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Don’t Be So Smart That You Kill the Goose That Lays Your Golden Eggs

I’ve never seen a strategy so brilliantly described. Bret (not his real name) was showing me a colorful graphic of how his business worked. The graphic showed six entities revolving around the core business he started about 20 years ago. “Yeah, I’m pretty proud of how it looks,” Bret said to me. “Everybody I show it to immediately gets what I do. You think I can get a 10X deal on my company?

As he nears 60, Bret is doing the smart thing to consider when and how to sell his business. In fact, smarts is one thing Bret has in abundance. He is one of those unique individuals who thinks on several levels simultaneously. I’m guessing he did really well in college. But when I started to review the financials, I was troubled. All the entities, even when working in tandem, didn’t translate to a very profitable business. He was making money, pretty good money in absolute terms, but his margins were single digits. “I would have thought all this would generate double-digit profit margins,” I said. “Yeah,” Bret replied, “I need more time for it all to come together.

Bret’s vision was indeed brilliant. I could show his strategy to my business school professors at Harvard, and they’d be impressed. But the problem was, Bret’s strategy required a significant investment of capital generated from his core business. I asked Bret the margins on his core business, and he didn’t know. I studied his financials for a few minutes and quickly figured out that his core business was generating profit margins of about 20%. Bret was obviously pleased to learn that, but he had gotten enamored with his strategic vision to the point that he didn’t realize how it was dragging down his core business. But Bret wasn’t ready to give up on his strategic vision. “Wouldn’t a buyer see what I’m doing and pay me a premium? After all, I’ve taken the business to a whole new level.” I had to explain the bad news to Bret. “Your vision is compelling but it’s not there yet. A buyer will not pay a premium for it, in fact, a buyer will likely ding the valuation of your core business because they’ll see your vision as a distraction.”

I told Bret he has three options, none of which he liked. One option is to not sell now, and work another two to three years to bring together the pieces of his vision and eventually drive stronger margins. Option two is to sell now, knowing he’s likely to get less for his core business because it’s weighed down by the cost of his strategic vision. Option three is to scale back and focus on just his core business. I call this the golden goose plan. Bret isn’t at risk of killing the goose that’s laying his golden eggs, but if he continues to ignore it while pursuing his bigger vision, he runs the risk of having his goose get sick. And a sick goose, if not properly attended, will eventually die. A dead goose, even if once golden, isn’t worth much.


JIM CUMBEE is President of Tennessee Valley Group, Inc. a retainer-based business brokerage and transition mediation firm in Franklin, TN. Cumbee is an attorney and has an MBA from Harvard Business School. Jim is the author of Home Run, A Pro’s Guide to Selling a Business. . He has a wide range of corporate and entrepreneurial experiences that make him one of the most sought-after business transition advisors in the state of Tennessee. The names and fact patterns above have been changed to preserve the parties’ identities.

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Tennessee Valley Group

Jim is an attorney (non-resident status with the Missouri Bar) and though he no longer practices law, he has read and negotiated enough legal documents to fill a cargo tanker. He has an MBA from Harvard Business School and knows how Wall Street and private equity operates. Jim is a Tennessee Supreme Court Rule 31 listed general civil mediator with tons of experience helping business owners (large and small) work through sensitive problems to achieve winning results. He is the author of "Home Run, A Pro's Guide to Selling Your Business, Seven Principles to Make Your Company Irresistible."

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