Time to Sell Your Business? An ESOP May Be the Answer

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StrategyDriven Entrepreneurship Article |Selling Your Business|Time to Sell Your Business? An ESOP May Be the AnswerMost small to mid-sized businesses have limited sales potential. These companies are often founded to capitalize on a perceived market opportunity and grow over time until eventually the owner has a healthy, and profitable company.

However, owners often assume that an exit will be as simple as selling the company. Why? Because large exit sales are often in the news. One need look no further than Inc. or Fortune magazines to see the latest Silicon Valley unicorn company selling for 4-6X annual revenues, while being unprofitable. But is it fair to assume that a privately held, profitable company can produce similar results?

Unfortunately this is not the case. What usually happens is: The owner starts the company, the company grows, and within 7-10 years, a few acquisition offers are made. These usually aren’t good deals and the owner gets a tough lesson in small company valuation. Look no further than the “entrepreneur” and “start-ups” categories to see what it takes to build a successful company.

Let’s assume you started a digital marketing agency, a realistic example, given this industry is hot. It’s easy to start out as a solo practitioner and build a company as the skills from one’s career are directly transferrable, and overhead is quite low.

Over seven years the company develops a solid client base, grows to 16 employees serving 40 clients, with revenues of $2 million annually. If acquired, this company would realistically sell for $1.2 – $1.6M, a far cry from the 10X multiples seen in Silicon Valley.

The lesson here: A company is worth what an acquirer is willing to pay; the fact of the matter is that small- to mid-sized companies have limited sales potential.

Additionally, small companies present risks to outside acquirers, who are likely to merge the company into their business, which means culture change, clients will receive notice and may terminate, and some employees will leave. The long and short story adds up to a risky business.

What if there was a way to reduce that risk, preserve the company’s culture, keep employees and clients, increase company morale and improve performance by paying employees more without costing the business more? What would this do to the company’s valuation?

Selling one’s company to an ESOP, an employee stock ownership plan, does just that. Selling to an ESOP preserves company culture and increases productivity, which generally ensures strong future performance. This reduction in risk can take the $2M digital agency that would sell for $1.2-1.6M, and enable it to sell for $3.5-4M+.

While you’re not getting the Silicon Valley exit multiples of 4-6x revenue, it is realistic to exit at 0.5-1X revenue when sold to a third party. As part of that acquisition, expect about half of the proceeds to be tied to an earn out, which is a way for the acquirer to ensure delivery of the goods.

How does an ESOP work?

The short answer is, if you own a profitable company and a culture that is worth maintaining, the company is worth owning, particularly by employees. In an ESOP transaction, owners essentially sell stock, whether some or all, to employees. Employees now participate in company profits, which can be significant financially, and the owner gets partial or full liquidity.
Often these transactions are underwritten by banks, which prefer to lend to ESOPs due to the record-low default rates.

Learning more about how ESOPs work can be explored at Legacy Press Ventures

About the Author

Jack Ogilvie is a founding member of Legacy Press Ventures. After selling his previous company, Techwood Consulting, to an ESOP, Jack started Legacy Press to help others do the same. You can learn more about his company here.

Finding The Perfect Property For Your Business Offices

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StrategyDriven Entrepreneurship Article |Commercial Real Estate|Finding The Perfect Property For Your Business OfficesWithout good offices which you can really be happy in, your business is much less likely to be successful. That might sound like a stretch, but if you think about it, it makes perfect sense. Your offices are where all the magic happens, as it were: the space from which you create products, come up with future goals and ideas, and communicate with clients, customers and partners alike. The quality of those offices will determine the quality of all of that, and that will mean that you are much more likely to want to keep the offices as close to perfect as possible. A big part of that will be finding the ideal property to house your offices, which takes a lot of effort in itself. In this post, we will look at some of the major concerns for finding the perfect property for your offices.

To Buy Or To Let?

One of the early decisions you will need to make here is whether you are going to buy some property or rent it. You might well be in a position where this is effectively decided for you; if you are just starting out with a small startup and a tight budget, it might well be unlikely that you are in a position to buy any property. When it comes to leasing a property, you want to go online or speak to a real estate agent and look into office space for lease. You don’t have to go with the first property that you see that fits your requirements on paper, so make sure you don’t settle for less than you want even if you are renting the office space.

But if you have a decent loan or you are running a well-established business, there is a good chance that you will be able to buy property, and there are certainly benefits to that. For one thing, it is going to count towards one of your business’ tangible assets, thereby adding both value to the business and a safety net should you need it. In either case, going through a notable and trustworthy dealer like PropList will ensure that you can find the right place for your offices, whether you buy or rent.

Space, Size & Location

These three characteristics are some of the most vital when you are looking for the kind of property that is likely to serve well as a house for your business offices. You will therefore need to know what kind of amount of size and scale you are going to need, as well as where you actually want the offices to be located. That in itself varies based on whether these are going to be your main offices or whether they are going to be a subset, but in any case it is important to be clear on what it is that you need for them. As long as you are, you will find that it is a much easier thing to be able to find the perfect property for those offices at least in regard to these three things.

Persistence

Remember that it is often going to take a long time before you can actually end up with the right property for your offices, so you will need to have a good ability with persistence in order to make sure you find the right one. It can take a lot to find something that will suit you for good, so make sure that you are happy to approach it in this way.

How to Go From Disruptor to Industry Leader: 5 Ways Disney and the UFC Think Alike

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StrategyDriven Entrepreneurship Article | Entrepreneurship the Disney Way | How to Go From Disruptor to Industry Leader: 5 Ways Disney and the UFC Think AlikeDisney and the Ultimate Fighting Championship are not as big a mismatch as you might think. In fact, the two organizations share five compelling strategies that connect them by more than a business deal. But when Disney’s 80% ownership of ESPN led to a groundbreaking deal for the broadcasting rights of UFC last May, it was a milestone for UFC. Just how UFC became a viable media property for Disney holds lessons for any company seeking legitimacy and business success in today’s market.

When UFC arrived on the scene back in 1993, it was an upstart — a gritty disruptor in the world of sports. Its fights, while intriguing, were more side-show than serious competition. Seen only on pay-per-view and videocassette, UFC struggled in its early days to find venues willing to put on their show. But in one of the most transformative business acts in business history, owners Frank and Lorenzo Fertitta and CEO Dana White formulated an approach to gain legitimacy in the greater sports world. Their strategy shares five key similarities with Disney:

1. Know what your assets are.

Both Disney and the UFC know what their most valuable assets are, and they make a great effort to protect them. For Disney, those assets are great stories and characters. The Walt Disney Company has a treasure trove of intellectual property that it protects and promotes with exacting attention. For the UFC, it’s all about putting the best athletes in the world into interesting and exciting matches that create anticipation months before a fight. In a sense, the UFC is also in the story and character business, but marketed to a different demographic than Disney.

2. Work to gain legitimacy.

Disney and UFC understand the chief concerns of their primary stakeholders, and work to manage the key drivers of legitimacy in their industry. Disney must consider social trends, industry standards, fan expectations, and government relations. The UFC is no different: It gained social legitimacy by shifting from an “anything goes” format to instituting a standard set of rules, oversight by state sports commissions, and protocols for fighters’ health and protection. Many observers now consider the UFC to be one of the best-managed and regulated leagues in sports.

3. Offer quality entertainment.

Disney and the UFC are both in the entertainment business, and committed to providing quality shows. Disney is famous for its attention to detail in all of its products. For the UFC, quality is measured in the capabilities of their athletes and the excitement of their fights. Just as Disney has a range of movies in the drama, comic book, and animation genres, the UFC has a whole range of weight classes that are deep with potential championship contenders. As a result, the UFC builds a lot of drama into their fight productions, including stories leading up to the events and tension-building campaigns. UFC fans await upcoming matches fought by their favorites with tremendous anticipation. The organization also has a constellation of its own stars, such as Gregor Gillespie, a scrappy grappler currently ranked tenth in the lightweight division.

4. Master market symmetry.

UFC’s and Disney’s products are quite different, but they take a similar approach to selling. Both are experts at market synergy and cross-promote to their markets better than just about anyone. Disney and UFC fans watch the shows, read the fan magazines, and buy related merchandise because of their attachment to the stories that each company promotes. Both companies are cash machines with multiple revenue streams coming from their core customers.

5. Protect the brand.

Both companies protect their brands at all cost. Disney is very careful about who represents the company. Any celebrities in their productions are expected to be in line with the company’s values. The UFC has the same expectation of its athletes, albeit with different codes of conduct. One excellent example of this was when the UFC suspended light heavyweight champion Jon Jones. Jones was arguably the greatest fighter in UFC history and a top draw for pay-per-view. But he failed a drug test, costing him as well as the UFC millions of dollars during a 15-month suspension. Jones is back and a top draw again, but he paid a big price by not adhering to the UFC’s drug policy.

Disney clearly believes the UFC is far more than an upstart now, and it’s betting big that UFC will be a highly lucrative addition to the Disney entertainment umbrella. Credit is due to Disney for seeing the value in the UFC, and due to the leadership of the UFC — who took all the right steps in successfully maneuvering and conquering regulatory and societal challenges. These two success stories hold invaluable lessons for other disruptors facing their own challenges for legitimacy in today’s complex society.

About the Author

StrategyDriven Entrepreneurship Article |Industry Disruptor |How to Go From Disruptor to Industry Leader: 5 Ways Disney and the UFC Think AlikeMichael G. Goldsby is the Chief Entrepreneurship Officer and Stoops Distinguished Professor of Entrepreneurship at Ball State University, USA. His new book, with Rob Mathews, is Entrepreneurship the Disney Way. Learn more at www.ELProfile.com.

How living at a Zen Buddhist monastery taught you how to be a better entrepreneur

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StrategyDriven Entrepreneurship Article|Entrepreneur Mindset|How living at a Zen Buddhist monastery taught you how to be a better entrepreneurThe short and most Zen answer is that I did not learn how to be a better entrepreneur by living in a Zen Buddhist monastery. Being an entrepreneur is what taught me to become a better entrepreneur. Being a Zen Buddhist monastery taught me how to be in a zen Buddhist monastery.

The long and more interesting answer, is that my nearly 6 months at the zen Buddhist monastery planted powerful seeds in my mind that have allowed me to evolve more fluidly in my day to day trials and errors as an entrepreneur.

It’s easy to come across as zen in a zen Buddhist monastery. It’s quiet, peaceful and others around you look “zen”, so it’s only natural to gravitate towards what looks zen: detached from expectations, quiet, embracing the fleeting nature of life, and being in the moment, yada yada yada.

After 6 months living a monastic life at a zen Buddhist monastery, I thought that I had incorporated Zen in me. I was wrong. Within a few weeks back in the corporate world, I was back to stressing about goals, expectations and achievements. I was feeling frustrated again.

You see, being “zen” in the corporate world is a whole other ball game. The corporate framework is based on goals, expectations, plans, and results. Not caring about expectations does not really fit into this framework. If you don’t deliver, you are out and there is no being zen about it.

So back to square one. I learned that I had learned nothing. Surprisingly, that took me a step closer to zen.

I realized that I had embraced a romanticized version of Zen based on how I ideated Zen in my mind but I had in fact not understood anything about zen because zen is about not ideating things in the first place. I sought out Zen because I wanted to overcome the pain in life, become enlightened and transcend the ebbs and flows of life. Now I see that I sought it out for all the wrong reasons. Zen is not about transcending by rejecting the ups and downs of life, it is about unconditionally embracing them.

Zen has a paradoxical nature. It is. And it is not. It does. And it does not. I learned over the years that being zen is not about crossing my legs and looking like a deep and pondered soul. I learned that being zen for me is about embracing the fundamental contradictions that lay the groundwork for our existence.

As I learn to lean into these contradictions, I open the path for more mental freedom and flexibility. I learn that even though my natural framework tends to polarize things, often there is good in the bad, just as there is bad in the good. I learn how to expand my peripheral vision and look at things through different angles at the same time.

So let’s unpack that. My natural tendency is to feel good if I make more money and shitty if I make less money. With a zen bug inhabiting my neural synapses, chances are that I am not going to get all that excited about making money or suffer all that much about making less money. Zen introduces a degree of relativism that allows me to create and interpret my own reactions to external events. The Zen framework allows me to insert an extra fraction of a second throughout many moments in my day in which I get the chance to introduce or at least steer the narrative of events in my direction.

Excessive relativism is tricky though and the zen framework can easily be used in ways that prevent our growth. In a world where there is no good or bad, success or failure, it is convenient to be able to say, “It does not matter.” For many years I used the Zen framework towards this end. I would shield myself from my own fear of failure by relativizing my goals and purpose. Looking back, I don’t think that Zen is intended that way.

I think that Zen is about bathing, soaking, rejoicing in the painful experience of living. Rather than fighting it, Zen is about embracing our shortcomings and ultimate mortality. But this nihilistic direction is not an end, but a path to re-emerge transformed through this experience as a being who is less stuck in labels and social constructs and more keyed into their own feelings and consciousness.

All of this Zen framework does not make me come across as Zen at all. In fact, I reject the idea of being zen. I don’t see how anyone who really buys into zen can accept or live with the label of being zen, or any label at all. I am an agitated soul. I am anxious, I get frustrated and want to get things done. But there is Zen in me. Every time I breathe and just accept that I am what I am. Then I am free.

About the Author

Gabriel Fairman, Founder and CEO of BureauWorks, has been working on transforming localization business processes into technology over the past 15 years. Over the past 5 years he has focused on developing algorithms that make sense of bigger data patterns in order to predict translator performance based on data obtained through peer reviews. The challenge on building AI towards that end is that translations can be great and still be significantly changed by reviewers. As changes are for the most pasty subjective, there is no direct correlation that can be established to easily determine the quality of translations based on simple data sets. The challenge requires digging deeper into more complex correlations that allow translation quality to be managed through algorithms that can reliably pair the right linguists to any given document. Gabriel’s focus is to think systemically as opposed to through a causality framework in order to solve these harder problems through AI.

Research, Reading and Respect: How to Be a Well Rounded Business Owner

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StrategyDriven Entrepreneurship Article |Starting Your Own Business|Research, Reading and Respect: How to Be a Well Rounded Business Owner When you decide to start your own business you will be faced with a number of hurdles along the way. You can prepare yourself for the unexpected by establishing yourself as a well rounded entrepreneur right from the very beginning. It will never be easy starting your business from scratch, but as long as you have the passion and motivation behind you it will become clear. Being a successful business owner is not a lateral process, it takes plenty of external work. Focusing on your industry might get you so far in life, but you need to learn about the wider world too. Give yourself the upper hand by prioritizing research and learning to respect your fellow business peers. Understandably, it will take you a while to find your feet in a crowded industry, but with the following ideas you will be set for success.

Don’t Have Tunnel Vision

It can be very easy to become overly focused on one thing for your business. Making money is at the top of most entrepreneur’s list of priorities but this will not bring you happiness. You need to focus on other passions and use this to enhance your knowledge of wider subjects. Whether you are interested in reading about financing of upcoming movies for an upcoming entertainment project or you want to learn more about charities in your local area, knowledge is power. When you can open up your mind and learn about other subjects, your business will benefit it many ways.

Respect Your Competitors

A little bit of healthy competition never hurt anybody; rivalries in the business world can actually help us to achieve more. However, there is a fine line between competition and disrespect to the other people in your field. Whether you’re ripping of their ideas or stealing your customer, this will not earn you a good reputation in the world of business. Strive to be an honourable entrepreneur who people look up to. This will take you a long way when it comes to hiring new employees or building business relationships because people will want to work with you.

Learn From Your Mistakes

It is completely normal for every business owner to make a mistake once in a while. However, you cannot allow this mistake to have a negative impact on your motivation. Pick yourself up, fix the mistake and get on with the reaching your goals again. Sometimes it is a lot easier said than done, but tenacity is a key trait of a good business owner. The more mistakes you make, the stronger you will become.

Never Settle for Second Best

Every business owner wants to be the best in their field; this is completely normal. Keep in mind that you are never going to reach the top spot overnight. It will take a lot of hard work and dedication to get there. As long as you understand that business is a marathon, not a sprint, you will be able to attain your goals without putting too much pressure on yourself.

Stay Motivated at All Times

Motivation is one of the most important personality traits every business owner needs to possess. Without motivation you will never get to where you want to be in life. You will never feel motivated if you don’t love the career you are pursuing, so it is important make decisions based on your passions. The more you adore what you do, the easier you will find the motivation to keep going, even on the most difficult of days.

Change Up Your Strategies if They Aren’t Working

A well rounded business owner will always know what strategies are working for their company. There will never be a one size fits all approach for your business, so you need to use your skills to recognize the success and failure. From marketing techniques to business pitches, there are many different ways you can get the job done. It is your job as the business owner to assess these at all times.

Never Stop Reading and Learning

Even if you think you know everything there is to know about your industry, you should always strive to learn more and enhance your knowledge. Whether you are heading to a local business conference or taking out a new book from the library, there is always so much more to learn. If you are truly passionate about your field you will be willing to put the time and effort into enhancing your knowledge on a daily basis. The moment you lose your passion for learning about your industry is the moment your business may no longer succeed.

Understand Your Place in the Industry

You will always need to earn your place in the industry you have become established in. Never take your top spot for granted especially when there are others right behind you. You should also never become overly complacent or cocky, otherwise you will quickly lose a lot of respect from others. Modest business owners are often the most popular, because they are willing to talk to people and share their knowledge. When people look up to you, this will bring you more fulfillment than money ever will. Consider what is most important to you and strive to maintain that place in your industry.

Running a business can take you many places in life, but you should never take your success for granted. Even if you are the most sought after person in your field, there may be someone ready to steal your top spot the moment you lose focus. You can remain motivated and dedicated to your business by expanding your knowledge all of the time. Instead of adopting a tunnel vision mindset, you can learn about everything and anything in the world. This will serve you well when you need to communicate with your target audience, prospective investors and your colleagues at work. A well rounded business owner will ultimately make for a successful one, so never underestimate the power of learning, reading and respect.