Paul Spencer: We continue with the ownership series and, uh, we've already
done the financial performance aspect.
There's eight total aspects of evaluations that we use as buyers,
but also as owners of our assets.
We should be thinking about all of those.
And again, these are the ones that I've, um.
Put together, which really aren't mine.
They're just, uh, from all of my m and a banker friends.
They have, uh, provided me the insight into all of these.
So I am not the guy that, that you come to, to buy or sell your business, but
I'm the person, right, as you know, as your personal advisor, that will help you
take the key evaluators and help build value and worth within your business.
As an asset.
And so what we talked about before was the, uh, financial
performance, just as a review.
There's financial performance, there's growth potential, key dependencies,
recurring revenue, right to win, which is basically how you are differentiated
within your industry as a competitor.
Uh, there's corporate structure, key management and leadership,
and then owner involvement.
So those are the, those are the different, uh, rubrics that you
run through to try to understand what is the value of your business.
So the one we're gonna talk about today is growth potential, and really
the question that you're, that, um.
Anybody that may be buying a business is going to ask is what's the likelihood
to grow the business in the future?
And at what rate?
What's the pace of growth?
And that's a really important question because as an investor or
as somebody who's looking to buy a business, in order to run the business
is going to take some capital.
And that capital, whether it's a hundred thousand dollars.
Or a million dollars, I'm looking to, uh, put it to good use, right?
So I may have some altruistic reasons to, um, maybe to, um, think about employment.
So how can I create a, a business that employs hundreds of people?
How could I create a business that has good profitability and
can give back to the community?
How can I, uh, have a business that's forward thinking and creating a, a
new industry that's very innovative?
Whatever the buyer, um, has aspirations for, that's also what
they're thinking about the investment.
So there's some altruistic things, and then obviously in the end,
they're not just gonna throw money away to a business that is not
profitable, that is unable to grow.
Or it's never demonstrated an ability to grow or, uh, the pace of growth is
so minimal that, um, I'm not able to get a, a nice return on my investment.
So those are the things that, that you're gonna be thinking about as a buyer, but
as somebody who owns the asset, these are the things, like we talked about,
financial performance, having our monthly review, having the discipline of having
a process to review financials, to mature that process right, and to have a rhythm.
That's really important and in order to know your growth potential, that feeds
into financial performance process.
And so we talked about, uh, last time we talked about the pro forma and being able
to forecast out well growth potential is.
One aspect of that is your financial performance forecasting.
So some of the things that you might be considering in this area would
be, uh, my current market share.
So.
Um, if you think about market cap, right?
When we're thinking about investing and buying stocks and right, some of
the evaluators you use to even look at purchasing a stock out on the
market is what's the market cap of that industry and what percentage does
that business own of the market share?
And so you as well as a business owner.
Own a certain market share, uh, within your industry, within
your market capitalization.
And so that's important to understand is how much of the market do you own?
Do you own 10%?
Do you own 1%?
Do you own 70%?
All of that is going to be another key evaluator that the buyer, potential
buyer is going to use to, um, understand the value of your business.
The other thing that I think is important that a lot of people tend to overlook
is the abil, what I call the saturation.
So we would like to saturate the market, right?
So if we're, let's say we're at a.
Um, we believe just that, and you don't, you don't have to do, you
don't get super technical and, uh, spend a lot of time on this.
You just say We're about 10% of the market.
We own 10% of the market share and, um, give or take, right?
But then we say, how do we saturate the market?
How do we gain more market share?
How do we get 20%?
How do we get 30%?
And that typically leads.
The sales side, or at least the strategic side of the business to
start to look into new customers, which is totally acceptable.
However, there's another part of the business which is saturating the current
business within your current customers.
And, uh, when we go through this exercise a lot with, with owners is,
um, they don't realize that within.
One of their key, um.
Uh, customers or maybe even a handful of key customers, is that inside there, uh,
that, that customer's business, you may do, you may do, say, say you do a million
dollars of business with that particular customer, or $500,000 worth that.
Um, and for your business, that's a lot of money and it's
a good portion of your revenue.
Hopefully it's not all of your revenue, right?
That would be another evaluator that that's to come up is where, where
does all your revenue allocated?
But let's just say you have a nice revenue space with a current customer.
Um, the next question is, how do I saturate that customer?
Which basically means how do I do more business within that customer?
One, they, they like me, they must like me, or they find
my, my services, uh, valuable.
Right, because if, because of that, they give us a nice chunk
of revenue, and so because of that we have relationships with them.
We like, we likely are friendly with each other and it's much
easier to talk to them about.
How we do more business?
What are other things that are going on within your business?
What are, uh, some of the challenges that you have going on
within your business currently?
Oh, did you know that we also do X, Y, and Z?
And then now you can start to saturate.
Uh, your products and services within a current business or current client
of yours, that's super important.
And if you can demonstrate the growth potential, not only within
the market itself, but within existing customers, super valuable.
Um, another thing that you can, you can demonstrate is tangential markets, right?
Uh, a market that's tangent to where you are.
So it may not be the.
Um, the line of business that you're in currently today, but, uh, it wouldn't
take much effort to go from here and to skip over to here and create a new line
of business in say, a different industry.
But it's similar in the types of capabilities that we have.
Um, and that's another aspect, which is understanding your core capabilities.
So what are the things that you're really good at?
Um, there are likely three.
To maybe six core capabilities that you have within your business.
Um, and you may be in the manufacturing business, you may build cylinders,
you may build, build micro products.
Um, that could be a core capability, but really what your core capability
is not really the manufacturing part, it's more about the design of products.
It's more about the procurement of materials.
Um, it might be even the marketing of different products.
Um, so you wanna, you kind of wanna expand away from the very
detailed work that you do and that, that defines a core capability.
Um, there's actually a really good, um.
Um, blog posts out there on, on the website about core capabilities.
Another thing is blue ocean.
So you can take your Blue Ocean strategy, cool book around,
uh, how to create new markets.
And so you take your core capabilities, you have your understanding of what
you do, what you're really good at, where the market sits, and then you
take that and you transpose it into something over, off to the side here that
potentially has a different customer base.
Um.
In a different market, which is also very interesting.
These are things that you don't necessarily have to,
um, practice all the time.
They would be valuable in your business, obviously, as far
as growing a, uh, an asset.
Um, but these are things that you would think about in order to answer
the question as what's the growth potential in the future and at what pace?
These are the ingredients to be able to answer that question, whether you do
them or have exercised them currently.
Or you're just giving your buyer, um, some food for thought.
Um, another thing that goes into all of this is thinking about the history
of your business and the forward progress that you've demonstrated.
Uh, again, this comes through your, your financials.
But it's also part of your, um, your business story.
And a lot of you have these things out on your about or your history on
your website, which says that, uh, grandpa X great-grand, great-granddad y
founded the business in 1912 and right.
And then you got a little dot and, and it was just him and, and Jimmy with a truck.
And then another dot and says 20 years later, they were doing this in 30 years.
And then, and then the third generation, and then we brought in and bought
this business and partnered with this other fa That's your family story.
That's the business story.
Um, but that history demonstrates forward progress and not only the
culture that's within your business, but also the way that your business
is, has capable, is is capable of.
Pivoting, moving with different, um, imposed inputs, as we would say, right,
with the, the economy and the different shifts around us within our industry
and the, our ability to pivot and our ability to demonstrate forward progress.
Um, forward progress doesn't always mean growth.
But it is a component of growth.
Right.
Um, lastly, the, the last last thing to be thinking about when we're
thinking about growth potential is, um, the constraints and headwinds.
Um, particularly within our own industry or maybe within
our own business structure.
Um, and so a headwind within our own business could be that, um.
Maybe our location or the region that we're in is tough to hire.
Um, maybe it's, uh, difficult, uh, to travel, um, because
there's not an airport near us.
Um, those kinds of things could be constraints or headwinds, but there's
also industry headwinds that says maybe we're in a highly regulatory business.
And say healthcare And, um, the insurance and the government rules
are constantly changing, constantly shifting, uh, depending on the politics
and the industry, um, profitability.
And it's really difficult to, to, um, be able to be a
forward thinker in our industry.
Um, and then there's, there's one category that kind of branches
off to that, or what are different risks associated with the business?
Um, which again, from a regulatory business, uh, maybe there's
a high liability, um, maybe you're in the business of, um.
Maybe, yeah, maybe you have a factory and, um, you deal with chemicals and so
there's a lot of risk, uh, for, um, fire or maybe employee, um, health issues
or, um, any things like that, volatile kind of components within your business.
So anyway, those things are important, whether you, uh,
whether that goes into the package.
Uh, in terms of growth for your, um, for your buyer, um, that's up to you.
Um, but for you as an owner of an asset, in order to understand the forward
progress, the pace of growth, and the ability to grow, to saturate the market,
to go into a different market with a blue ocean strategy, to be able to twist.
Or pivot some of your core capabilities or expand on your core capabilities.
You have to understand your cons, your main constraints, any
headwinds that you have and the risks involved with your business.