digging to find the magic numbers in your business – the one or two key metrics that help you track your business’s overall health.
Earlier in my entrepreneurial journey, when I owned a document scanning and storage business, my magic numbers were the number of boxes scheduled to come into the warehouse on a weekly basis and the volume of documents scanned – budgeted, forecast, and actual.
Although boxes only represented a small portion of my total revenue, I learned that our sales rose in direct proportion to the number of new boxes we added in any given period.
And we knew that if the forecast dropped against the budget, we had to take action to meet our actual budget.
We had all the information we needed to take timely action to nip looming disasters in the bud and keep profits high.
If we had relied on using our retroactive financial statements to guide us I dread to think how many molehills would have become mountains that took us way off course.
Core Four #2: Finding a sustainable competitive advantage
If your business has a sustainable competitive advantage it will be impossible, difficult, or costly for your competitors to emulate your business and take market share from under you.
It will also be plain sailing for you to run, as marketing a genuinely unique business is a piece of cake compared to trying to drive interest in a “me too” provider with nothing that sets it apart from the competition.
What’s more, businesses that have carved out a sustainable competitive advantage sell for a serious premium because they’re a guaranteed home run for an acquirer.
So, let’s dive into how to carve out a sustainable competitive advantage for your business so you can start reaping the rewards.
Going beyond good marketing
First things first: a sustainable competitive advantage is far more than good marketing.
So many entrepreneurs get hung up on figuring out the perfect branding, value proposition, and go-to-market strategy.
And don’t get me wrong – getting that right is all really important.
But more often than not, the reason your business doesn’t have a solid moat is that you've gone completely off the reservation in terms of what your business does.
The key to finding a sustainable competitive advantage isn’t a great marketing strategy or a compelling value proposition.
It’s simplifying your business and finding your area of focus.
Finding your area of focus
Imagine a dartboard with all your products or services laid out on it.
Here’s what that would look like for our PR agency that’s lost its way:
The bullseye represents the business’s area of core focus – its core competencies. This is the whole reason you started your business.
You’ve built your career in this area and you've got a strong reputation as an expert in the sector. So you go off and spread your wings by starting your own PR firm, building a small team dedicated to providing first-class PR services.
Things are going well – so well that your clients want you to write some articles for their site and rehash their website’s copy.
And while this takes you away from your core competency of PR, the work pays well and you have the skills in-house to do a good job of it.
As your firm’s reputation grows because of all the great PR work you’re doing, clients get in touch asking you to help them with website design, advertising copy, and digital marketing. You might realize you can upsell your clients on some SEO as well.
And along the way you hire specialists to fulfill these services, taking your business further away from its area of focus – PR.
Finally, you spot a great opportunity to make a short-term profit on managing the Facebook ads for a client. That’s hardly a huge leap from the organic social content you’re doing already, so you jump at the chance.
And suddenly you find yourself managing your clients’ digital ad spend – something that’s not even remotely connected to your core competency.
I’m using an agency as an example here because so often I see agencies starting off with a core focus that they’re exceptional at and then just becoming all things to all people.
And along they’re making a profit along – but they’ve ultimately destroyed their sustainable competitive advantage and become just another of the countless “me too” agencies that are out there.
If this story sounds familiar to you – it certainly does to me – it’s crucial that you return to your business’s area of focus if you want to walk away from an exit with the biggest payout possible.
How to find your area of focus
So often we business owners are focused on that next big, shiny opportunity.
We prioritize short-term profits over our core capabilities, which we move further and further away from.
We spread ourselves a mile wide and an inch deep, making it impossible to build a sustainable competitive advantage.
Stripping things back to your area of focus is a huge step towards being able to build a moat around the business.
But once you’re offering a whole host of products and services and making money from all of them, how do you choose what to get rid of and what to focus on?
Look at your revenue streams
The first thing to do is take a close look at the finances to see where most of your revenue is coming from.
Find the 20% of the products or services you offer that are driving 80% of the revenue.
PR, articles, and web copy make up the vast majority of our PR agency’s revenue.
So we need to jettison everything else and focus on being an exceptional PR agency, then look at how we build a sustainable competitive advantage around that – which might be focussing on a particular vertical.
Look at your clients
Another great place to find your area of focus are the sectors you’re currently serving.
Our PR agency analyzes its client base and discovers that almost all of its clients come from three verticals: caterers, restaurants, and venue finders.
Because these clients operate in the same space, it’s a simple pivot to become the go-to PR agency for foodservice businesses.
And that’s a small and well-defined enough niche that our agency could become the world’s best in that space.
A real-world example of this is the marketing agency Nuphoriq, who do one thing very well: “help caterers and venues build loyal clients and drive qualified sales leads.”
They’ve focussed on being the very best they can be in that niche, and along the way, they’ve built a sustainable competitive advantage that a competitor couldn’t easily come along and replicate.
Five frameworks for finding your area of focus
Finding your area of focus is often harder than it seems – especially if you’re an established business that strayed far from your core competency long ago.
Think about your offering in terms of these five frameworks for inspiration on how to strip things down to your core competencies and build a moat in your industry.
1. Provide a no-frills service at a lower cost
Both Southwest Airlines in the US and Ryanair in Europe are great examples of this model. They offer no-frills flights at a price their competitors can’t match, and they’re very good at it. Their target market gets from A to B for less and stays loyal because of that.
2. Provide a premium service at a higher cost
In contrast to Southwest and Ryanair, Delta and Air France serve the top end of the market. Fly with these premium airlines and you’ll pay more in return for top-of-the-line service that the competition can’t match.
3. Provide a broad range of products or services to a niche sector
HR for eco-friendly organizations. Marketing for yoga instructors. Software for freelancers.
Countless businesses have found success by becoming the go-to provider of a generic product or service to a narrow niche.
4. Provide a niche product or service to a broad range of sectors
Theme song composition for podcasts. Hand-drawn explainer videos. “Caution! Wet floor” cones that look like bananas.
A laser-focus on a single product or service can serve your business incredibly well.
5. Create a novel innovation
Create a novel, patented technology that there’s a strong demand for and you’ll have a ready-made sustainable advantage.
What makes your business different?
With all of this in mind, the first step in carving out a sustainable advantage for your business is to get clear on what makes your business different.
Let’s start right now. Take a moment to list all the things that make your business unique. Everything that sets you apart from your competition.
A word to the wise: whenever I go through this exercise with the entrepreneurs I work with, not many of the things they list are unique.
They’re things like “we’ve got the best service”, “we’re the cheapest”, or “our app integrates with the most software”.
But you can’t build a moat around great customer service alone, because it’s not unique.
So, be sure to only note down what’s truly unique about your business.
Ideally, this list contains around three things that make you truly unique from your competitors.
Your competition could replicate one unique thing about your business. They might be able to go toe-to-toe with you on two things. But replicating three unique features you’ve carved out in your business will either be impossible or prohibitively difficult and expensive.
Making your advantage sustainable
Once you’ve identified the foundations of a moat you can build around your business, the next step is making that advantage sustainable.
And to do that you need to get clear on what your business excels at – or could.
This isn’t a five-minute, one-and-done process. It’s an ongoing process of refining your roster of products and services to ensure that you’re always an absolute rock star at what you do.
And once you’ve found that area where you’re a true superstar, you need to ignore all the shiny objects along the path to success.
These might be profitable in the short-term, but they're going to be a distraction from your area focus in the long-term.
But it’s a lot easier to avoid them when you’ve run the numbers and know you’re on a surefire path to success.
Core Four #3: Recurring revenue streams
Every entrepreneur should make it a priority to build recurring revenue into their business.
It guarantees your freedom
A steady stream of guaranteed income allows you to step away from your business and know that revenue will continue flowing in while you’re away.
Without that subscription income, things reset every month. You have to spend most of your time and energy in the sales trenches trying to get a new batch of customers over the line.
Which also means that you’ll never be able to step away from your business for as much as a day until the ink is dried on a fresh set of contracts.
I don’t know about you, but that’s not exactly the life I was dreaming of for myself when I set off to become an entrepreneur...
It gives you a chance to think big
Fortune favors the brave – and nowhere is this more true than in business.
When you’ve got a steady stream of recurring revenue coming in, you have the freedom to be ambitious with your marketing strategy.
That might mean running a risky campaign that you can afford to fall flat. Or it could mean turning your sights to building a brand that’s built to last rather than always looking for the next quick win to make ends meet.
So while your competition are scrambling for sales, you can chart a course for success that they simply won’t be able to compete with in the long-term.
It attracts outlandish offers
When buyers see a business with solid recurring revenue streams, they see an asset with a guaranteed return on investment for years to come.
In other words, they’ve hit a gold mine.
Which not only means you can hike up your asking price if you choose to go to market.
It also means you’re likely to receive some outlandish offers along the way even if you’ve got no plans to sell.
How much difference does recurring revenue really make?
According to research in John Warrilow’s Built to Sell, companies with recurring revenue receive offers 75% higher than companies in a similar industry or sector without it.
So, if your industry’s earnings before interest, taxes, and amortization (EBITA) multiple is 3.76, a recurring revenue stream will bump that up to something like 5.89.
That means if your business’s EBITA is $250,000, you can expect to receive $950,000 for it as standard. That rises to $1.47 million if it’s built on a recurring revenue model.
As you can see, doing nothing else but finding recurring revenue streams in your business is one of the most valuable things you can do to increase its value.
The benefits of subscription revenue
The perks of baking subscription revenue into your business don’t end at boosting its asking price, either.
Here are some of the benefits that come along with a recurring revenue model:
A guaranteed flow of revenue coming into your business gives you predictability.
If you take ill, want to take a sabbatical, or even decide one day that you’re done with your business altogether, that revenue will still keep streaming through.
That gives you a solid foundation to either build on, or to spend a few hours each week maintaining and the rest of your hours however you like.
You get paid automatically and in advance
When your business runs a recurring revenue model, you’re paid upfront then deliver the work. Subscription revenue hits your business’s bank account automatically and in advance.
That means you’re not waiting 30, 60, or 90 days for the money you’re owed to flow into your business.
And it means you can say goodbye to chasing customers for overdue invoices or having to take legal action to get money from clients who refuse to cough up.
You get free market research
Another big advantage of a subscription model is that it provides you with free market research.
Software companies have mastered this. The likes of Netflix, Adobe, and Slack are constantly running A/B tests of new features on their users.
They have a lot of leeway to do this because those customers are locked into subscriptions. This allows them to quickly test new features on active users without having to worry they’re going to lose them to their competitors.
Once you’ve baked a recurring revenue model into your business, you can say goodbye to limited surveys and expensive focus groups and get paid while you do market research.
Your customers are “sticky”
Once your customers are locked into a subscription they’re far less likely to leave.
I’m a perfect example of this. I’ve had Harry’s razors delivered every quarter for years and I think it’s a great service.
Now, I’m sure the likes of Dollar Shave Club do great razors as well. But unless Harry’s suddenly hikes its prices up or the quality of its razors drops off a cliff, I’ve got no intention of getting my razors from anyone else.
Harry’s has made me a “sticky” customer by getting me hooked on its subscription model, and I’m one of thousands of people they’re guaranteed revenue from each year.
Subscribers buy more
I don’t just get razors from Harry’s – I get its shaving cream, shampoo, and body wash as part of my quarterly delivery too. And I love it, because this allows me to spend exactly zero minutes thinking about grooming products every year.
It’s the same with the coffee delivery service I use – Hasbean Coffee. The coffee arrives in the door every two weeks, and when I need new filters or want another piece of equipment or some hot chocolate, I’ll just add that to my order too because they’ve made it so easy for me.
You get an improved valuation
Finally, a business with subscription revenue streams is a lot more appealing to potential buyers.
If an investor takes over a business built on a subscription service, they can predict what the return on their investment is going to be much more confidently.
It’s important to realize that bringing an asset that generates profits as regular as clockwork into their portfolio allows acquirers to take risky bets on the next unicorn without worrying about going bust.
And that makes a business with recurring revenue worth its weight in gold to buyers looking to balance their investment portfolios.
So, if you want to sell your business for a premium, you should think long and hard about how you can bake recurring revenue into your business model.
Let’s dive into exactly how to do that – no matter what your business does.
Panning for recurring revenue gold
Hopefully, it’s clear to you now how important finding a way to bake recurring revenue into your business is for its success.
And luckily, there’s a framework you can use to pan for recurring revenue gold within your business: the scalability trifecta we’ve already looked at.
Look for parts of your business that are teachable, valuable, and repeatable.
The aspects of your operations that tick all these boxes are not only scalable, but ripe to be turned into sources of recurring revenue.
RootAdvisors: Recurring revenue case study
Here’s a real-life example of a company that was able to unlock recurring revenue and build a sustainable competitive advantage, all while staying focused on its core competencies: the accounting firm RootAdvisors.
A few years ago, here’s what all of RootAdvisors’ services looked like in terms of how valuable and teachable they are:
At the top-left of this chart sits corporate finance solutions, technology consulting, and audits. These are very valuable services and sell for high profit, but they’re not very teachable. So the firm’s partners were typically involved executing this work, and it took up the majority of their time.
Then on the bottom-right, you’ve got things like payroll recording, daily deposits, reconciling bank accounts, and monthly financial statements. This is a whole group of services that just about anybody can be taught to do given the right training, but they're not very valuable.
But customers need these services every month, making them highly repeatable.
When they realized this, RootAdvisors’ partners grouped these highly teachable and repeatable services into their Back Office Support Systems (B.O.S.S.) product:
This transformed the services that didn’t provide much value to their clients individually into a very valuable package.
This gave RootAdvisors’ customers complete peace of mind that the day-to-day accounting – payroll and recording daily deposits and reconciling bank accounts and monthly financial statements – was handled every month without them having to think twice about it.
And because the services that made up B.O.S.S. all sat in the scalability trifecta, it was an easy product for this forward-thinking firm to run and scale, producing a healthy recurring revenue stream for them for years to come.
Eventually, RootAdvisors even created different tiers of the product they sold for at premium prices:
And along the way, RootAdvisors carved out a niche in this area and found a healthy recurring revenue stream for something that typically wasn't offered at that time.
Want to sell your business for a premium?
Think about how you can follow in RootAdvisors’ footsteps with your own business.
Is there an opportunity to carve out a group of your services and transform them into a product that generates subscription revenue?
The scalability finder is your friend here. Score your current crop of products or services by how teachable, valuable, and repeatable they are.
Axe everything taking up your time and then figure out how to package together the repeatable services and start generating subscription revenue.
But my business is different...
Now, it’s about this stage that most of my clients tell me: “But my business is different. A recurring revenue model wouldn’t work in my industry”.
But here’s the thing:
I’ve never come across a business that couldn’t generate some revenue through a subscription model.
Of course, not every business is going to get 100% of its revenue from recurring revenue streams.
But I guarantee you could be bringing in 5-10% of your revenue through subscriptions no matter what your business is.
To help you discover the right recurring revenue channel for your business, here are nine subscription models you could use in your business:
9 subscription models you could use in your business
The Membership Model
ContractorSelling.com has a really strong Membership Model. For a monthly membership fee, electricians and plumbers get on-demand access to training videos and one-to-one expert guidance. No matter what problem they run into in their contractor business, their ContractorSelling.com membership will give them instant access to all the help they need to solve it.
The Network Model
Zipcar is a great example of The Network Model.
Zipcar established itself by setting up in a neighborhood and drumming up interest in its service. It would then analyse the kinds of vehicles that were getting the most use in that area – electric cars, family cars, sports cars, vans – and pull vehicles from one part of its network to another based on local demand.
And that model paid off so well for Zipcar that they ultimately sold to Avis for a big sum.
The Private Club Model
Exclusive Resorts is a great example of the Private Club Model.
Instead of buying a house in Malibu or Maui for a few million, you join an exclusive club and have access to fantastic houses all over the world.
This is a great model to roll out in a luxury market – think cars, yachts, or vintage guitars.
The All-You-Can-Eat Model
Lynda.com – which recently sold to LinkedIn for a fortune – is a great example of the All-You-Can-Eat Model.
This is where you give people access to more content then they could ever get through for a monthly fee. The likes of Netflix and Spotify follow this model as well.
The Peace-of-Mind Model
The Accountancy Partnership here in London offers a very similar service to Loom’s B.O.S.S. service we looked at before.
For £22 a month, I’ve got complete peace of mind that all my basic financial stuff is sorted.
I then get a management pack at the end of a quarter, and at the end of the year, the bookkeeping is all done.
And that gives me complete peace of mind. I don’t even need to think about my accounting.
The Consumables Model
Any consumable that needs to be regularly reordered can be turned into a recurring revenue stream through The Consumables Model.
Ever noticed how Amazon tries to push you towards setting up a subscription at a small discount for items like pens, coffee filters, and dishwasher tablets?
That’s because the Consumables Model is so effective.
The Surprise Box Model
Barkbox is a great example of the Surprise Box Model. They send subscribers new gifts for Fido in the post every month. You never know what's going to be in the box, but it’s always something your dog loves.
Wine boxes are another great example of this model. You let these companies know roughly what kind of wines you like and every month you receive a selection of bottles they think you’ll love.
The Front-of-Line Model
The Front-of-Line Model is where subscribers pay a premium to skip the queues – just like you can at Disneyworld.
This is particularly effective for software companies, as it's easy for them to implement a model where customers pay a premium to skip to the front of the support queue whenever they have a problem.
The Simplifier Model
The Simplifier Model is where people pay a regular amount to make their life easier. This is another big one in the software space, with the likes of Todoist and Basecamp thriving by taking something complex and making it easy and intuitive through excellent software.
A great example outside of tech space are the people who will come and regularly declutter your house. My money is on services like this being a big trend in the future, and I’m sure all sorts of services based on the Simplifier Model are going to crop up.
So, there you have it: the benefits of recurring revenue and a step-by-step guide to implementing it into your business.
Core Four #4: Establishing strong systems
Businesses built on processes are easier to run, more profitable, and sell for a higher price.
But when most entrepreneurs hear this, they say: “I can't rely on my people to run my business the way I do. And no matter how hard I try to let go and delegate, I just can't.”
The delegation rollercoaster
I’ve certainly been there myself earlier in my entrepreneurial journey.
Handing your business over to other people without the proper processes in place can be a roll of the dice.
Delegate all outbound marketing to your sales team and your top salespeople will thrive – but it’s inevitable that not everyone on your team is going to be an A-player.
The whole thing is such a rollercoaster that it ends up being easier to just do it yourself.
People don’t run businesses
If this all sounds familiar then you’re making a fatal mistake.
You’re acting as if people run businesses.
But here’s the thing:
- Systems run your business.
- People run your systems.
- You lead your people.
The most successful businesses in the world have been built on this philosophy.
And you need to follow suit if you want to realize the true value of your company.
Case study: McDonald's
Head to your nearest McDonald's and you’ll notice a few things.
- The owner isn't there.
- The employees are mostly teenagers.
- The food is consistent, served quickly, and relatively tasty.
- The customers are happy.
How do they do it?
With processes like this:
This is the Standard Observation Checklist for McDonald's burgers.
To you and me, it’s the process that unlocks the franchise’s entire value.
Every McDonald's employee around the world follows this simple checklist whenever they make a burger.
And if you search Google Images for ‘McDonald’s Station Observation Checklist’, you’ll find a process just like this for everything: French Fries and Hash Browns, Beverages and Desserts – even Customer Expectations.
These processes are what ensure that no matter where you are in the world, you can walk into a McDonald’s and get exactly the same cheeseburger as back home.
McDonald’s is its processes. You could replace every single employee today – from the CEO to the janitors – and still get exactly the same Happy Meal tomorrow.
But my business isn’t McDonald’s...
Now, I know what you're thinking: “But my business isn’t McDonald's”.
And of course it isn’t. But the same principles can be leveraged by businesses of all shapes and sizes, no matter their industry, to transform their fortunes.
- Built his business to 30 employees and $30 million in consulting fees.
- Sold it for $162 million (roughly 11x EBITA).
- He sold without signing an earn-out.
In short, this guy had the Nirvana of exits.
How did he do it?
He attributes his phenomenal success to the fact he and his team productised their services and had clear systems for delivering the work.
And that meant the delivery team knew exactly what to do and could do it so effectively they generated $1 million of consulting fees per employee.
The seven simple steps to systemising your business
Going from where you stand today to the well-oiled machine of a McDonald’s kitchen might seem like a pipedream – especially if you haven’t been intentionally building a business that runs without you.
Luckily, there’s a simple framework for systemising your entire business:
The first step is to look at your business and ask:
- What's wrong?
- What's not working for me?
- What could be better?
Grab a pen and paper and list the current processes that either aren't currently working in your business or – more often than not – don’t even exist in a formal way.
Once you’ve got your list, identify the top priorities. These are the processes that would add the most value to your business if they were completely optimized – either because the current process is so broken that it’s a huge time sink or because it’s most closely tied to the metrics that move the needle on your business’s value.
A good way of identifying your priority is to ask yourself “If I could wake up tomorrow and one of these processes was completely optimized, which one would I want it to be?”
Work your way through the whole list this way until they’re all in priority order.
Then set a goal of fixing one process a week. At that pace, your business – and your relationship to it – will be completely transformed in a few months.
The second step is assigning these processes to your staff to optimize.
It’s crucial that you don’t lead on creating these processes yourself. You’ll never make the leap from owner-operator to CEO if you don’t draw a line under any task that involves working in your business and start focussing all your energy on working on your business.
So, the next step in this process is establishing a systems champion. This is the person who's going to take the reins on standardizing every aspect of your operations and get each of them operating as effectively as possible.
And they should be given a systems team of one to three people, depending on the size of your business. These are the people who will be creating the systems themselves.
Your systems team shouldn’t be made up of area experts. Instead, they should be operations experts who work with each department across your business to diagnose what they need from their processes and how to effectively systemise that.
Each system should start as a draft that your processes team pulls together with the input of a handful of stakeholders from the department that’s going to be executing the process
It’s crucial to keep things super simple at this stage. You’re looking for a one-pager like a McDonald’s Standard Observation Checklist – something anyone could easily understand and follow.
Now, this is a draft – a starting point. Make sure your systems team knows this and doesn't agonize over getting things perfect the first time.
Once a draft is complete, it’s time to send that to your systems champion who’ll formalize it into a standardised one-page system that everyone across the organization is familiar with.
This format should be visual and intuitive, leaning heavily on checklists, illustrations, and diagrams. You’re not writing an encyclopedia here, so avoid walls of text and lengthy explanations.
The aim here is to have a document you could hand to an intelligent person from a completely different department and for them to be able to execute the task flawlessly.
If your systems champion thinks a process doesn’t pass this test, they need to send it back to the draft stage before formalizing it.
This is where the rubber hits the road and you see where the holes are in your new system.
Push the process out on a trial basis within the department that will be using the process and encourage them to find flaws with it.
For small businesses the trial group might be one or two people, and for large organizations it might be one or two branches.
No one knows better than the people who are going to actually be performing the process how well it works. So get it in their hands and get them to find flaws in it and your system will be improved as fast as possible.
Now you’ve got a standardized process that’s had the kinks ironed out of it during a test run.
Which means it’s finally time to implement it across your entire organisation.
First you need to formally announce it, whether that’s in an all-hands meeting or a company-wide email.
Then you need to document it in your standard operating procedures so that every member of staff has access to it.
Then your systems team needs to train the relevant staff in how to use it.
The more processes you launch, the smoother this process will be.
Finally, you need to invite your staff to contribute to a fix-it list. Whenever they find a fault in a process they should document it.
The systems team should then be responsible for staying on top of these issues and reviewing whether they’re a one-off or something that needs baking into the process.
Even if no fixes get requested, each process should be reviewed every six months to see if they’re the most effective possible solution.
If your business’s needs change, or your industry changes, or a technological innovation unlocks a whole new way of working, you need to refine your processes with these in mind.
And while your staff should stick to your processes rigidly, they should also be empowered to speak up when a process isn’t fit for purpose anymore.
Your systems team needs to keep their ear to the ground and make sure every process across your business is running as efficiently as possible at all times.
Systemizing a business is a team sport
One crucial thing you need to know about implementing processes across your business is that if you try and do it alone you’re bound to fail.
First of all, any process that’s been built without the input of the people on the frontlines of your business doing the work that’s being systemised is worthless.
Secondly, you'll just never get it done if you try to head this operation yourself. It’s a huge commitment, and there’s too much on your plate for you to have the time and energy needed to dedicate to this.
Plus, if you spend your time systemizing your business, you won’t be doing your main job as an entrepreneur – working on our business, not in it.
From captain to coach
- Systems run your business.
- People run your systems.
- You lead your people.
Systemising your operations is going to allow you to delegate the role of captain – the person calling the shots on the field alongside everyone else – and step into the role of the coach.
Your job is to lead your team through creating systems and processes for every aspect of your business, not creating the processes themselves – and definitely not executing them.
A user manual for your business
Implement this seven-step process across your entire business and you’ll ultimately end up with a user manual for your whole business.
Building a leadership team you can trust with your business
If you want your business to be able to thrive without you, you need to install a first-class leadership team.
But most entrepreneurs have no idea where to even start when it comes to building a team they can trust with their business.
Luckily, there’s a simple system for hiring the right people in the right order to remove yourself for your business’s daily operations as efficiently as possible.
Follow these steps to build a leadership team you can trust with your business in no time:
Find your integrator
As the founder and CEO, you’re the visionary setting a course for your company.
But for any business to arrive at its destination, it needs three key areas firing on all cylinders:
- Sales and marketing,
- And operations.
And you’re setting yourself up for failure if you try to set your business’s strategy and execute it yourself.
The most valuable contribution you can make to your business as the visionary is to work on your business, not in it.
And for most business owners, the missing piece of the puzzle is a President or GM who makes sure the three key areas of the business are firing on all cylinders at all times.
So, as soon as you possibly can, bring in someone to head up the day-to-day operations of your business.
This will be your integrator.
This is the role Gino Wickman has defined – the person who brings finance, sales, marketing, and operations together to execute your vision.
A good integrator is the glue that binds your business together. They manage your day-to-day operations, particularly when you're not there.
Us entrepreneurs have a tendency to become enamoured by shiny new objects or hot new trends. A great integrator will fiercely protect your vision for your business and make sure that the “next big thing” that’s caught your eye doesn’t get in the way of executing that vision.
Finding the right integrator to take over your company’s daily operations is the first step in building a leadership team you can trust with your business, and should be your top priority.
The next roles to fill are your department heads.
Now, your business might not be at the stage where you need a full-time hire to oversee each individual department.
If that’s the case, I’d urge you to fill your C-suite roles on a part-time basis.
This might seem odd, but hiring a part-time CFO is one of the things that increased the value of my business the most.
Search online for a part-time CMO, CFO, or whatever executive role you’re looking to fill. There are plenty of partly-retired professionals out there who’ve got plenty of hard-won experience to bring into your business.
Now, you may only need these people to come into your business once a week to advise you on how to get your systems in place and build a team.
But these part-time executives who’ve been around the block will do a lot of the heavy lifting for you when it comes to making sure their department is working as effectively as possible, freeing you up to focus on the big picture.
Fill the gaps
It’s crucial to keep your own strengths and weaknesses in mind when you’re building out your leadership team.
The people who’ll add the most value to your business are the ones who complement your strengths by filling in the gaps in your skillset.
If you're not great at operations, then prioritise finding a star COO.
If you're not great at finance – which most of us entrepreneurs aren’t – focus on getting a part-time CFO.
And if your weak spot is drumming up new business, find a CMO.
A little self-awareness will go a long way here, so be sure to put your ego to one side, honestly assess what you do well and not so well, and bring people in to fill the gaps.
Trust me, this works
Start by finding your integrator, then fill the gaps in your skillset with a part-time C-suite.
This system works.
I’ve helped implement it in business that went on to raise huge amounts of venture capital.
I’ve helped implement it in businesses that have driven growth by up to 250%.
And I’ve helped implement it in businesses of all shapes and sizes across dozens of industries that have all gone on to exit for a very healthy profit.
Every one of these businesses used this exact framework to build a leadership team that became the foundation of their phenomenal growth.
Because a strong executive team is a platform from which you can scale your business without burning out, land investment, or create a company that thrives without you and ultimately attracts outlandish offers.
Don’t get caught in the weeds
In my experience, the biggest obstacle to building a successful leadership team in your business will be yourself.
Here’s how to avoid getting stuck in the weeds and get out of your own way:
Take a long-term view
Building an executive team you can trust to run your business for you isn’t going to happen overnight.
So, be sure to take a long-term view here. It’s a marathon, not a sprint – and one that’s bound to come with it’s fair share of headaches during the first steps.
But sticking it out is one of the highest impact things you can do to increase your business’s value.
Set a clear vision
Taking a long-term view is a lot easier when you’re working towards a clear and compelling vision.
So, if you haven’t already, map out exactly what you’re working towards. What will your life look like when you’ve removed yourself from your business’s daily operations? What will your business look like? And how much higher will the payout be when you choose to exit?
Start at the final destination and work your way backwards, planning out all the milestones along the way – all the things to look forward to.
You might even discover that some big transformations are a lot closer than you first realized, giving you the motivation needed to overcome the early hurdles that are bound to come with trying to make such a seismic change in the way you run your business.
Get an accountability partner
Making any major change in your business is hard. There’s so much on the line, and if things blow up in your face the buck stops with you and you alone.
An accountability partner is the perfect antidote to the fear that comes along with making a major change like overhauling your leadership team.
I strongly recommend you find a coach or join a CEO group so you have someone in your life by your side through this whole process.
An effective accountability partner will help you find the clarity you need to simplify your business and do what needs to be done to get to the next stage in your entrepreneurial journey.
Set aside time to execute your plan
Your plan to overhaul your leadership team isn’t worth the paper it’s printed on if you don’t make time to execute on it.
No matter how hectic things get, make sure you set aside time every week to work on integrating a first-class leadership team into your business until you’ve completely outsourced operations to your C-suite.
If you don’t make time for this now, things will always be hectic – because you’ll never have a leadership team to bear the brunt of the latest crisis for you.
An accountability partner can be a huge help here, as they’ll hold you to executing the things you said you would.
Keep it simple
Last but not least, be sure to keep things simple.
When things get complex, they get delayed. And once things get delayed, they get replaced at the top of your to-do list by the latest crisis.
So, be sure to boil things down to the essentials and get clear on the next steps. Then get that step in the calendar and execute on it.
Repeat this process every week and before you know it you’ll have achieved the vision you set out with when you decided to build out your business’s leadership team.
Now I hear you saying...
“But Jean, I would like to give more responsibility to my team but they just don’t care about the business like I do”.
“But Jean, I don’t have the time to write an encyclopedia of processes”.
“But Jean, a subscription model that will never work in my business”.
I hear you.
And don’t get me wrong – creating a valuable business isn’t easy. If it was, far more than 20% of the businesses that go to market would sell.
But armed with The Core Four, you’ve got everything you need to transform your business from a prison sentence for yourself that’s worthless to acquirers into a valuable business you can choose to run for a healthy profit or sell for a big payout.
If you’d like my personal help creating an owner-independent business, find out how you can work with me today.