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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 Can A Business Owner Remain As Informed As Possible?

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StrategyDriven Managing Your Business Article | Entrepreneurship | How Can A Business Owner Remain As Informed As Possible?Every business owner needs to remain informed in several fields should they hunt success. This is of course one of the most grounding and obvious principles to be accepted before you begin. But it is also quite essential to consider how, and why being informed matters, and how to ensure that even in the midst of success, you are able to keep your eye on the ball. Markets shift quickly, and customer perception will also. It’s very possible for a firm that broke revenue records last year becomes shunned a few months into the next. It’s incredibly possible for even massive, staple companies such as Apple to read the market and their audience incorrectly, or push the envelope just a little further towards predatory pricing than their customer base might accept.

This means as a small business owner, where each point of revenue is much more significant, you need to understand how to curate your output and try your best to regain your strong footing in the market. Staying informed is the way to get there.

But how does this look in a functional sense? Let us consider:

Remaining Up-To-Date

There are many forces that shape the landscape of a firm over time. Automation, technological shifts, cultural trends, the political sphere, these are but a few categories that can inform or discourage a purchase or subscription from the employees you care about. Remaining up-to-date means more than you might consider. It’s essential to keep up with the news of your industry. Subscribing to journal digests, and collating your own list of RSS news feed inputs can help you keep on top of the big stories as they happen. Following the movers and shakers of your industry on Twitter can also help you see where the next hot-button effort is, and that’s truly important to potentially subvert that and become a trendsetter yourself. Without knowing where everyone else is, it can be hard to define yourself and bring something new to the table.

Metrics

Every business owner knows that looking at their performance and reflecting on what’s going both right and wrong is essential if they hope to make any progress for the future. This can help you assess if you’re going along the right lines, or if you need a vital shift in your efforts. But if you simply know how to view those metrics and do not wish to streamline them or try to implement those solutions, you’ll be informed without practicality. This is where Softengine comes into play, as a means to help you collate your SAP business offerings, to help automate your essential processes, track them in real time, and to do so within several different departments. The more information you have to play with, the more metrics you can record and the more you can shift their intent, the better your business is at the end of the day.

Listen To The Staff

Your ground-floor staff are often those who interface with customers each day, who experience your policies and decision in real-time. Listen to them. This is essential to ensure that you gain valuable insight you couldn’t anywhere else. Keeping this open-door policy and encouraging those reports can help you tap into information other business owners might not be.

With these tips, you’re certain to remain as informed as possible.

Why Everyone Needs to Know a Banking Expert Witness

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StrategyDriven Entrepreneurship Article | Banking Expert | Why Everyone Needs to Know a Banking Expert WitnessThink about some of the most heated arguments of your professional and personal life. Odds are, a good percentage of those disagreements were about money. Money is a driving force in most people’s lives: getting it, keeping it, and spending it. Some people even claim that money is the root of all evil. Unfortunately, many criminal or ethically questionable actions are taken in the name of money every single day, and in today’s increasingly litigious world this often leads to a trip to court.

Financial knowledge in the courtroom is not just for large cases involving corporations or millions of dollars. A simple breakdown in communication or disagreement could lead to a lawsuit at any time, with anyone. The neighborhood kid who mows your law could even take you to court if your actions are interpreted as malicious, such as refusing to pay him for a poor job. While that example is extreme, it does show that litigation is lurking everywhere, and a responsible person should be prepared for the worst. Having a network that includes a banking expert, or knowing of a reputable one, could be important on short notice.

The complexities of banking and finance involve a lot of moving parts as well as regulations and systems that are constantly in flux. Only someone with extensive professional knowledge is qualified to appear before a courtroom as an expert witness. Bolstering your legal team with a banking expert is crucial to help insulate your assets from greedy unwarranted claims and even deserved ones. Minimizing your exposure to losing a lawsuit of any kind involves relationships with more than just an attorney.

Finding an expert witness can be as easy as a Google search. However, checking for a long history of fulfilling this role as well as pertinent professional experience is important. Searching for the best expert can help anyone get closer to legal victory.