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Podcast (10k-podcast): Play in new window | Download (Duration: 38:17 — 35.0MB)
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As an entrepreneur, it’s important to not only focus on building a profitable business but also to consider the potential for a future exit. In this blog post, we’ll discuss some key factors that appeal to buyers and how you can increase your potential multiple for exit. We’ll also take a look at the “Exit DNA” course by Mac Lackey, which offers valuable insights into the exit process.
To build towards a successful exit, it’s essential to understand who your ideal buyer is. This requires looking years out and considering the types of businesses that would be interested in acquiring your company. For example, if you’re in the e-commerce space, you might be looking to sell to private equity or strategic acquirers.
Investors always look at TAM (Total Addressable Market) with an eye towards growth opportunities. Consider the level of competition in your niche and whether there is an opportunity for you to take market share. Is there a private equity or strategic acquirer in the niche? If so, building towards a market-leading position in that niche could make your business more appealing to buyers.
Starting a business in the USA offers a significant advantage due to the large population of 350 million people, with 50% of e-commerce sales happening on Amazon. This provides a vast TAM to penetrate and build market share. While other markets like Australia may offer less competition, the smaller population makes it harder to achieve meaningful scale.
To increase your potential multiple for exit, it’s essential to have a clear distinction between getting ready for exit and maximizing your multiples. This requires identifying areas of the business that are critical to the multiple, such as SOPs, training videos, and documentation. Automating and delegating to people who are better than you are at certain tasks is also crucial.
Building strong relationships with suppliers is also essential to building a sellable business. Aggregators and other buyers are interested in businesses that are operationally sound and can continue to grow even without the founder’s involvement. Having clear SOPs, training videos, and documentation helps ensure that acquirers can understand how the business works and can integrate it into their operations.
Inventory planning and budgeting are also critical to building a sellable business. When you go out of stock on Amazon, you lose a lot of value. Careful budgeting helps ensure that you have control of your cash, and having a buffer in place ensures that you can weather downturns in the market.
Finally, having an exit mindset is essential to building a sellable business. This means understanding P & L and budgets, having a clear roadmap, and being committed to exiting within 12-24 months. To be a good fit for an investment firm like South Col, your business should have revenues LTM of $3M+, showing growth of at least two consecutive quarters with 20% YoY growth, SDE of $800K+, less than 100 SKUs, and fall within the Amazon or D2C channel, with no electronics, medical equipment, fashion, or supplements.
In conclusion, building a sellable business requires a long-term view of your business, understanding your ideal buyer, and building towards a market-leading position in your niche. Maximizing multiples requires building strong relationships with suppliers, careful budgeting and inventory planning, and having an exit mindset. By focusing on these factors, you can build a successful business that is not only profitable but also attractive to buyers.