Value Builder Factor 8 – Hub and Spoke
Who does the selling in your business?
My guess is that when you’re personally involved in doing the selling, your business is a whole lot more profitable than the months when you leave the selling to others.
If your goal is to maximize your company’s profit at all costs, you may have come to the conclusion that you should spend most of your time out of the office selling and leave the dirty work of operating your businesses to your underlings. After all, you’re likely the most passionate advocate for your business. You have the most industry knowledge and the widest network of industry connections.
However, if your goal is to build a valuable company–one you can sell down the road–you can’t be your company’s number one salesperson. In fact, the less you know your customers personally, the more valuable your business.
The Proof: A Study of 14,000 Businesses
We’ve just finished analyzed our pool of Sellability Score users for the quarter ending December 31. We offer The Sellability Score questionnaire as the first of twelve steps in The Value Builder System, a statistically proven methodology for increasing the value of a business.
We asked 14,000 business owners if they had received an offer to buy their business in the last 12 months, and if so, what multiple of their pre-tax profit the offer represented. We then compared the offer made to the following question:
Which of the following best describes your personal relationship with your company’s customers?
- I know each of my customers by first name and they expect that I personally get involved when they buy from my company.
- I know most of my customers by first name and they usually want to deal with me rather than one of my employees.
- I know some of my customers by first name and a few of them prefer to deal with me rather than one of my employees.
- I don’t know my customers personally and rarely get involved in serving an individual customer.
2.93 vs. 4.49 Times
The average offer received among all of the businesses we analyzed was 3.7 times pre-tax profit. However, when we isolated just those businesses where the owner does not know his/her customers personally and rarely gets involved in serving an individual customer, the offer multiple went up to 4.49.
Companies where the founder knows each of his/her customers by first name get discounted, earning offers of just 2.93 times pre-tax profit.
When Value Is the Enemy of Profit
Who you get to do the selling in your company is just one of many examples where the actions you take to build a valuable company are different than what you do to maximize your profit. If all you wanted was a fat bottom line, you likely wouldn’t invest in upgrading your website or spend much time thinking about the squishy business of company culture.
How much money you make each year is important, but how you earn that profit will have a greater impact on the value of your company in the long run.
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The Value builder score is an easy way to instantly see how well you are performing against the 8 Factors that drive value in your business.
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Links to the 8 Factors Series:
- The valuation technique used by professional business buyers;
- The three attributes of a scalable business model;
- How to bulletproof your business from demanding employees, overbearing customers, and suppliers who hold you hostage;
- One simple technique for eliminating cash flow worries;
- The one kind of revenue that can triple the value of your business;
- The two essential elements of your marketing plan you need in order to avoid commoditisation and costly price wars;
- The one question you need to ask your customers to predict the likelihood that they will buy again in the future and refer you to others.
- Are you working IN or ON your business
Business Doctors is a business support network dedicated to helping small and medium sized businesses achieve their vision. We are experienced business people, passionate about sharing our skills and experiences. Our aim is to offer hands-on support, dedicated to getting you back on track to growing a profitable and more valuable business.
The Value builder score is an easy way to instantly see how well you are performing against the 8 Factors that drive value in your business. Business Doctors are certified Value Builders combining elements of the system created BY JOHN WARRILLOW with 10 years of hands on experience in helping businesses grow.
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