As an owner of a Grand Rapids startup or Michigan business, it can be tough to figure out what type of business strategy you should implement. Big sales numbers are great but potential to growth is so exciting. Is it better to have a business with a lot of potential for growth or for you to have a business with a lot of sales?
The two are not mutually exclusive. A business can have a high volume of sales and still have a massive amount of growth potential. At the same time you can have a business with little room to grow and have very low sales also.
Think of this like a graphing exercise. Along the horizontal axis you have your business’ growth potential and along the vertical access you measure your business’ sales volume. You can obviously have a business fall into the upper-left quarter of the graph (high sales-low growth) or the lower-right quarter (high growth-low sales). At the same time, some businesses fall into the other two quadrants too.
It is easy to get caught up in the startup madness that you read about. We all read the news of some Silicon Valley start selling for millions of dollars when they barely know how to monetize the product or service and our reactions are always disbelief as to how that can happen. The buyers or investors see the high potential for growth or see the big picture of how to truly monetize the endeavor.
Most businesses (and most startups for that matter) are not playing the same game as those stories. Yet some like to get caught up in the talk of multiples or creating more and more areas of growth in their business. Why is that?
You always need to remember that no one can run their business forever so you have to plan to exit in some way. If that plan is to sell your business, no matter if you are a startup or if you are long standing local business, you need to start thinking about who would be a potential buyer for your business. This list does not need to be specific names. You can think about generic, faceless buyers for this. What are those buyers going to want to see from your business?
Some buyers might want to see hard data that your business has sales and is profitable. Others might be looking for more growth potential because they have the assets to make that growth happen. And maybe they want to see a little of both.
In the end, you do not want to get too fixated on developing growth potential. While we can sometimes believe that the sales pitch of “look at how much growth potential this business has for the right buyer” is sure fire to get top dollar, think of it like selling a house that is a “real fixer-upper.” Some buyers might be interested in developing the potential growth avenues you have developed while others might just want to move in a takeover your successful operation. Remember, even if you can slap an exaggerated 100x multiple on a business but if it has an EBITA of $1, it’s not getting big money.
For more information I growing your business and getting it ready to sell, check out more of the FREE information we offer on The Business Law Group's website.