Growing a business can take many forms. For some entrepreneurs, retaining absolute control is part of their DNA. For others, bringing in financial partners to speed the process makes more sense. In my case, I grew my company organically while also acquiring brands along the way. This road takes more time, but for me, being able to call the shots and not have to answer to anyone was important. This is not to say I did not have sounding boards—I did. My general manager and comptroller were smart and readily gave me their advice. But at the end of the day, I made the tough decisions and lived with the consequences.
The key to growing a business or a brand is being able to assign enough resources to get the task done. This may include larger physical space, more staff, or more inventory. It also requires leadership. For instance, launching a new brand means putting 100% effort into the task. One of the biggest mistakes an entrepreneur will make is believing that he or she can continue to divide time into parcels and somehow magically get it all done. Time is the one asset that is limited. This is where you need good people. Ask yourself a simple question: who will be driving the bus? If this falls on your shoulders, then you are not ready … unless you are prepared to let the regular (other stuff) go.
If you have the resources—time and money—then the next question is, how do you plan to do it?
Depending on your business model, an acquisition or merger with a strategic partner is a good bet. Staying within your family of expertise makes it easy to understand the business and communicate your thoughts. Opportunity often comes which may force one’s hand. For instance, a strategic business that may be a good fit may come onto the market, yet perhaps you do not have the funding to make the acquisition. This leads to several options: For instance, you can leverage your home with the bank to secure a loan. If you are already tapped out, another option may be to bring in an investor group.
If the buyer and the seller both feel that they are giving too much, then you have likely struck a fair deal.
In either case, negotiating the value of the business and structuring the buy-out can be done in such a way as to reduce pressure on cash flow. You first need to assess the seller’s needs: Depending on if a seller wants a quick exit or intends to stay on for a while, this will dramatically change the deal. For instance, a business may be valued at $500,000—yet you may be better off to offer $550,000 and pay it off over three years, using the cash flow that is being generated to pay the price. The seller may have tremendous loyalties to staff and promising to keep them on may be an important strategic clause. Be careful here … unhappy staff makes for an unproductive company. So, make sure you do not lock yourself in.
By bringing in investors, you can load up the cash box and start investing.
This is where you have to be honest with your future management team. Transitions are never easy, however, what is the flip side? The reason the seller is going outside to find a buyer is that he or she feels that they can derive more value and be paid (securely) vs. risking selling the company to staff. For the staff, the options may be limited, whereby the company simply ceases to exist (now out of a job) or is taken over by a venture capital firm that has no understanding of the business and simply looks at numbers. (An uncomfortable working environment.) I am a huge believer in building a business with people from within our industry. Having a "feel" for the market can often lead you down a better path than merely making decisions based on dollars.
By bringing in investors, you can load up the cash box and start investing. Venture capitalists are quite different from banks—they want to see a return on investment and charge fees and interest to meet their goals. These goals are clearly set out in plans and you have to have the discipline to provide monthly reports and be able to answer harsh questions when things are not going well. On the other hand, when cash is rolling in, it often hides the realities of inefficiencies, over-spending, and scrutiny. Discipline is such an ugly word.
One final thought: we all believe our business is worth more than it is. I am not sure if it is ego, but it is a fact. I have seen million-dollar deals fall apart when reality is set aside. One thing is for sure: if the buyer and the seller both feel that they are giving too much, then you have likely struck a fair deal.
