Six Ratios to Start Tracking Now
Doctors in the developing world measure their progress not by the total number of children who die in childbirth, but by the infant mortality rate – a ratio of the number of births to deaths.
Similarly, baseball’s leadoff batters measure their “on-base percentage” – the number of times they get on base – as a percentage of the number of times they get the chance to try.
Acquirers also like tracking ratios, and the more ratios you can provide a potential buyer, the more comfortable they will …
A Counterintuitive Strategy That Led to a $300M+ Payday
When David Perry started his video game company, he filled a dartboard in his office with the names of companies he thought would want to buy his company, Gaikai, one day.
Why would a startup business with no revenue or employees be thinking about potential acquirers so early? For Perry, it comes down to something he refers to as “down-the-track thinking.”
Perry was recently interviewed about Sony’s $380 million acquisition of Gaikai, and he described his philosophy by using a moving trai…
Run Your Business Like You’re Going on Maternity (or Paternity) Leave
How well does your company run when you don’t show up for work?
The answer to this question has a significant impact on the value of your business. Suppose your company could survive your absence for a while. In that case, you will score well on something referred to as “Hub & Spoke,” a driver in increasing your company’s value.
To understand the Hub & Spoke value driver, visualize a big airport like Chicago’s O’Hare or London’s Heathrow. They act as a centralized routing location for the ai…
How To Avoid This Valuation Discount
The Swiss value their independence. They don’t use the Euro even though they live between France and Germany. They never chose sides in the World Wars and avoided aligning with one geopolitical regime over the other.
That’s why we use the name the Switzerland Structure to describe a business model that is set up to be free of a reliance on a key customer, employee, or supplier.
A reliance on one customer or employee can hurt the value of your business, but its easy to overlook how one o…
Stop Selling Your Time
If your goal is to build a more valuable company, stop selling your time.
Billing by the hour or day means customers are renting your time rather than buying a result, which means that your business model lacks leverage. To grow, you need to either work harder or hire more people. Since it can take months to ramp up new employees, fast growth is just about impossible.
One of the eight factors that acquirers look for in the businesses they invest in is your company's Growth Potential. Simp…
Protecting Against the End Run
A football defensive coordinator needs to protect against an “end run,” a tactical play where your opponent sends the running back wide around the offensive line to try to evade the oncoming tackle.
Just like in football, you have to defend against an end run coming from a supplier that chooses to go around you to get to your customers. The more of your supply you get from a single provider, the more vulnerable you are to that supplier deciding they don’t need you and instead deciding to go …
Why the Future of Your Business Is Critical to Its Value
As a business owner, you’re likely proud of the results you’ve achieved in the past, but when it comes to the value of your business, your future is critical. That’s why your growth potential is one of eight factors that drive the value of your business.
One metric that acquirers may use to evaluate your growth potential is your revenue per employee.
Alphabet (Google’s parent company) generates around $1.3 million in revenue per employee. Compare that to the advertising agency WPP Group, who…
The Hidden Danger of Cross Selling
You've likely heard the adage that it is far easier to cross-sell an existing customer a new product than it is to find a new customer.
And if your goal is to grow at all costs, then cross-selling makes sense.
However, all of that sales growth may not do much for the value of your company. If you cross-sell your existing customers too much stuff, it could make your business far less valuable.
When you cross-sell a customer so many things that they begin to account for more than 15–30% of y…
3 Ways to Flip Repeat Customers into Subscribers
Repeat business drives the value of your company, and you can categorize these sales into one of two buckets:
- Reoccurring revenue comes from customers who purchase from you sporadically. They’re satisfied with what you offer, and they buy regularly yet not according to a specific timeline.
- Recurring revenue is predictable, and you get it from customers who buy on a cadence. Usually in the form of subscription or contract revenue, the main difference is your recurring revenue comes in on …
How to Turn Repeat Customers into Subscribers
Many people mix up re-occurring and recurring revenue, but one is much more valuable than the other.
Re-occurring revenue comes from customers that have a re-occurring need for whatever you sell and buy from you on an unpredictable yet regular basis.
Imagine a health food store. Customers come in to replenish their supply of vitamins when they run out. The owner is never quite sure when a customer will be back, but she’s pretty sure they will return when they run low …