Friday, March 27, 2015

How to Hurt Your Company Without Realizing It

The best companies never rely on the boss to do the selling.

Who does most of the selling in your business?

Many business owners would reply, "I do."

There is a good chance that when you're personally involved in the company's sales, your business sells more and is more profitable than months where you leave the selling to others.

This makes perfect sense. After all, you're probably the most passionate advocate for your product or service. You probably also have the most experience, industry knowledge, and the biggest network of connections.


If your goal is to maximize your company’s revenue in the short-run, you may have come to the conclusion that you should spend most of your time working on sales, and you leave the gritty work of operating the business to your staff.

But what if you want to think more strategically about building a valuable company for the long term -- one buyers are eager to acquire in the future ? 

Then you can’t be your company’s number one salesperson. 

We've talked to thousands of business owners over the years, and closed numerous deals in various industries. When you've been in the M&A business long enough, certain patterns start to emerge when it comes to the most valuable companies. 

One major factor we've discovered is that the less owner knows the customers personally, the more valuable the business.

ARE YOU MAKING THIS MISTAKE?

Ask yourself how you'd describe your personal relationship with your company's customers.

  • Do you know each customer by their first name? Do they expect that you get personally involved in the sale when they buy from your company?
  • Do you you know some of your customers by first name, and a few of them prefer dealing with you rather than other salespeople or employees?
  • Do you know few customers personally? Or maybe you don't know any of them. Are you almost never involved with serving an individual client?

When we're working with clients, one of the categories we evaluate is the involvement of the owner in generating new sales. When we analyze all the data available to us, we find that owners who do not know their customers and rarely get involved in serving the individual customer tend to get offers worth 20% more than average.

On the other hand, companies where the owner knows each of his customers by first name and deals directly with them for sales get discounted by about 20%.

To get an intuition about why this is, imagine the situation from the buyer's perspective. If you buy a company, the owner might stay on for a couple of years, and then they're gone. Would you want to lose most of your sales when the owner leaves? Probably not. A buyer wants evidence of an effective sales process that persists regardless of the owner's lack of involvement.  

Since this easily adds up to millions of dollars in selling a company, it's something worth paying attention to.

This is one of the most important aspects of reducing owner dependency. No one wants to buy a company that will implode as soon as the original owner leaves. 
 
CONCLUSION
 
When you are building a company that is fit to sell, who does the selling is a critical area you need to look at.

Building a sales team that that relies on a strong methodology and a good brand to minimize the owner's role in the selling process substantially increases the value of the company.
 
Create a strong sales team. While it's tempting to dominate the sales process as the owner, especially when you're the #1 salesman, the long-run value of your company depends on its ability to generate business without you, whether it's just because you're going on a long vacation or you're selling the company entirely.

As you reduce your role in selling and focus on building an effective sales process that other people can execute, you might see weaker sales in the short-run. But long-term value is not the enemy of profit. You are effectively trading some money now for much more money later -- which is the same as any other good investment.