Small Tweaks for a Higher Valuation

You're listening to Freedom Fast lane, presented by capitalism.com this is the show about building businesses and investing the profits so that you can live life on your terms. And now, your host, the future owner of the Cleveland Indians, Ryan Daniel Moran.

My name is Ryan Daniel Moran. My website is freedomfastlane.com I work with entrepreneurs and help them scale their business, teach them how to invest, invest, and we help them think a lot bigger. About a year ago, I sold one of my businesses. It was a physical products business actually in the yoga space. And it took actually all of its sales on Amazon.com it was an interesting situation because we didn't plan on selling. We wanted to sell someday, but we had a compelling offer come to us and we ultimately accepted that offer. I want to squash, however, some misconceptions that come up right away when we talk about selling a business. Because Internet companies, not the tech companies, not the sexy Instagram stuff that you hear about yourselves for billions of dollars. Most Internet companies are really cash flow businesses and they're valued on cash flow and they're valued on track record. So the longer track record and the more cash flow you're spitting off, the higher the valuation is going to be. So a physical products business, that's a one trick pony. On Amazon, the valuations tend to be fairly low. You can expect between a 2 and 3 times EBITDA or 2 to 3 times your yearly profit to sell your business. And that's really not a life changing amount of money unless you're doing a few things differently that will help you boost that valuation. Before I go into those tweaks that you can make, I should address that. We sold before we had done some of those tweaks and that's totally okay. We got what the business was worth and at the time of selling. So yes, we could have held onto it longer. Yes, we could have worked this business and grown it and sold it for more at a later date. But ultimately we were happy with the price we got at the valuation that we got at that time. And we sold because we had other interests. Today we've taken that money and we put it into another business that my partner and I are much more excited about that has much bigger potential. We had kind of done that thing and were ready to move on. I think some entrepreneurs wait too long to make a pivot. I had Gary Vaynerchuk on my stage at one of our events in December of 2015 at our event called Freedom Fast Lane Live. And I asked Gary about some of the mistakes that he thought entrepreneurs made. And he said something really interesting. And forgive me, I'm paraphrasing, but he said, shame on those who fail to pivot or sell when they could have and now are stuck in a business that they're unhappy with. So I asked him the question. You know, a lot of entrepreneurs are unhappy in their businesses because they're working more than ever, they're worrying about money more than ever, they're working harder and longer, and they're not as happy with their lives as they thought they would be when they had a successful company.

And.

And he said, shame on them because you can always exit a business. You can always pivot. And so many entrepreneurs hold on for too long because they think that there's another pie at the end of the rainbow. And really, you can sell your business anytime. And that's what we did with this business. Now, if you love your business and you're really happy in your business, there are some tweaks that you can make in order to start setting yourself up for a greater exit. If you don't want to just let go of it and move on to something else. The first one is controlling your own audience. So just like you look at your business and you're worried about what happens if Amazon goes away or if Walmart changes something and kicks me out, or wherever your primary sales channel is, someone who's buying your business is going to evaluate the exact same thing. So they're going to evaluate that as a risk. And one of the ways that you can mitigate that risk and then create a sense of security in your buyer and thus raise the value of your business is to create the ability to take sales from multiple channels. I'm of the opinion that the best way that you can do that is have your own audience in your own sales channel that you can control. So if you've got a large customer list, doesn't really matter so much what happens to your Amazon.com listing. You can always then sell on an E Commerce store because you've got the fans, you've got the audience to market to. So I think, by the way, that most people are doing E Commerce completely wrong. I think the way you really win at E Commerce is to build up the audience first and then take that audience and they'll buy from you from anywhere. They'll buy on ebay. They don't care if they love you, they want you. They don't care so much about the sales channel. There's some exceptions, but that's my overall belief. So if you build up your own audience and and then you can leverage that audience to build up several different sales platforms that will drastically improve the valuation of your company. I would even argue to say it can double the valuation that you get from your business because it creates long term staying power and it mitigates the risk that the acquirer would fear by seeing that you're a one trick pony.

Hey fastlaners, I wanna talk to those of you who have been listening to the show, have done some of the things that we talk about, and have grown a physical products brand to over $100,000 a month. I have a mentoring group called the Backroom that is specifically about going from 1 million to 10 million. I have built businesses that have gotten to that level. I've also helped a handful of people grow from 1 million to 10 million and others from 1 million to 5, 6 or 7 million. I recently got a Facebook message from one of our members who went from just over $100,000 a month to crossing $600,000 a month in his time inside of the back room. So if you are running a business that's already selling at least $100,000 a month and you need someone or a group of someones to be driving you to constantly go bigger and also have the playbook to go from where you are now to getting to that eight figure deal, I would encourage you to apply for the back room. Our vision for the back room is to keep everyone on track towards hitting eight figures. That's $10 million in sales. And then over the next couple of years we're going to be focusing on doing roll ups, meaning packaging certain businesses together and selling them for way more than one business would sell for on its own. So as a result, you'll make a lot more when you sell your business as a result of partnering with other businesses. That's the Backroom deal that we're working on. So you can apply for a spot@capitalism.com backroom. I don't work with everyone. I want to make absolutely sure that we can help the right businesses because our success rates are really high and that's more important to me than the membership fees. But if you might be a fit and you're doing over six figures a month, I encourage you to go to capitalism.com backroom and if you're not at that level yet, you might be a fit for the tribe or one of our training programs, which you can also find@capitalism.com and freedomfastlane.com.

The next thing that you can do is to craft a compelling brand story. So I always cringe when someone tells me that I'm in the business of selling yoga mats, or I'm in the business of selling supplements, or I'm in the business of whatever their product is because they're confusing their product with their business. The purpose of a business is to help a specific target market get a very specific goal. If you're not clear on what that is, then you are kind of flying naked. You are operating with the idea of, I'm just going to release more products and make more money and have more of a cash flow business, which is okay for some entrepreneurs. But if you want to sell, there needs to be a very clear target market with a very clear brand story of how you help that target person get the result that they want. It is worth taking the time to look at who's showing up and buying my products. Why are they buying my products? How does my product bridge that gap between what we do and what they want? What does my product actually do that makes it helpful or accelerates their results? When you start to get clear on that, that's when you really can craft a good brand story. I like to use the example of Clif Bar. Clif Bar is a company. I mean, what do they sell? They sell energy bars. Really glorified candy bars, really. But the story is that the founder was cycling and he got tired on his ride and he pulled out a power bar and he said, I can't take another bite of this power bar. So I went home and I made the solution. Now, in that brand story, there's a couple key elements. First of all, there's a guy hanging on a cliff. That's the logo. And he talks about endurance athletes, and he focuses on taste and results. These are all very masculine traits. Their target market is male athletes, at least in the brand story. Now, if you're a woman and you're watching, have you ever eaten a Clif Bar?

Probably.

So now what they've done is they've created a brand story with an anchor. But when you get that clear anchor of who you're talking to and where you're going, other audiences start to rally behind that. So some people fear that if they create a target market and a brand story to attract that target audience, that they're going to isolate other audiences. But the opposite is actually true. When you lead with that primary demographic, you start to rally other people behind that. It's very counterintuitive, but it will make your product and your business more mass market. Will attract more customers and it creates a more attractive environment for a potential buyer or acquirer. The final thing that you can do to increase your valuation is to develop systems and processes. An acquirer will want to look at how you run your business and how it can be scaled. You really can't do that without clear systems and processes. Now I am a crazy entrepreneur with an idea a minute. So I have hired outside people to come in and create those processes and actually create written documents for how we communicate, how we evaluate opportunities, how we release products, how we communicate with our customers so that we have a nice buttoned up system of how we run our business so that we can hand that to the person who is potentially going to acquire our business. It makes you look like a real business. It is also a huge piece to getting free of your business, to freeing up your time. So even if you don't want to sell your business, that piece and really these other pieces make you a better business. They make you a better company, they help you scale a a lot faster. But most importantly for the context of this conversation, it makes you more attractive to a potential acquirer or a potential investor or buyer. My name is Ryan Daniel Moran. My website is Freedom Fastlane. I work with entrepreneurs to help them scale, think bigger, teach them how to invest for long term cash flow and wealth. And that's@freedom fastlane.com.

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Sam.