🏗️   Build for Succession or Sale
đź’¸ Â Â Grow Like Private Equity
🏡   Last Company Standing
🏗️ Build for Succession or Sale
When I was 30, my family hired a consultant to assist with our company’s succession planning. During a family council meeting the advisor asked me a hypothetical question, “If your parents gave you $500,000, would you buy shares in the business?”
Without hesitation, I said, “Of course!” I was their eldest son, and I felt it was my obligation to carry forward the business.
The advisor retorted, “Well, that’s stupid!” I was dumbfounded. He continued, “They’ve just gifted you half a million dollars. You could use that money to pay off your mortgage or invest in the stock market. Why are you choosing to invest in this business?”
When I came back to the family ninety days later, I reluctantly admitted I would not buy shares in the business. I saw the decline and transformation of our industry and did not perceive it as a wise investment.
To my surprise, my parents were relieved. It gave them the clarity they needed, and as a family we created a new plan. We spun off our sales force design consulting practice to form Sticky Branding, and we packaged and sold LEAPJob a few years later.
Whenever I start an engagement with a family business I ask, “Are you building for succession or sale?”
Choosing a path helps to frame a growth strategy and investment plan, but the decision is not set in stone. Revisit the decision every twelve to eighteen months. If things change or opportunities arise, take advantage of them.
One Stat to Watch
45%
EBITDA-optimized companies can increase valuations by 45% or more compared to their peers, according to Deal Flow Agent.
💸 Grow Like Private Equity
Private equity (PE) approaches growth strategy with a cold clarity: generate significant financial returns for its investors.
PE firms focus on two financial levers to maximize a company’s value before selling it:
1. Operational Excellence: EBITDA (earnings before interest, taxes, depreciation, and amortization) is the most common source of value creation. The PE focuses on EBITDA margin (%) and EBITDA dollar growth to increase operational effectiveness for profitable growth.
2. Top Line Growth: PE firms are targeting 15% to 30% CAGR (compound annual growth rate) with an investment horizon of three to seven years. They make strategic investments in people, systems, brand, and capabilities to get a company to the next level to maximize its valuation. They track revenue dollar growth and revenue growth rate (%) year over year.
Even if you’re not preparing to sell your business, “what would private equity do” provides an interesting lens to structure your growth strategy.
Define your business metrics to grow like you are PE managed:
- Revenue dollar growth
- Revenue growth rate (% YoY)
- EBITDA margin (%)
- EBITDA dollar growth
Having cold clarity on how your business generates value leads to better and smarter business decisions.
🏡 Last Company Standing
You may have every intention of growing your business through the generations, but when an industry consolidates you don’t want to be the last company standing.
In 2024, one of our clients faced that realization. With their two direct competitors recently acquired by multi-billion-dollar manufacturing conglomerates, they saw the economics of their business changing.
The CFO said, “We don’t want to be like a house in the middle of a Walmart parking lot because we refused to sell.” It was a powerful visual metaphor that helped shift the leadership team’s perspective.
Within six months, the company was acquired by another manufacturing giant, and the team is thriving under the new ownership.
Competitive strategy is moving at the pace of change. Be prepared to change strategy and act decisively when there is a seismic shift in your industry.
🤔 Thoughts on Today’s Issue?
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