Four Ways for Selling Your Strategy to Potential Investors

Following last week’s blog  on “Fixing Your Financials“, Selling Your Strategy is the second of five grooming strategies.  You should execute as many of these as you can when preparing your Buyable Business for an equity harvesting transaction. Selling Your Strategy is made up of seven tactics, the four of which are the subject of this article. Stay tuned for the remaining three tactics next week.

Sell Your Strategy by Positioning Your CEO and Management Team

If you have implemented a Management Blueprint such as EOS, you have already created a management team that is running the business on your behalf. Ideally, you have elevated yourself to the entrepreneur’s position and have a full-time manager who runs the day-to-day affairs for you. EOS calls these two roles the Visionary and the Integrator, respectively. With both a Visionary and an Integrator in place, you can position the business as one that runs without you.

Before the sale, step back even from the Visionary role into the owner’s box. What you want is to sell a plug-and-play, self-managing business.  One that is ideally an entrepreneurial company that can drive itself strategically forward. You want to show your investor that the company doesn’t need an outside force to stimulate its growth and evolution. It already has these functions built in.

One way to achieve this is by mentoring your Integrator.  That person’s job will be to sell themselves as a credible visionary leader to investors. Have your number two actively immerse themselves in researching market trends, networking with peer companies, and taking part in CEO peer groups, such as Vistage, EO, or YPO.  They should also be practicing public speaking on the future of the industry and business strategy.

Gino Wickman took his own advice when he sold EOS Worldwide to the Firefly Group in 2018. He had positioned Mike Paton as his Visionary, which allowed Gino to disengage from the operations of his business from the day he sold it.

Sell Your Strategy by Knowing Your Industry Dynamics

The buyers will expect your leaders to understand where your industry is going. They will want to know how your business will exploit opportunities. Selling your strategy requires you to be on top of industry trends. This will allow you to position your business well and make a compelling case to buyers and investors. If you can identify and credibly show the Next Big Thing for your company, you will paint an attractive opportunity for your buyers. They will be happy to pay full price for your current business when you give them a blueprint on how they could expand it.

The toy distributor Gulliver is a case in point. One of the principal drivers of the sale was that the company’s owners identified a cross-border expansion opportunity into neighboring Romania. Romania had a fragmented toy wholesale and retail market, and Gulliver’s private equity buyer believed that the company could replicate its business model in that market, which was twice the size of Gulliver’s home turf.

Beyond entering a new geography, a company may expand into adjacent products. This can be done by targeting the same consumers by unearthing unmet needs. The questions to ask are: Who is your consumer? What and where do they want to buy? What price and how can they pay for it? Another approach is to ask: What job is the customer trying to get done? This question can reveal whether that job is being done well or not, the customer’s frustrations, and any barriers limiting consumption. Ask: What can we innovate to serve the unmet need?

Sell Your Strategy by Communicating Value

Develop a good grasp of where your industry is going and understand your competitors and the marketplace. This will give you a more realistic picture of the value of your business.

As an M&A advisor, my experience has been that the better the business, the more realistic the owner is of its valuation. Entrepreneurs who feel they have missed the mark in building an excellent business often mentally compensate for their perceived failure by overvaluing their companies.

In selling your strategy, like in other areas of life, you won’t get a second chance to make a first impression. If you approach the market with an apparently high valuation without a logical rationale to support it, investors will roll their eyes and move on.

To get a high valuation, instead of overvaluing the business, focus on executing the following steps:

  1. Groom the business properly.
  2. Devise a simple plan for how a buyer can grow revenues and profit.
  3. Look for synergistic buyers.
  4. Create a competitive and high-momentum auction.

If you follow this process, you can achieve a full valuation for your business that corresponds to the stage of the mergers and acquisitions (M&A) cycle you’re in. M&A activity is driven by economic expansion, regulatory changes, and the emergence of new technologies. M&A transaction volumes in the United States have followed a succession of high and low points for over a century now.  If you get the timing of the sale right, too, you just might hit it out of the park.

Document PR Initiatives and Testimonials

Your reputation is a key asset to you and your buyer. Make sure you can show a pristine image in your target market and to the public.  A record of positively received PR activities help you achieve that. Make sure you collect testimonials. Having a list of happy customers can persuade buyers that you have a positive image and service your clients well.

Stay tuned for the rest of this article until next week.

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