How to Grow Your Business Valuation 100% in 1 Year

Foreign. So today I'm going to be talking a little bit about five lessons I've learned from over half a billion dollars in acquisitions and very specifically how as a business owner or as an investor, you can increase the value of your company by 100% in one year. So a little bit about me and a little bit of background. So 10, nearly 10 years ago I founded a company called FE International. We're one of the world leading M and a firms for SaaS or software based businesses, e commerce and content based online companies. We currently have around 45 people based all over the world. Our head office is in New York, we have a team in London. I'm personally based in San Francisco, but as you might be able to tell from the accent, I'm originally from the uk. We work on a real range of different businesses. We've currently sold just over 800 over the years. So I've seen all sorts of different things. I've seen what people do well, I've seen what people have not done so well in a successful acquisition. Around 12 months ago we launched a private equity fund called called LTV Fund where we now work with investors and we acquire businesses and run them on their behalf. So over the years I've spoken a lot about what I've seen our clients do. Over the last 12 months I spent time physically being the operator for companies we've acquired under that private equity firm. So I'm going to be sharing some of the lessons that I've physically done myself and also some observations from clients over the years. So if there's one thing that's true for every single person in this room, whether you're going to to start a business, whether you work in a business, whether you're an investor in a business, is the one day you're going to leave, leave that business. It doesn't matter whether that's through the form of an exit, whether you quit, whether you shut the business down. My job as the founder of an M and A firm is to make sure that's in the form of a successful exit. And now as the manager of a private equity firm, my job is exactly the same. My job is to maximize return for investors with a successful exit after 5 to 10 years. So every single person's room, I know some of you are students. You might not even have a business at this stage. Maybe you're thinking about launching one in the future and I hope many of you do. Or maybe you've been in business for 20 years and an exit is something you've one day thought about. So the principles I'm going to be sharing today are applicable for every single person at different stages. They're relatively generic lessons I've seen people do time and time again effectively. So there's one thing to think about when it comes to selling a business, it's that 98% of businesses do not sell or are not sellable. So if you're ever thinking about selling a business, and for the vast majority of people in this room, you've probably not thought about selling your business or it's not on your to do list for the next 12 months, maybe you think it's not possible, maybe it's just not something you thought about. Maybe you don't know how to do it, and that's fine. The things I'm going to be talking about today are things you should be implementing your business today so that when the day does come, you want to sell and have a successful exit. You can do that. And you're not being the 98%. You'll be in the 94.1% of clients that we work with who do have a successful exit. So we have an extremely high success rate compared to the average. And that's because we spend a lot of time with business owners at this stage now. So I don't get paid for this. I have no incentive to be here other than the fact that I'd like to see you all succeed. And one day, hopefully some or many of you will have a successful exit. Maybe you'll work with me and my company maybe won't. But as the industry grows, more and more people are having successful exits is good for the industry as a whole, and then as a private equity firm as well. One of the big selling points for investors that we're working with is we know how to build companies that are sellable. So hence we're going to be talking about how to increase the valuation. So one thing to think about, if you're building a company when you start out, your mission and your vision for your business is probably going to be very personal. You. You might have a very specific kind of personal need or problem that's caused you to launch that business, whether that's a product, a service business, whatever you might be running, there's probably a very personal reason why you've chosen that business. As you go on and you build that company, you might get to the stage where you start employing people. So like I mentioned, I'm now a team of 45. As your team grows, your goals definitely move away from being very selfish. So when I started out, it was always what I want, what myself, my business partner want, what maybe my wife and I want. As your business grows, your goals and what you think about each day will change. I'm now responsible for a lot of people who are married. They have kids, they have mortgages, they have responsibilities. So you start to think about the much wider kind of implications of the decisions you make on a day to day basis. I can't just decide to take a month off and not go into the office, or not come to events and speak on stage. I have a responsibility to the team. When I started out and I had just two people, it's fine, you can really do what you want. So I guess one thing I'd think about for all of you in the room, if you are going to hire people, definitely consider the personal sacrifice involved in that because it does mean a completely different level of responsibility that you don't have when it's just yourself or you're just at that idea phase. But over time, as you build your business and you grow it, you need to be thinking what buyers and investors are ultimately looking for. So when I'm working on a business that we acquired under our fund, I'm thinking from day one, what is the eventual buyer going to be looking for? What can I be doing to that business to improve it to the stage where it's going to be more attractive to buyers? So if you are thinking about an exit in the future, I would encourage you to not think about what you personally want. You need to be thinking how buyers will perceive your business and what's within it. So one of the very first things you need to do if you want to increase your value of your business and make it sellable in the first place, is actually be a little bit more selfish and establish what you are trying to achieve. And that's a very personal goal that I cannot tell each of you the correct answer. There's no right or wrong way. And this will also determine some of the other metrics in your business that you track. So the first slide, I'm talking about how to grow your business by 100% in a year. For me, that's relevant because on this list of things, investor returns under the private equity firm we have is important. So if I'm not growing the business, I'm effectively failing the investors. The faster we grow, the higher returns they generate. The more they want to invest in the future, the more successful the fund becomes. For many of you, it may be as simple as buying a house, it may be traveling more, it may be spending more time with family. So I'd encourage all of you, whatever stage you are in your business, to think about what you're trying to achieve. And then as you plan and grow your business, the decisions you make will very much be influential over those things. If you just want to, if you want to travel the world, maybe you don't need a business with an office and 45 people in it. Maybe you should be thinking about keeping your team really small. Maybe you should stay freelance and just be selling your time, working when you want and not working when you you don't want. But if you don't establish this early on, then it can be problematic to change over time. Once you start hiring people, the stage I'm at now, I cannot one day decide that I want to travel the world and not turn up the office. There are responsibilities unless I sold the company tomorrow. So of all of these things, you have to think it might be a combination. It might be none of the things on this list. You might say, hey, Thomas, I don't really care. I just want to grow my business and make as much money as possible. In my experience, most people that have a goal like that are relatively early stage and it's somewhat abstract what they could achieve. As you start growing your business, you'll start to have more of like an intuition and you can start to make real projections over what is possible. It might be the business you choose could not grow beyond a million dollars in revenue. It might be 10 million, it might be a billion. Again, I do not know the answer to that question. You probably do, and you should establish this early on and that will help you determine some of the next lessons I'm going to be talking about and what you should be thinking about or maybe not thinking about the depending on your ultimate goals. So one thing, if you want to increase the value of business, make your business more sellable, you have to be testing different things every day, all the time, constantly be doing new things. And again, depending on what you're trying to achieve, you might choose to do tests less regularly. If you want to work 10 hours a week and you want to travel all the time, you're probably not going to be working on a new growth strategy every day. If you have a team of 45 and they're sat in an office 10, 12 hours a day like I have, I have a lot more scope to get new things done, try new things, test new things. So there are some things you can think about. And again, very much change this based on your goals and what you're trying to achieve. So test different products, test different marketing strategies, test different pricing. There are so many different things in every single business that can be tested. And I think a lot of people, particularly early on, think that the only way to improve your business is to make a fundamental change or they want to pivot the entire company and do something completely different. Often the most impactful things you can do are really small and they might take literally 30 seconds to change. So for example, with the business we acquired under our private equity fund, we, one of the biggest improvements we made in revenue this year, which is a double digit percentage increase, was literally just changing the pricing. And it was as simple as increasing the prices basically within the first day of acquiring the company. And then we just did some really simple kind of tracking and documentation which is, are we still getting the same number of signups? Is the retention rate still the same? So in some businesses you might think you have to come up with an incredible new idea that's really innovative. In most businesses it'll be something really simple like pricing. In our MA firm, if you go back four or five years ago, we were, in terms of prices, we were comparable to all of our competitors. The industry average was if you have a million dollar business, you had paid about 10%. So one day we sat down and said, well, we think we're the best in the industry. What if we just change our rate to 15%, which is completely unheard of. No one had ever charged 15 before. Pretty much overnight our business increased, our revenue increased because people were willing.

People.

Were willing to pay that for a, people willing to pay that for a good service. And because we were the highest price in the industry, people believe what we said. We're like, hey look, we have a team of well now 45. Back then it might have been 20 people. Most of our competitors are 2, 5, 10 people working from home. We have a 94.1% success rate. We have all of these things that gives us a competitive advantage. Why not charge more that change? Again, it was literally just a case of changing our engagement agreement and letting our sales team know what the new rate was. Nothing else had to change. That was probably the most impactful thing we did for many years. It added seven figures revenue overnight. So I think a lot of people over complicate it. When it comes to changes you need to make to improve your business, increase your valuation. In my experience, usually it's something very simple. It worked with the M and A firm it worked with, a private equity fund. We have small changes like pricing has made all the difference. And as you're doing that, make sure you track everything and double down on the things that work. So when we change pricing, we made a note of how many people were signing up before. What was the percentage? Are we losing people? And we actually found that our conversion rate ironically increased. When we put prices up, we see then have a different level of product or service that people are more likely to want to sign up for and want to work with. Same. When we launched our fund, we launched with a fee structure that many investors told us was stupid, had never been seen before, was way too high. But the early investors in that have been rewarded. I think in year one, we're up about 65% on their investment. So yes, they might be paying more than the average fund, but we've generated a significantly higher return than the average. So you can get away with higher pricing if you actually deliver on what you say you're going to deliver. And then make sure you keep track of things. And this is also important from a buyer perspective, talking about what buyers want. Buyers want a business that they can take over and understand what you've done and what you've not done that works and what hasn't worked. So it can just be super simple. In the software company we own under the private equity firm, we literally just have a Google sheet that tracks all the metrics. Someone in the team each day goes in, fills it out manually, and then we send around a daily report at the end of the month, we analyze the numbers. So it does not need to be complex. You, you don't need to have a math or engineering degree. Anyone can do it, track it. Even if it's bad, track it. And then you know not to do that again. It may well be. We found that, for example, with the business we acquired on our fund, we tested a paid marketing campaign. We tested it for. We ran about a $10,000 spend, so not much. We ran it for three months and the ROI was zero. We literally got nothing extra from it. But because I tracked it, we've now turned off that campaign. If someone's looking at buying the business, I can say, well, we've tried this, it didn't work. Maybe if you're better at paid advertising than I am, my team, maybe you'll do better. But we know that didn't work and that's, that's fine. And ultimately that increases the valuation because a buyer then knows things they can definitely do that will Improve it and things they can't do that won't improve the business. The third thing to think about in any business is ultimately whatever you've done since launching a business, whether that was yesterday or five years ago, buyers don't really care. Yes, they want to know your story, but they're buying your business for the future cash flows and the future longevity of your business. So the first question they're going to ask themselves is, is what you are doing in your business sustainable? Can they continue that under their ownership, under their stewardship, with their, with their mentorship? So when I'm working with clients who are trying to sell, we're looking at things that can make the business as sustainable as possible. When I'm on my, have my private equity hat on, I'm looking at things we can do in the business that mean that I as a manager do not need to be involved in the day to day at all. That's super sustainable. And because of that I've hired people as soon as I can. That's one thing I'd say to everyone in this room. If you're early stage, it is intimidating, it is difficult. HR will probably or anything to do with managing people as your company grows will probably continue to be the biggest headache you have. If you ask any business owner with 20 to 100 employees what their biggest challenge is, I can pretty much guarantee you every single person will say people are hiring. And that's not because people are bad, it's just that managing people is tough. Hiring is tough, particularly in a small business where someone has to put a lot more faith in you as a, as a business owner and as a leader than they might do. Going to work for a 50,000 person company that's 150 years old, it's completely different. So people is a challenge, but encourage you to hire people as soon as you can. The bigger your team is, the less reliant the team is on you as an owner or as a CEO or whatever that might be, the more sustainable the business is going to be going forward, the more likely a buyer or an investor is to come in and be able to continue to run your business as you have been yourself. So that's the first thing it does take some time. If you're early stage and you're only making a couple of thousand dollars a month, maybe that's not realistic. But when you get to the stage where you can and you can sustain yourself, you should. So I know, for example in my business when I started out in 2010, I started with $100. So obviously could not hire anyone. When I made my first $30,000 in commission check, I split. I had a business partner. We split that three ways. We gave, we kept $10,000 each and we used that to pay for a year of living expenses. So we did not live any sort of luxury life. We were very much of living extremely tight, working all the time. And we used the other $10,000 to open office and start hiring people. And to this day we've continued to invest and hire more and more people. So do that internally. Create a culture of growth. And what that means is everyone in your company should be focused on for us, it's five metrics that are the important things that will keep your company growing. Identify what the important things in your business are and get your team to understand what those are and incentivize them to be aligned with those goals and that culturally and you will not have to do as much as someone else. Lesson 4 so I'm running a little bit short of time, so I'll run through this one quite quickly. Create consistent cash flow in your business. In the case of so the business model we specialize in is SaaS software as a service that's effectively a recurring subscription business that inherently has consistent cash flow because people pay every single month. Whatever business you have, work on getting customers coming back. Even if you just sell something one time, email them, call them, go meet them in person, get them to buy again, get them to refer people to you over time, that will increase the value of your business because you know that even if you do not acquire any new customers, the people you already know and already like you will buy again. Communicate whatever is a sensible medium. If you sell a product for $10, you probably cannot go meet someone in person. If you sell a service for $100,000 like I do, I can jump on a plane and go meet them, but you know that I do not know what that is for you and focus on what is profitable. So that's usually the customers that pay you the most. And as a general it's usually not the customers who pay you the least. They usually the most hassle the worst to work with doesn't necessarily mean you can fire them, but don't spend much time focusing on them. And then lesson 5 sell your business at the right time. Understand what your business is worth. So as an M and a firm, we've spent years offering free valuations, which has a significant cost to us. So the people we work with can understand what their business is is Worth growth rate and revenue growth. In our private equity fund, revenue growth is our number one, most important metric. All of the team know that we will work towards that. Revenue growth is the number one thing that's going to increase the value of your company selling at the right time and remove emotions from the process. A lot of people get stuck up in what they want, but ultimately it matters what a buyer wants and what's the right time for the business. And that's not always necessarily going to be the right time for you personally. Sometimes you want to sell at the top of the business life cycle, not your own personal life cycle. I'm going to skip over the valuation slide because I know I'm a little bit short. So five things to think about. Know what you want to achieve? I can't tell you that. No one else you meet, regardless how successful, can tell you that. Double down on things at work. If you're limited on resources and you find something that's working, do more of it. Make it better, invest more, spend your time improving that. Constantly focus on getting customers coming back. It's much easier to win someone over who already likes you and has already bought from you than someone who has no idea who you are. Sell while your business is still growing and at all stages, have an understanding of what your business is worth. With our private equity fund, we keep a dashboard each month of valuation so we know how much effectively we've generated for investors. And at any point in time we could have a successful exit and return to investors what they invested at the beginning of the fund, plus anything on top of that. So thanks everyone for your time. Hopefully you have time for maybe one question, if I'm allowed. Thank you.

Yes, we do have time for, I'd say probably two or three questions. So if someone has a question for Thomas, go ahead and raise their hand. I'll start it off by asking something we were actually talking about last night at dinner. And that's kind of remote work. So you obviously have employees everywhere. You've moved around yourself. What maybe is some key points or some strategies to having success with employees that are remote or working in different countries.

Yeah, no, super good question. So for perspective, of our 45, about 15 of those are in London, 15 are in New York, 15 are remote. With remote workers, specifically, you have to set very clear guidelines of what their work is day to day. You have to have very clear communication channels. So we use a product called Slack. There are lots of things you can do out there to keep in touch with people. My personal Experience is that remote teams work better when the people you hire are older and slightly more mature and they know that they actually want to work remotely. A lot of people when they're young think they want to work from home, but in fact they actually want to go to the office and make friends at work. When you're older, married, have kids, it's completely different. If someone at that age and stage in their life says, I want to work from home, they probably know that's what they want to do. So finding the right people is important. And also having the kind of. I think some businesses work well remotely, some do not. For us, with an M and A firm, the M and A side of business definitely would not. It's a very collaborative process, very analytical, long hours. We work in a team, we work hard, we work together on the software business we've acquired, it's less collaborative day to day. People have more of their own work to do and they can kind of stick in their own lane. So with engineers, for example, engineers work really well remotely. In my experience, salespeople do not. But I think it depends how good you are managing and for your products or businesses. Sure.

We have time for another question if anyone in the audience has one. If not, I have a million of them.

So.

Yeah, if you look at the M and A activity in the us, which I focus on mostly, how does it look in other regions?

The uk? That's a good question. So from perspective, this year we'll close around 200 transactions. 100 of those will be us. To us. Other than that, we're about to. 1/4 Europe, 1 quarter Asia. Don't do much in Africa, don't do much in South America, don't do much in Australia. The market buyers specifically is very us. There's a reason I'm here and moved here. There's reason my business partners here and we moved our families here. The buyers and investors are almost entirely in the us. The nature of the businesses we work with, the business owners we work with are all over the world. So there's a ton of activity for people in all sorts of different countries selling their company. But at least in our experience, the majority of active buyers who are actually doing deals are in the us.

So I'm actually going to squeeze in one more question and it again pertains to a conversation we had earlier about being in the right role for what you do best. You're kind of talking about, you know, leading a team. The paper towel comment, you know, what.

Does it kind of look like as.

Far as you know, understanding, you know, kind of staying in your lane, doing you'd best and building a team. Is there maybe is that about self awareness or just understanding how the company can grow by having a successful team?

It's definitely a self awareness thing. So when I started out I was 22, I just graduated college. I was a stupid kid. I didn't, I had no idea what I was doing. I knew no one who'd ever launched a business. I had no money, I just kind of figured out. So the kind of personality type that does that is probably a little bit arrogant. I call it confidence. My wife called it arrogance.

Whatever, you know, she's right.

But you're going to have that sort of, that sort of mindset and I think starting out you definitely have a bit of an ego. I was a 22 year old kid in an industry where the average person working in M and a is a 50 year old guy who went to Harvard and is. I used to get laughed out rooms when I started out. So as you, as you move on you have to be very honest with yourself. For me I had a business partner. We were great at holding each other accountable. He today he's CEO, he runs the day today. We sit down every year and we have a really honest chat about what we're both good at. And every single year as a team grows we lose more and more things that we're not good at. But you just have to be honest like starting out. Quite honestly I had a big ego. I thought I was the best person at absolutely everything internally if you ask me now I'm probably not the best person at 99% of things. I'm. I know what we do so I'm good from stage but operationally you would not want me in the team so I keep out of the team. So quantity, it's a self awareness thing and that's why I was talking about taking emotions out. It's important when it comes to selling a business. It's also important as a founder to know when you have to remove yourself. So for me a business partner was probably the best part of that to keep me accountable for you might be much more self aware than I was as a kid but who knows.

Awesome. Well thank you very much ladies and gentlemen. Round applause please for Thomas Mail.

Thank you.