WEBVTT NOTE This file was generated by Descript 00:00:05.279 --> 00:00:09.659 Paul Spencer: We continue with the ownership series and, uh, we've already 00:00:09.659 --> 00:00:12.629 done the financial performance aspect. 00:00:13.019 --> 00:00:21.059 There's eight total aspects of evaluations that we use as buyers, 00:00:21.059 --> 00:00:25.169 but also as owners of our assets. 00:00:25.499 --> 00:00:27.209 We should be thinking about all of those. 00:00:27.209 --> 00:00:30.329 And again, these are the ones that I've, um. 00:00:31.304 --> 00:00:33.494 Put together, which really aren't mine. 00:00:33.494 --> 00:00:37.754 They're just, uh, from all of my m and a banker friends. 00:00:38.204 --> 00:00:41.354 They have, uh, provided me the insight into all of these. 00:00:41.354 --> 00:00:46.964 So I am not the guy that, that you come to, to buy or sell your business, but 00:00:47.054 --> 00:00:52.094 I'm the person, right, as you know, as your personal advisor, that will help you 00:00:52.334 --> 00:00:57.284 take the key evaluators and help build value and worth within your business. 00:00:57.734 --> 00:00:58.574 As an asset. 00:00:58.844 --> 00:01:03.074 And so what we talked about before was the, uh, financial 00:01:03.074 --> 00:01:05.444 performance, just as a review. 00:01:05.444 --> 00:01:10.424 There's financial performance, there's growth potential, key dependencies, 00:01:10.484 --> 00:01:16.604 recurring revenue, right to win, which is basically how you are differentiated 00:01:16.604 --> 00:01:19.334 within your industry as a competitor. 00:01:20.159 --> 00:01:23.879 Uh, there's corporate structure, key management and leadership, 00:01:23.939 --> 00:01:25.439 and then owner involvement. 00:01:25.439 --> 00:01:28.469 So those are the, those are the different, uh, rubrics that you 00:01:28.469 --> 00:01:33.449 run through to try to understand what is the value of your business. 00:01:33.479 --> 00:01:38.099 So the one we're gonna talk about today is growth potential, and really 00:01:38.099 --> 00:01:39.989 the question that you're, that, um. 00:01:41.159 --> 00:01:46.409 Anybody that may be buying a business is going to ask is what's the likelihood 00:01:46.649 --> 00:01:48.719 to grow the business in the future? 00:01:48.779 --> 00:01:50.579 And at what rate? 00:01:50.639 --> 00:01:52.949 What's the pace of growth? 00:01:53.039 --> 00:01:58.139 And that's a really important question because as an investor or 00:01:58.139 --> 00:02:03.869 as somebody who's looking to buy a business, in order to run the business 00:02:04.589 --> 00:02:06.209 is going to take some capital. 00:02:06.659 --> 00:02:10.619 And that capital, whether it's a hundred thousand dollars. 00:02:11.054 --> 00:02:15.824 Or a million dollars, I'm looking to, uh, put it to good use, right? 00:02:16.124 --> 00:02:23.654 So I may have some altruistic reasons to, um, maybe to, um, think about employment. 00:02:23.654 --> 00:02:26.924 So how can I create a, a business that employs hundreds of people? 00:02:28.159 --> 00:02:31.969 How could I create a business that has good profitability and 00:02:31.969 --> 00:02:33.619 can give back to the community? 00:02:33.979 --> 00:02:38.539 How can I, uh, have a business that's forward thinking and creating a, a 00:02:38.539 --> 00:02:40.579 new industry that's very innovative? 00:02:40.759 --> 00:02:45.979 Whatever the buyer, um, has aspirations for, that's also what 00:02:45.979 --> 00:02:47.569 they're thinking about the investment. 00:02:47.769 --> 00:02:51.609 So there's some altruistic things, and then obviously in the end, 00:02:51.909 --> 00:02:56.769 they're not just gonna throw money away to a business that is not 00:02:56.769 --> 00:02:59.049 profitable, that is unable to grow. 00:03:00.059 --> 00:03:07.559 Or it's never demonstrated an ability to grow or, uh, the pace of growth is 00:03:07.559 --> 00:03:15.029 so minimal that, um, I'm not able to get a, a nice return on my investment. 00:03:15.834 --> 00:03:20.034 So those are the things that, that you're gonna be thinking about as a buyer, but 00:03:20.034 --> 00:03:24.414 as somebody who owns the asset, these are the things, like we talked about, 00:03:24.414 --> 00:03:31.764 financial performance, having our monthly review, having the discipline of having 00:03:31.764 --> 00:03:39.474 a process to review financials, to mature that process right, and to have a rhythm. 00:03:40.319 --> 00:03:45.719 That's really important and in order to know your growth potential, that feeds 00:03:45.719 --> 00:03:48.839 into financial performance process. 00:03:49.319 --> 00:03:53.459 And so we talked about, uh, last time we talked about the pro forma and being able 00:03:53.459 --> 00:03:56.999 to forecast out well growth potential is. 00:03:57.329 --> 00:04:01.139 One aspect of that is your financial performance forecasting. 00:04:01.499 --> 00:04:05.969 So some of the things that you might be considering in this area would 00:04:05.969 --> 00:04:08.279 be, uh, my current market share. 00:04:09.179 --> 00:04:09.449 So. 00:04:11.054 --> 00:04:13.844 Um, if you think about market cap, right? 00:04:13.844 --> 00:04:18.644 When we're thinking about investing and buying stocks and right, some of 00:04:18.644 --> 00:04:22.424 the evaluators you use to even look at purchasing a stock out on the 00:04:22.424 --> 00:04:29.084 market is what's the market cap of that industry and what percentage does 00:04:29.084 --> 00:04:31.964 that business own of the market share? 00:04:32.084 --> 00:04:35.324 And so you as well as a business owner. 00:04:35.689 --> 00:04:39.649 Own a certain market share, uh, within your industry, within 00:04:39.649 --> 00:04:40.969 your market capitalization. 00:04:41.269 --> 00:04:45.439 And so that's important to understand is how much of the market do you own? 00:04:45.439 --> 00:04:46.759 Do you own 10%? 00:04:47.029 --> 00:04:48.529 Do you own 1%? 00:04:48.859 --> 00:04:50.569 Do you own 70%? 00:04:50.929 --> 00:04:57.559 All of that is going to be another key evaluator that the buyer, potential 00:04:57.559 --> 00:05:02.509 buyer is going to use to, um, understand the value of your business. 00:05:03.759 --> 00:05:09.074 The other thing that I think is important that a lot of people tend to overlook 00:05:09.764 --> 00:05:12.584 is the abil, what I call the saturation. 00:05:12.794 --> 00:05:16.544 So we would like to saturate the market, right? 00:05:16.544 --> 00:05:18.499 So if we're, let's say we're at a. 00:05:18.944 --> 00:05:22.424 Um, we believe just that, and you don't, you don't have to do, you 00:05:22.424 --> 00:05:26.054 don't get super technical and, uh, spend a lot of time on this. 00:05:26.294 --> 00:05:29.084 You just say We're about 10% of the market. 00:05:29.114 --> 00:05:33.914 We own 10% of the market share and, um, give or take, right? 00:05:34.724 --> 00:05:37.184 But then we say, how do we saturate the market? 00:05:37.214 --> 00:05:39.374 How do we gain more market share? 00:05:39.584 --> 00:05:40.934 How do we get 20%? 00:05:40.934 --> 00:05:42.164 How do we get 30%? 00:05:42.284 --> 00:05:44.144 And that typically leads. 00:05:44.774 --> 00:05:48.944 The sales side, or at least the strategic side of the business to 00:05:48.944 --> 00:05:53.654 start to look into new customers, which is totally acceptable. 00:05:54.044 --> 00:05:59.534 However, there's another part of the business which is saturating the current 00:05:59.534 --> 00:06:02.384 business within your current customers. 00:06:03.014 --> 00:06:07.964 And, uh, when we go through this exercise a lot with, with owners is, 00:06:08.474 --> 00:06:11.924 um, they don't realize that within. 00:06:12.869 --> 00:06:15.269 One of their key, um. 00:06:16.634 --> 00:06:24.584 Uh, customers or maybe even a handful of key customers, is that inside there, uh, 00:06:24.584 --> 00:06:30.374 that, that customer's business, you may do, you may do, say, say you do a million 00:06:30.374 --> 00:06:35.054 dollars of business with that particular customer, or $500,000 worth that. 00:06:35.474 --> 00:06:38.294 Um, and for your business, that's a lot of money and it's 00:06:38.294 --> 00:06:39.854 a good portion of your revenue. 00:06:40.644 --> 00:06:42.714 Hopefully it's not all of your revenue, right? 00:06:43.464 --> 00:06:46.794 That would be another evaluator that that's to come up is where, where 00:06:46.794 --> 00:06:48.714 does all your revenue allocated? 00:06:49.194 --> 00:06:53.874 But let's just say you have a nice revenue space with a current customer. 00:06:54.864 --> 00:07:01.079 Um, the next question is, how do I saturate that customer? 00:07:01.739 --> 00:07:06.839 Which basically means how do I do more business within that customer? 00:07:06.899 --> 00:07:11.759 One, they, they like me, they must like me, or they find 00:07:11.759 --> 00:07:15.239 my, my services, uh, valuable. 00:07:15.989 --> 00:07:19.949 Right, because if, because of that, they give us a nice chunk 00:07:19.949 --> 00:07:24.569 of revenue, and so because of that we have relationships with them. 00:07:24.809 --> 00:07:29.459 We like, we likely are friendly with each other and it's much 00:07:29.489 --> 00:07:32.279 easier to talk to them about. 00:07:32.999 --> 00:07:34.559 How we do more business? 00:07:34.949 --> 00:07:37.709 What are other things that are going on within your business? 00:07:37.919 --> 00:07:41.549 What are, uh, some of the challenges that you have going on 00:07:41.549 --> 00:07:43.019 within your business currently? 00:07:43.289 --> 00:07:47.099 Oh, did you know that we also do X, Y, and Z? 00:07:47.429 --> 00:07:49.289 And then now you can start to saturate. 00:07:50.534 --> 00:07:55.994 Uh, your products and services within a current business or current client 00:07:55.994 --> 00:07:57.914 of yours, that's super important. 00:07:57.914 --> 00:08:02.234 And if you can demonstrate the growth potential, not only within 00:08:02.234 --> 00:08:07.184 the market itself, but within existing customers, super valuable. 00:08:08.384 --> 00:08:13.124 Um, another thing that you can, you can demonstrate is tangential markets, right? 00:08:13.154 --> 00:08:15.404 Uh, a market that's tangent to where you are. 00:08:15.404 --> 00:08:17.294 So it may not be the. 00:08:18.119 --> 00:08:23.879 Um, the line of business that you're in currently today, but, uh, it wouldn't 00:08:23.879 --> 00:08:28.829 take much effort to go from here and to skip over to here and create a new line 00:08:28.829 --> 00:08:31.259 of business in say, a different industry. 00:08:31.589 --> 00:08:34.979 But it's similar in the types of capabilities that we have. 00:08:35.639 --> 00:08:40.049 Um, and that's another aspect, which is understanding your core capabilities. 00:08:40.259 --> 00:08:42.749 So what are the things that you're really good at? 00:08:43.229 --> 00:08:46.619 Um, there are likely three. 00:08:47.084 --> 00:08:51.914 To maybe six core capabilities that you have within your business. 00:08:52.094 --> 00:08:57.554 Um, and you may be in the manufacturing business, you may build cylinders, 00:08:57.554 --> 00:08:59.774 you may build, build micro products. 00:09:00.104 --> 00:09:04.814 Um, that could be a core capability, but really what your core capability 00:09:04.814 --> 00:09:10.484 is not really the manufacturing part, it's more about the design of products. 00:09:11.819 --> 00:09:15.869 It's more about the procurement of materials. 00:09:16.199 --> 00:09:19.559 Um, it might be even the marketing of different products. 00:09:19.829 --> 00:09:24.449 Um, so you wanna, you kind of wanna expand away from the very 00:09:24.449 --> 00:09:28.409 detailed work that you do and that, that defines a core capability. 00:09:28.439 --> 00:09:30.779 Um, there's actually a really good, um. 00:09:31.484 --> 00:09:35.444 Um, blog posts out there on, on the website about core capabilities. 00:09:35.714 --> 00:09:37.244 Another thing is blue ocean. 00:09:37.724 --> 00:09:41.324 So you can take your Blue Ocean strategy, cool book around, 00:09:41.414 --> 00:09:43.274 uh, how to create new markets. 00:09:43.394 --> 00:09:47.864 And so you take your core capabilities, you have your understanding of what 00:09:47.864 --> 00:09:51.494 you do, what you're really good at, where the market sits, and then you 00:09:51.494 --> 00:09:56.324 take that and you transpose it into something over, off to the side here that 00:09:56.324 --> 00:09:59.474 potentially has a different customer base. 00:09:59.744 --> 00:10:00.344 Um. 00:10:00.944 --> 00:10:03.884 In a different market, which is also very interesting. 00:10:04.184 --> 00:10:06.464 These are things that you don't necessarily have to, 00:10:06.914 --> 00:10:09.434 um, practice all the time. 00:10:09.464 --> 00:10:12.584 They would be valuable in your business, obviously, as far 00:10:12.584 --> 00:10:14.444 as growing a, uh, an asset. 00:10:14.954 --> 00:10:18.884 Um, but these are things that you would think about in order to answer 00:10:18.884 --> 00:10:23.054 the question as what's the growth potential in the future and at what pace? 00:10:23.444 --> 00:10:27.944 These are the ingredients to be able to answer that question, whether you do 00:10:27.944 --> 00:10:30.074 them or have exercised them currently. 00:10:30.344 --> 00:10:34.304 Or you're just giving your buyer, um, some food for thought. 00:10:34.964 --> 00:10:40.124 Um, another thing that goes into all of this is thinking about the history 00:10:40.124 --> 00:10:44.414 of your business and the forward progress that you've demonstrated. 00:10:44.804 --> 00:10:47.984 Uh, again, this comes through your, your financials. 00:10:48.794 --> 00:10:52.934 But it's also part of your, um, your business story. 00:10:53.294 --> 00:10:58.394 And a lot of you have these things out on your about or your history on 00:10:58.394 --> 00:11:05.384 your website, which says that, uh, grandpa X great-grand, great-granddad y 00:11:05.714 --> 00:11:10.004 founded the business in 1912 and right. 00:11:10.004 --> 00:11:14.534 And then you got a little dot and, and it was just him and, and Jimmy with a truck. 00:11:14.864 --> 00:11:19.334 And then another dot and says 20 years later, they were doing this in 30 years. 00:11:19.334 --> 00:11:23.774 And then, and then the third generation, and then we brought in and bought 00:11:23.774 --> 00:11:27.404 this business and partnered with this other fa That's your family story. 00:11:27.734 --> 00:11:29.354 That's the business story. 00:11:29.684 --> 00:11:35.084 Um, but that history demonstrates forward progress and not only the 00:11:35.084 --> 00:11:39.914 culture that's within your business, but also the way that your business 00:11:39.914 --> 00:11:43.724 is, has capable, is is capable of. 00:11:43.829 --> 00:11:49.319 Pivoting, moving with different, um, imposed inputs, as we would say, right, 00:11:49.319 --> 00:11:54.539 with the, the economy and the different shifts around us within our industry 00:11:54.539 --> 00:11:59.819 and the, our ability to pivot and our ability to demonstrate forward progress. 00:12:00.479 --> 00:12:02.999 Um, forward progress doesn't always mean growth. 00:12:03.929 --> 00:12:06.389 But it is a component of growth. 00:12:06.479 --> 00:12:06.809 Right. 00:12:07.379 --> 00:12:11.099 Um, lastly, the, the last last thing to be thinking about when we're 00:12:11.099 --> 00:12:17.339 thinking about growth potential is, um, the constraints and headwinds. 00:12:17.729 --> 00:12:22.049 Um, particularly within our own industry or maybe within 00:12:22.049 --> 00:12:23.579 our own business structure. 00:12:24.029 --> 00:12:30.419 Um, and so a headwind within our own business could be that, um. 00:12:30.974 --> 00:12:35.894 Maybe our location or the region that we're in is tough to hire. 00:12:36.224 --> 00:12:41.564 Um, maybe it's, uh, difficult, uh, to travel, um, because 00:12:41.564 --> 00:12:43.124 there's not an airport near us. 00:12:43.184 --> 00:12:47.564 Um, those kinds of things could be constraints or headwinds, but there's 00:12:47.564 --> 00:12:52.154 also industry headwinds that says maybe we're in a highly regulatory business. 00:12:52.889 --> 00:12:58.199 And say healthcare And, um, the insurance and the government rules 00:12:58.199 --> 00:13:02.849 are constantly changing, constantly shifting, uh, depending on the politics 00:13:02.939 --> 00:13:06.599 and the industry, um, profitability. 00:13:06.959 --> 00:13:11.009 And it's really difficult to, to, um, be able to be a 00:13:11.009 --> 00:13:12.989 forward thinker in our industry. 00:13:13.814 --> 00:13:17.504 Um, and then there's, there's one category that kind of branches 00:13:17.504 --> 00:13:21.584 off to that, or what are different risks associated with the business? 00:13:21.764 --> 00:13:25.784 Um, which again, from a regulatory business, uh, maybe there's 00:13:25.784 --> 00:13:31.154 a high liability, um, maybe you're in the business of, um. 00:13:31.664 --> 00:13:37.514 Maybe, yeah, maybe you have a factory and, um, you deal with chemicals and so 00:13:37.514 --> 00:13:45.974 there's a lot of risk, uh, for, um, fire or maybe employee, um, health issues 00:13:45.974 --> 00:13:51.194 or, um, any things like that, volatile kind of components within your business. 00:13:51.254 --> 00:13:54.464 So anyway, those things are important, whether you, uh, 00:13:54.554 --> 00:13:56.474 whether that goes into the package. 00:13:57.119 --> 00:14:03.599 Uh, in terms of growth for your, um, for your buyer, um, that's up to you. 00:14:04.259 --> 00:14:12.299 Um, but for you as an owner of an asset, in order to understand the forward 00:14:12.299 --> 00:14:16.739 progress, the pace of growth, and the ability to grow, to saturate the market, 00:14:17.069 --> 00:14:22.439 to go into a different market with a blue ocean strategy, to be able to twist. 00:14:23.174 --> 00:14:28.034 Or pivot some of your core capabilities or expand on your core capabilities. 00:14:28.244 --> 00:14:31.814 You have to understand your cons, your main constraints, any 00:14:31.814 --> 00:14:34.664 headwinds that you have and the risks involved with your business.