STRATEGY
THE BIG SHIFT
WHEN YOUR BUSINESS BECOMES A PRODUCT
BY : MICHAEL SMITH , ENTREPRENEUR , M & A ADVISOR
AS AN entrepreneur , you have dedicated your entire career to understanding your markets . This encompasses everything from building your products and services to developing your operations and setting long-term goals . But what most entrepreneurs never plan for is the inevitable day when all of that will change : the day you choose to sell your company .
When selling your business , a shift in thinking must occur that may be counterintuitive . You must transition your mind-set away from managing a business of products to the idea that your business is a product that you are now tasked with selling . If you don ’ t embrace this new mindset , you will be psychologically unprepared for the process of selling . Worse yet , it may prevent you from achieving maximum potential value at the time of sale .
DEFINE YOUR “ PRODUCT ”
When you begin marketing your business as a product , performing a market segmentation exercise will be essential if you want to attract the right buyer . Ask yourself if your business has a technology , process , team , patent , or another valuable component that a buyer would see as a competitive advantage to acquire . Think of your business as a “ product ” that needs to be priced at either a discount or a premium .
A financial buyer will look at your business as a discount product because they want to pay as little as possible to acquire it . These buyers see your business for its current value and aren ’ t invested in exploring its potential . In contrast , when you position your business as a premium product , you will attract strategic buyers . These buyers will pay more than expected since they have the ability to see the holistic value it offers beyond the numbers .
In a famously referenced paper by economist and professor Theodore Levitt published in 1960 by the Harvard Business
Review , Levitt highlights the need to establish marketing as a goal throughout the business life cycle rather than focusing on selling as your only goal .
Levitt explains that the downfall of the legendary railroad companies was due to management maintaining a limited market view that inhibited growth . The failure of such companies was due to defining their industry incorrectly since many saw themselves as a part of the railroad business and not the transportation business . This was an opportunity we all know they failed to capitalize on since the transportation industry is vibrant today .
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