Authors: Michael Parrish DuDell
Shark Tank Jump Start Your Business: How to Launch and Grow a Business from Concept to Cash (23 page)
| “Before any business can franchise they need the two magic ingredients. First is an ironclad and tested model that can be replicated. And the second is a franchisee who is so excited about the business he can’t help but tell the world how great it is. It’s only when you have both of those elements that a franchise can really take off.” |
For some businesses, franchising can be a wonderful way to grow, especially if the money and resources are in place. However, as with any large strategic move, you should plan for success but prepare for failure. Otherwise your franchise could end up becoming just another statistic.
While many entrepreneurs will start a venture with dreams of an eventual sale, the majority of small business owners haven’t given the subject much thought. But whether or not you have a finely crafted exit strategy, at some point you may want to consider selling your company.
Not only can selling your business be a difficult professional decision, it can be an emotionally challenging one as well. As you’ve learned throughout this book, building a business is
an intense process that requires considerable time, effort, and care. Letting go of something that you’ve invested so much of yourself in can feel overwhelming. Still, selling your business may be the right move, especially if a desirable and profitable opportunity presents itself at the right time. And that’s exactly what it often comes down to: timing.
What’s trendy and desirable one year may very well be irrelevant the next. Conversely, it’s possible for an entire industry to experience a sudden burst of growth, making a relatively unknown business extremely popular. As a business owner, it’s important for you to acknowledge the role of timing in your decision to sell—both from a business and a personal perspective. Are you really ready to walk away? Do you have a game plan in place for what’s next? Before making the decision to sell, research the industry. Where are things headed? Is it likely your business will be more profitable next year, or have you hit your peak? The goal should be to sell a business when it’s at the top of its game—not before, not after.
Be sure to also think about how the sale will affect your relationship with the company. Some deals require entrepreneurs to stay on for a certain number of months or years once the sale is complete. This is primarily to help ensure a smooth transition for the new owners. While this may sound like an easy request, many entrepreneurs find it to be excruciating.
Not only will your role in the company change, but you’ll have to watch someone else make crucial decisions that have a massive impact on your business. It’s possible the new ownership will want to alter something you’ve spent years perfecting, or choose to go in a direction that you’re completely against. Would you be required to change roles and stay at the company? Does the new owner expect you to act as a consultant or advisor for a certain period of time? Or would you be
asked to leave immediately and sever all ties? Be sure to gauge expectations in advance, because they could potentially be deal breakers.
Selling a company can be thrilling. It is the final chapter of the story—the grand finale of the concerto. But be certain you’re completely satisfied with the deal before signing on the dotted line. If a buyer is pressuring you to make a decision before you’re ready, it’s not the right buyer for you.
Think about every sleepless night you spent building the company. Recall that one huge sale you made or that major deal that landed at just the right time. Remember how it felt the first time you called yourself an entrepreneur—the first time you said it out loud. Your business took time and care to build, and you owe it to yourself and your organization to give the decision to sell the same sort of careful consideration.
While it can be both fulfilling and rewarding, letting your business go can also be a scary process—but don’t let it get the best of you. The greatest thing about being a builder, a maker, a doer, is that there’s always the next: the next project, the next business, the next chapter. Whatever decision you make, don’t forget the most important thing: You are an entrepreneur. You’ll make it work. You always do.
| “Before you can even think about selling your company you need a stabilized business model. People buy businesses because they think they can enhance the revenue or profits, not because they want to take on an inordinate risk.” |
Hands down, the most tumultuous and impassioned conversations that happen in the Shark Tank are around a company’s valuation—its economic value. Determining how much a business is worth is not an easy thing to do. While cash flow and profit are easy to measure, growth is not.
Businesses are evaluated differently depending on their specific industry. For example,
according to the
Business Reference Guide
published by Business Brokerage Press, the “rule of thumb” valuation for a flower shop is 30 to 35 percent of annual sales plus inventory, while the valuation for a veterinary practice is 70 percent of annual revenues plus inventory.
You can find plenty of charts online to cross-check your specific industry, some of which are listed in the Tools and Resources section of this book.
It’s nearly impossible to accurately valuate a business that hasn’t begun bringing in cash. But for those that have started making money, there are various methods for discovering the business’s worth. Below are three ways to begin calculating yours:
Make sure you know how much pre-tax revenue you’re bringing in annually. Depending on the industry and the buyer, your valuation might be a multiple of that revenue (e.g., three times annual revenue).
Besides just the revenue and profits of your business, a buyer will also be inheriting your assets (e.g., equipment, real estate, furniture). It’s important to know how much your assets are worth, so you can include them in the price.
What are your company’s earnings? In other words, how much money do you have after you’ve paid your expenses? This will play a key role in your overall valuation.
While each of these steps is significant, there are plenty of other factors that may help determine your valuation. For example, you could find a buyer who has strategic reasons for acquiring your company. Perhaps your local competition is interested in purchasing your business in order to gain a larger share of the market. That changes the game entirely.
You never want to leave money on the table when valuating your business, but you also must not price yourself out of the market. The more research you do, the more likely it is that you’ll be able to negotiate the best deal possible.
BIG IDEA: All-natural skincare products designed especially for sensitive skin.
INVESTOR: Mark Cuban
For many entrepreneurs there is one defining moment, one serendipitous collision of scattered events that come together at just the right time and create that initial spark of ingenuity and innovation. For Lani Lazzari, that moment occurred shortly after her eleventh birthday.
Suffering with eczema since birth, Lani constantly struggled to find skin care products. Fed up with the search, the tween entrepreneur decided to make one herself. “I started researching ingredients and eventually created a product that, for the first time ever, completely took away my eczema,” recounts Lani. “Nothing had ever worked before. It was amazing.”
While the homemade scrubs proved effective, it’s very possible they never would have made their way out of the house, if not for what occurred next.
A few months after inventing the product, Lani’s mother, a successful pharmaceutical salesperson, was passed over for a
promised promotion while on maternity leave. When she eventually returned to work, she was asked to leave.
“It was such a difficult experience for my mom,” says Lani. “After watching her go through that, I was really discouraged about going into the corporate world one day, especially as a woman.”
As the holidays approached, Lani’s family decided to scale back by making homemade Christmas gifts—a perfect opportunity for the budding skin care enthusiast to share her handcrafted scrubs. Almost instantly, the feedback came pouring in.
Everyone went crazy for the product, and it completely took away her aunt’s psoriasis. As more people began requesting the scrubs, Lani realized she had a full-fledged business on her hands and decided to officially launch Simple Sugars.
At first, Lani sold her products at craft shows and home parties, but as orders began to pick up, she knew it was time to up the ante. At only seventeen, Lani worked with her school to arrange a year of independent study so she could focus on building the company. It was the first time she was able to devote all her energy to growing the business, and not surprisingly, things quickly began taking off.
But as Simple Sugars blossomed, Lani needed more capital. As a young person, it was difficult for her to secure a loan, so she turned to
Shark Tank
for an investment to help grow the company. After making a deal with Mark Cuban, Simple Sugars went from a small, humble business to an in-demand powerhouse.
“We ended up getting fifteen thousand orders in the three days after my episode aired,” says Lani. “To put that in perspective, during the previous year we received a total of thirteen hundred orders. Just six weeks after our episode aired, we had received twenty-two thousand orders.”
Like any rapid growth, however, it didn’t come without its challenges. With such a large number of orders, Lani’s company went from five to fifteen employees almost overnight, which of course required many hours of hiring and training. What’s more, her fulfillment center was not prepared to handle the volume,
and she was forced to immediately find a new vendor. “It was difficult,” Lani explains. “But it was definitely worth it.”
Today, at nineteen years old, Lani is proof that running a successful business isn’t about age or experience, but about tireless motivation, endless hard work, and unquenchable passion. Although Lani has ambitious sales goals, she hasn’t forgotten about one of her primary reasons for starting the business in the first place.
“After watching what my mom went through, I made the decision to create a company with a really great culture. You shouldn’t have to choose between having a life you love and a job you love. I’ve always believed you can have both.”
To find out more about Lani and Simple Sugars, visit SimpleSugars.MyShopify.com or follow them on Twitter @simplesugars
REAL-WORLD WISDOM: “You can’t let fear get in the way. It’s not going to be easy, and you’re definitely going to make a lot of mistakes. But you can’t let that stop you from ever trying. You’ll figure things out as you go.”