Here is a real-life story about what grooming your business looks like.
János Gréczi is the quintessential self-made entrepreneur. He started importing apparel and nonalcoholic beverages after the fall of the Iron Curtain, and over time he developed the latter concern into a full-fledged beverage distribution business. Later he invested in production equipment using government grants and loans, and by the mid-2000s he owned a thriving bottling empire. He bottled white-label sodas for several international and large domestic grocery chains. He ran a tight ship and made a 25 percent EBITDA margin in a competitive commodity market.
János knew his Magic Number
János had a magnetic personality coupled with street smarts, which allowed him to be an extraordinary salesperson and a tough negotiator at the same time. With his exceptional energy and keen eye for diamond-in-the-rough talent like himself, he made all the decisions and delegated execution to a cadre of young, like-minded hustlers.
János approached us in mid-2011 with the goal of selling his business, Gramex, for $30 million. We valued the company at $22 million, but he said he would not sell it before it fetched his Magic Number. We spent the next 18 months helping him groom the company while he also continued to grow the top line. János is a high school graduate, but he has common sense, discipline, and creativity. He implemented every tip we gave him, and grooming actions contributed and extra 4 percent to his EBITDA margin in 2012.
We ended up selling János’s business to a consortium of two private equity funds for over $32 million.
When the Differentiator Leaves the Company
János sold a commodity business as if it were a differentiated one. And it was, while János was there to make the business superior. As soon as he left, however, Gramex’s buyers had to hire three seasoned and expensive executives to replace him, which shaved 10 percent off the EBITDA margin. Gramex was no longer an outstanding performer, but it is a perfect case study for effective grooming.
What does grooming a business mean? When you are seeking a buyer or investor for your business, you want to make the best possible first impression on that buyer and you want to build and maintain trust throughout the process to maximize the valuation of your company. Grooming requires less time than strategic moves such as restructuring the ownership of the company. You can usually take care of grooming steps 6 to 18 months before a sale or financing transaction.
Which Part of Grooming Should be Next?
This chapter of my book includes 24 specific ways to groom your business, around the following four topics:
- Fix Your Financials
- Sell Your Strategy
- Polish Your Assets
- Cover Your Bases, and
- Run Your Business
Let me know which of the five most interests you and I will make it my blog topic next week.