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Specializing in one product or service allows you to focus on delivering that thing better than everyone else. It enables you to hire (or train) specialists in your field, improving the quality of your work, which leads to happier customers. And satisfied customers buy again and refer their friends.

That’s why specialists often grow faster even while they are spending less on marketing, leading to better profit margins and, ultimately, a more valuable company. Specializing in a specific produ…

If you’re trying to figure out what your business might be worth, it’s helpful to consider what acquirers are paying for companies like yours these days. 

A little internet research will probably reveal that a business like yours trades for a multiple of your pre-tax profit, which is Sellers Discretionary Earnings (SDE) for a small business and Earnings Before Interest Taxes, Depreciation and Amortization (EBITDA) for a slightly larger business. 

Obsessing Over Your Multiple 

This multip…

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 …

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…

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…

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…

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…

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 …

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…