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Jennifer Foster Marketing

business marketing

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Easy Steps to increasing the value of your business BEFORE you sell it.

For the past several years I’ve had a hypothesis that companies are leaving a lot of valuation on the table as they look for their exit.  The last couple of months I put this hypothesis to the test by meeting with people who are actually helping companies through this process. Most of the CPA’s and lawyers I’ve talked to seem to agree that when it comes time for a company to sell, they often take their foot off of the accelerator.

The most likely cause is that leadership is half way out the door and has already starting looking toward their next chapter, be it retirement or a new career opportunity. It could also be happening because the company is running out of funds and they simply are trying to conserve resources to make the bottom line as good as it can for the impending financial audits.

Increasing the valuation is a major challenge for small businesses and entrepreneurs.

Most of them are already doing less with more. They are often wearing multiple hats and trying to get the most out of every dollar — that’s their normal state. Throw the stress of maximize the value of the business they’ve put so much effort and time into building and it’s enough to break most small businesses.

Here are a few easy ways to keep the valuation high and the stress low(er).

1. Seek advice

Hire an experienced outside advisor who can help you. Preparing your business for sale needs to include having an expert valuation conducted. Selling your business is one of the most important moments in your life as an entrepreneur. Professional advice will help ensure you get it right.

2. Work to boost your profits

Don’t expect high offers if you’re only breaking even. This can be a great time to do an audit of your processes and cut the excess. This has to be done carefully because the last thing you want to create is an air of panic within your walls or in the minds of your potential buyers. But nearly every business can find a way to operate more efficiently.

3. Continue to invest and improve

Keep as much momentum as you can. As mentioned above of the biggest mistakes business owners make is to take their foot off the accelerator before they cross the finish line. The moment you stop investing in your people, new equipment, maintenance and process improvements is the moment you start reducing the value of your company.

4. Create a strategic plan

Clearly document your vision – independent of the sale. Even if a sale is your only viable option, you should create a formal marketing and business plan. These documents help investors see the potential in your business. And  presenting measurable goals and milestones for the coming years will give your business credibility as a growing concern with long-term potential.

5. Empower your people

Your people are still you best asset. I’ve lead a lot of teams through mergers and acquisitions, and no matter the environment training and empowering people never fails to pay off. Pay particular attention to the management team and keep turnover low. Retention bonuses can work well here. When your buyers walk the halls, they will notice the vibe of your employees and it’s your responsibility to foster a positive environment.

6. Use your marketing to stand out

Don’t underestimate the value of your marketing dollars. In many ways, selling your company is a time to ramp up your marketing. The adage “fake it till you make it” is widely underrated. Marketing can help you look successful even if you’re struggling and that’s half the battle. Just like selling a house — a little curb appeal goes a very long way when your buyers are doing their “drive by” assessments. Your social media should be current. Your advertising should be active and your plan should be operating at full speed.  You can even add some flare by asking for testimonials explaining what keeps them coming back to your company vs. shopping their business elsewhere.

If you think having a strategic mindset applies only to businesses considerably larger than yours, I can help you see why that’s not the case. Small business owners actually face a much better return on their investment by working to  increase your values drivers.

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You can’t be all things to all people: How a feasibility study can set your young business on the right course

The most common challenge I see young businesses face is the lack of an understanding of where their product fits in the marketplace. We are such an instant gratification society that we have an idea for a company and we quickly build a web site, grab some social media handles and 1-2-3 LAUNCH!

That’s not how it works. That’s not how any of this works as a recent commercial reminds us.

There is definitely a growing constituency that says, follow your passion and the money will follow.  I wish it were that easy. The problem is that passion alone can often lack direction. It can be flighty and it will easily lead you astray when you quickly find yourself trying to be all things all people.

I recently wrapped up a client who really understood this. He contacted me after purchasing a building in a mid-size southern city. He had a very clear vision (passion) for the business he wanted to put into the space and he asked me to conduct a detailed analysis that would help him determine if putting a gym in the building would be successful.

Here are the steps I followed — you will likely notice some inherent overlap.

  1. Assess the Market –  The foundation of the feasibility study needed to demonstrate a knowledge and understanding of the demographics of the downtown. There were multiple buildings being converted into apartments and condominiums which likely would result in an influx of people looking to live-work downtown. Presumably the residents will be young, single and relatively affluent. I needed to confirm that.
  2. Gauge the Profitability — My client’s initial goal was to open a gym. As a consultant my start up costs were essentially an LLC license, an unlimited data plan for my phone and a new laptop. Pretty minimal to get started.The startup costs for a gym shocked me. (The number of them that failed was also quite suprising.) So much upfront investment becomes very hard to overcome in a quick amount of time. My client planned a full remodel regardless of the type of business that went in, but in order to have a good gym you needed newer, well-maintained equipment which was expensive. Multiple shifts must to be hired, trained and staffed because gyms need to be open very early in the morning, stay open until late in the evening and are open on weekends: far beyond a typical 8 hour day.I created a profitability model for the feasibility study — how many members did need to make a profit?  It might be easy to get 30-40 members but what if I needed 75 to break even? What if it was 175?
  3. Scope the Competition — How many other solutions are already there? There are always options for your customers, including doing nothing. Do your research on who is competing for your customer’ attention. You should consider complimentary and competing products as well. Maybe a there is already a gym on the block so maybe the recommendation is to open a coffee or juice bar?
  4. Plan your Partnerships — I’m in a couple different social media groups where I often see small business owners ask the hive mind “how do I find customers.” When I see questions like that I tend to believe that this is a young solopreneur. She is likely a year or two into her business, has likely been running on adrenaline in development/launch mode. She has likely racked up at least a couple thousand dollars in debt and isn’t paying her self a dime because there isn’t enough money coming in yet. Maybe the launch a success, but then her site traffic dwindled and, even worse, social media player changes the rules making it harder for customers to find the product they once loved.Now our new small business has no long term solution for finding customer. They may not even know who their customers even are. (I wrote a blog in 2016 that talks about how to value your customer.
    Along those lines BE REALISTIC — not everyone is going to get onto Shark Tank or get included in the Self Magazine annual beauty section. And if you do — it should be the icing on the cake not the bread and butter.
  5.  Who You Are. Who You are Not.  A well-rounded feasibility study sets the stage for you to create a branding plan. It’s easy to get distracted every time the phone rings with an opportunity. They all sound so good. Generally, there are going to be sales people trying to pitch marketing tools that are guaranteed to work (until you try to cash in on the guarantee). There are going to be other entrepreneurs who try to collaborate with you (or rather take advantage of you.) Having a clear document can remind you of your vision and give you a much needed “out” when you have to say no.

In the end my client did not launch a gym. Instead, we launched a co-working space called THE OFFICE HUB. It is in Shreveport, LA, and believe me when I say that it is beautiful. I’d love to tell you that it’s a raging success. Bottom line is that it’s been open a week, so we have yet to know how successful it will be. However, we are confident that because of our feasibility study we are on a solid foundation. Thanks to the study, we were able to learn about all the fabulous things happening in downtown Shreveport. And that a space like ours will ultimately be a valuable addition.

Some primary and secondary research helped us find and connect with the Downtown Development Authority, (@CoolDowntown). The DDA then helped us connect with every local television stations! They all came to our grand opening and did on camera interviews with our Executive Director. 100 or so of the Shreveport movers and shakers were also there for the Chamber of Commerce ribbon cutting! We created a business that Shreveport is hungry for — and we knew it thanks to the investment in the research.

So if you’re considering launching a small business (or have recently done so) take some time and find a partner, preferably one who is independent and objective, to put together a feasibility study.

Jennifer

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The First Step to Marketing ROI: Valuing your Customer

So last week we talked about building your 2016 marketing budget and assuming you did that, this week you’ve heard from your finance and accounting partners that they’re cutting it by 10%. In order to avoid these cuts you likely will be asked to defend your budget, and that comes in the form of (insert scary music sounds here) proving the Marketing ROI.

Actually, the finance partners probably aren’t asking for your ROI because, well, they’re probably just managing to the expense lines, and THIS is where you put your expertise to work! Because you, as an astute marketing manager, can illustrate why spending this hard-earned corporate money will result in a very specific amount of revenue.

Nine out of ten (90%) global marketers are not trained to calculate return on investment (ROI), and 80% struggle with being able to properly demonstrate to their management the business effectiveness of their spending, campaigns and activities, according to new research. Fournaise Group Marketing, 2014

Before you can value your marketing you have to value your customers. A few key measurements are:

  1. Cost of Acquisition: Cost of acquisition is calculated by the amount you spend to acquire a customer over a given time, and dividing it by the number of customers you acquire in that given time. Don’t forget to take into account EVERYTHING it takes to find and acquire a customer like vendor costs, sales, support, and marketing staff compensation.
  2. Customer Lifetime Value (CLV): The CLV is a prediction of the net profit each customer can deliver over the course of the relationship.  So while the cost of acquisition looks at what resources your organization uses to land a new customer. Simply stated, CLV examines the potential value that customers bring to your organization.
  3. Customer Retention Rates (CRR): Customer retention may be a performance measurement that most marketing managers simply don’t see. This blind spot is one of the fundamental problems with a sales-driven marketing team. Customer retention is left to Customer Service or other more operationally-focused teams leaving Marketing out of the process entirely.* To calculate retention take the original number of customers, subtract your lost customers and divide by the original number of customers for the that given timeframe. For example, if you start the month with 45 customers, and lose 5, the formula would be: (45-5)/45=89% Retention.**

*Meanwhile your competitors are hitting up your customers right and left — so DON’T ever stop marketing to your existing customers.

** Obviously you should exclude new customers in this calculation

Once you have some value of your customers, you can begin to know how much you can logically spend to acquire them and still make a profit. The higher your revenue per transaction the more you can spend to acquire (but you probably have a longer buying cycle which will drive your marketing costs up in relation.)

The best predictor of future success (or failure) is past success (or failure). So now’s when you pull out your historical campaign measurements. You should be able to assess how many customers you gained from your direct mail, you should know how many customer service issues you resolved using social media, and exactly how many qualified customers found you using paid or other search. These metrics become crucial when creating your marketing “balance sheet.”  Don’t fool yourself into thinking that, without any other changes, your newsletter open rate is going to jump from 2% to 15% this year simply to justify an added $25,000 to your email marketing budget.

When you compare your previous campaigns (and their successes) you should be able to then create a forecast that says spending X number of dollars on direct mail yields me Y number of customers.  X number of dollars spent making my website more engaging yielded me and additional Y number of customers. And so on down your budget line items.

If you don’t have previous examples to follow, for new products or new marketing channels, you generally can gather secondary research information that will help you, but it will be somewhat of an estimate because your unique offering, sales conditions and product can play a big role in the metrics.

You can’t expect your organization to value anything that you, yourself cannot quantify. This also becomes a lesson in making sure that your measurements are in place throughout the year so that when it comes time to budget you have clear numbers to rely on and your 2017 budget (and ROI proof) will be a breeze.