E244: Exit Strategy 2.0: Essential Steps Entrepreneurs Must Take to Maximize Value Before Selling - Watch Here

About the Guest(s):

Ian Smith is the founder of The Portfolio Partnership, a consulting firm dedicated to helping business owners enhance their businesses, making them attractive for potential buyers. Ian's career began as a Scottish Chartered Accountant and rapidly transitioned into the world of mergers and acquisitions (M&A). With over 15 years of experience in investment banking, primarily in London, Ian has led numerous successful M&A transactions. In the United States, he focused on software business turnarounds before founding The Portfolio Partnership. He is also a prolific author, with titles including "Fulfilling The Potential of Your Business" and "The Acquirer's Playbook."

Episode Summary:

In this compelling episode of the How2Exit Podcast, Ronald Skelton chats with Ian Smith, founder of The Portfolio Partnership, about the intricacies and strategies behind successful mergers and acquisitions. Ian shares his extensive background from being a Scottish Chartered Accountant to a seasoned investment banker with over two decades in the M&A sphere. He delves into his passion for helping entrepreneurs enhance their business operations to make them acquisition-ready, emphasizing the importance of strategic repositioning and growth.

Throughout the discussion, Ian stresses the importance of building a business through the lens of a buyer rather than a seller, citing the significant benefits this perspective brings. He introduces key concepts such as unique positioning, reducing dependency, and repeatable processes. Ian highlights how focusing on these areas not only prepares a business for a profitable exit but also ensures its scalability and sustainability. By sharing practical insights and real-world examples, this episode becomes an essential guide for entrepreneurs looking to grow, scale, or sell their businesses effectively.

Key Takeaways:

• Look Through the Lens of a Buyer: Transform your business by understanding what makes it attractive to potential buyers, focusing on unique positioning, reducing dependencies, and establishing repeatable processes.
• Importance of Unique Positioning: Carve a niche for your business to reduce competition and be highly attractive to buyers.
• Addressing Dependencies: Reduce dependency on the owner, key customers, technology, and legacy products to mitigate risks that deter potential buyers.
• Repeatable Processes: Develop and document processes that ensure scalability and allow the delegation of tasks to less experienced team members.
• Preparation for Exit: Engage in exit planning well in advance to address value leakage and ensure a smooth transaction when selling the business.

Notable Quotes:

1. "Building a business buyers love to buy because it’s safer ensures that you will always have a more enjoyable and fun business to run."
2. "Unique positioning can start at a million in revenue, it’s not page 20, it’s page three of your life as a company."
3. "Buyers perceive value, sellers aspire to price."
4. "Selling is all about building a career, trying to help someone have a better life."
5. "Entrepreneurship must focus on alignment and strategy to be the best in the world at what you do."

Article:

Mastering Mergers and Acquisitions: Insights from Ian Smith

Key Takeaways:

• Switch from an entrepreneurial mindset to a buyer’s perspective to build businesses buyers love.
• Avoiding dependency and emphasizing unique positioning leads to scalable, sellable businesses.
• Detailed, repeatable processes and storytelling techniques enable better business valuation and smoother operations.

Mergers and acquisitions (M&A) can seem like a daunting world, filled with complexities and high-stakes decisions. Ian Smith, founder of The Portfolio Partnership, shares his rich experience and insights on the How To Exit podcast, discussing how to make businesses more attractive to buyers and the significant distinctions between selling a business and acquiring one.

Understanding the Buyer’s Perspective

Understanding the buyer's perspective is a recurring theme in Ian Smith’s philosophy. Traditionally, entrepreneurs build businesses with the intent to sell, but Ian proposes a different approach—constructing businesses that buyers would find irresistible.

"Buyers perceive value; sellers aspire to price."

This simple yet profound idea suggests that entrepreneurs often fail to see their businesses through the critical lens of potential buyers. Buyers are more concerned with the perceived value rather than the asking price. Several key areas need attention to align with this mindset:

1. Unique Positioning: Buyers crave businesses with unique positioning and branding. Ian explains, "Unique positioning can start at a million revenue, not 50 million. It’s not page 20; it’s page three of your life as a company." This involves carving out a market niche and reducing competition, making your business indispensable.

2. Dependency Management: Addressing dependencies is crucial. Whether it's dependency on a few large customers, a particular technology, or the owner’s involvement, these can introduce risks that deter buyers. Ian emphasizes that "buyers hate dependency," and reducing it can significantly increase a business’s attractiveness.

3. Repeatable Processes: Establishing repeatable processes is another critical factor. These processes, such as consistent sales and marketing playbooks, enable a business to scale smoothly and allow for easier transition and management by new owners.

Focus on Aligning Efforts

Smith discusses the importance of aligning all efforts within a business towards a common goal, enhancing both scaling potential and operational efficiency. This approach not only aids in scalability but also prepares the business for a potential sale, offering the owner flexibility and better returns.

Aligning the Team: When employees understand and contribute to the core mission, the cohesion can lead to improved performance and scalability. This alignment involves clear communication of the company’s goals and ensuring each department’s objectives contribute directly to these goals.

Delegation Through Documentation: Ian talks about the importance of documentation in the scaling process. By documenting procedures and playbooks, businesses can delegate tasks efficiently, ensuring that quality and consistency are maintained even as the company grows.

"Good salespeople go through a simple process that involves discovery, diagnosis, design, and delivery."

This streamlined approach ensures that the business runs smoothly and can continue to grow even when the owner steps back. This clarity and order attract buyers, who seek businesses that present minimal operational risks.

The Role of Sales and Storytelling

Sales and effective storytelling play a pivotal role in both running and selling a business. According to Ian, successful sales are about "helping someone have a better life," rather than just pushing a product. This customer-centric approach fosters better relationships and long-term loyalty, which are valuable to potential buyers.

Sales Processes: Understanding and implementing effective sales strategies involve asking the right questions and diagnosing client needs. Ian mentions, "Product knowledge is just the entry fee. Good sales professionals are defined by the questions they ask."

Storytelling in Financials: Financial reporting should also follow the storytelling principle. Providing a narrative around numbers helps in understanding the context and the business dynamics behind these figures. This practice can greatly aid in transparency and trust-building with potential buyers.

"Don’t tell me what the number is. I can get a 6th grader to tell me what the number is. Please don’t insult me by telling me the number."

By sharing the stories behind the financial figures, businesses can provide clearer and more insightful reports, making it easier for buyers to grasp the health and future potential of the business.

Recapping the Insights

Ian Smith’s discussion provides a fresh and strategic outlook on preparing businesses for acquisition. It’s not merely about making a business profitable but making it attractive from a buyer’s perspective. This involves:

• Adopting a Buyer’s Mindset: Entrepreneurs must pivot to see their businesses through the eyes of potential buyers, focusing on unique positioning, minimizing dependencies, and establishing scalable processes.
• Aligning Efforts: Ensuring that all departments and efforts are aligned towards clear, common goals can maximize efficiency and performance, making the business more attractive to buyers.
• Effective Sales and Storytelling: Sales should focus on building long-term relationships and providing real value. Financial storytelling, on the other hand, helps in presenting the business’s true value beyond mere figures.

By following these principles, businesses can not only improve their operational efficiency and profitability but also become top contenders in the eyes of potential buyers. Ian’s insights are a valuable guide for any entrepreneur looking to build a robust and sellable business while enjoying a more streamlined and focused operation.

---- MORE COOL STUFF ---

Are you ready to take your podcast listening to the next level? Subscribe to "DEEPER by How2Exit" newsletter and never miss out on our latest episodes. Join our  newsletter  HERE

Want to stay in touch with what's happening in the Main Street M&A Space?  Subscribe to Growth & Acquisitions(Formerly The Hub)