What Do Sam Walton, Ray Croc, and Howard Schultz Have in Common?
Wal-Mart. McDonalds. Starbucks. What do they have in common? Well, for one, they are businesses that were not started and grown from scratch by their original founders. No, they were businesses started by others and then bought by ambitious and talented entrepreneurs who then propelled them to a new stratosphere of growth. And while high profile, statistically they are not atypical. Census Bureau statistics show that a purchased business is eleven times more likely to still be in business 5 years from the time of purchase as compared to those started from scratch. However, for most entrepreneurs and business owners, the business “transaction” path is far too often overlooked as a high-quality strategic alternative. The main reason why, in my experience, is lack of know-how . You see, the vast majority of entrepreneurs and executives have never even attempted to buy or sell a business. As such, they have big knowledge gaps – ranging from the strategic, such as in how to identify the right kinds of companies to target for purchase… …to the tactical, such as in how to best prepare and package historical financial statements for review by perspective acquirers. And bridging these gaps can only be accomplished experientially – i.e. by actually trying to buy or sell a business. Please let me emphasize try because the majority of attempted business purchases and sales do not consummate. This is just fine, however, because the attempt itself always leads to unique wisdoms being gained. These include being forced to really think about the evolving industry and competitive conditions in one’s market. And to getting real as to the level of expertise, effort and resources necessary to translate a business’ potential into actual results and profits. Now, even in those rare circumstances when a business is bought, for cash, on a "straight from the treasury" basis, the deal maker still must make a strong financial and strategic case to justify a deal’s opportunity cost. Of course, for deals requiring outside capital, this case must be made that much more thoroughly. Again, there is no substitute for experience. Only by going through the exercise of actually building and defending a financial projections model can one acquire the knowledge base and savoir-faire to effectively deal make. Let me close with a few words about deal advisors - management consultants, business brokers and investment bankers. In spite of the mystique these sometimes fine folks like to maintain around themselves, when one cuts through the haze the best of them offer three critical value-adds. First, as intermediaries, they massage and facilitate the naturally combative negotiating process of a one-off transaction that is a business purchase and sale. Second, they act as accountability coaches. Like other undertakings that require great proactivity - such as committing to a fitness or diet regimen - having an outside agent who is paid to keep you doing what you say you want to do has enormous and tangible value. Now, on their own, these two value-adds are usually more than enough to justify the expense of an advisor. It is a third value, however, that the best advisors offer that creates the really high ROI. And that is working with an entrepreneurial and executive team to envision and articulate a business’ future value . And then, helping to create and maintain existence structures that translate this visioning into day-to-day business realty and results. THIS is the highest form of business work. And the highest ROI. So whether you decide to go it alone, or to work with a talented and ethical advisor, the business purchase and sale process is one that all serious entrepreneurs and executives should engage in regularly. Because yes, even when a deal is NOT consummated, the return on time and investment will be VERY high. And when a deal DOES get done and then the stars align… …well it is THE fastest and most predictable path to business wealth and success known to humankind. Just ask Sam Walton, Ray Croc, and Howard Schultz if you have any doubt about that. read more