Paint by Numbers Growth Plan

We could double our revenue if we just had more people calling on customers. But do you know how hard it is to find good salespeople?

Jennifer (not her real name) was ready to sell the company she started after graduating from college in 2005. She was making darn good money, but working 60 to 70 hours a week had taken its toll. “I never intended for the business to get this big,” she told me during our first meeting, “but once the work started coming in, I never slowed down long enough to build a sales team that could handle it without me. Now, I’m stuck. I can’t find good people, so I have to do most of the hard work myself.”

As I talked Jennifer through the process of getting her business ready to be sold, we discussed her plan for growth. After all, it’s hard to sell a business for any meaningful multiple if there isn’t a rational and believable plan for growth. But Jennifer’s only plan for growth was “more good salespeople”. I explained that a buyer would need to see more detail than that. Some questions I suggested she answer: What is the profile of a good customer? What is the size of your potential market? How does the customer make a purchase decision? How long does that take? What will they pay, and what is the gross profit on each new customer?

Let me tell you, Jennifer wasn’t happy with the nature of my questions. “Sounds like you’re telling me I have to do all the work for the buyer. Isn’t all that for them to find out?” Her question was reasonable; a smart buyer will always do his/her own homework to prove the viability of the company’s growth plans. But for Jennifer to realize maximum value, she has to connect the dots between where the business is today to where the business can be if a buyer brings more energy and resources to the task. To just say, “hire more salespeople” isn’t sufficient. That answer implies all a buyer has to do is increase overhead and it will all work out. The other problem with the “more good salespeople” explanation is it just sounds too easy; when someone hears that answer, the obvious comeback question is, “if it’s that easy, why haven’t you done it?”

Now in fairness to Jennifer’s frustration, I realize that a plan for future growth is never easy to write. All business owners, young or old, experienced or not, need help answering the growth questions a buyer will ask. I compare the process to painting by numbers. When taking a company to market, our goal is not to deliver the potential buyer a finished painting, but to show them an outline of what can be done to make the painting complete. Our goal is to give the potential buyer a general idea how the finished picture might look once the numbers are filled in.

Now, with this piece of advice, let me tell you what happens about one-third of the time. When a business owner comes to grips with who their customers are, how to find more of them, and the return on investment to achieve another level of growth, they often “see the picture” themselves and decide to not sell! And that’s what happened in this case. Jennifer was so excited to have a disciplined understanding of how to grow her company, she decided to hold on for another two to three years. I’m betting her valuation will double, maybe more, as she begins to fill in her painting.

 

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. 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.

 

The following two tabs change content below.

Tennessee Valley Group

Jim Cumbee established Tennessee Valley Group to help business owners fulfill their dreams for life after business ownership. It’s a mission that his 30+ year career history had prepared him well for—in addition to being an attorney, transition mediator and business broker, Jim has been a buyer, seller, and entrepreneur. His broad range of experience gives him unique insight into how business buyers and sellers can achieve their goals.

Latest posts by Tennessee Valley Group (see all)