24 ALIGN5 ADVISORS SPRING 2018
How Mastering the
4Ds
CAN HELP YOU MAXIMIZE THE VALUE OF YOUR BUSINESS
By : Chad Williams , John Ratliff , and Caley Sullivan align5advisors . com
FOR THOSE of you committed to mastering the Scaling Up principles in your business , you no doubt understand the value of getting the 4 Decisions ( the 4Ds )— People , Strategy , Execution and Cash — right and its correlation to your rate of profitable growth .
Likewise , through our work with growth companies in exit transactions , we see time and again the critical importance these 4 Decisions have with respect to maximizing value through the sale of a business .
If you are planning to position your company for sale and are weak in these areas , we recommend you shore them up by following our suggestions in this article . If you ’ re getting these things wrong , you probably need help and may not know how to fix things . Let ’ s take a look at the 4 Decisions and how they come into play when you are selling a business .
People : To sell a business for an attractive valuation , an entrepreneur must ensure that the business has the right people , doing the right things , with clear accountability and metrics . Making the right People decisions during the growth phase will allow the entrepreneur to step out of the day-to-day minutiae and focus on leading the company in the areas where he or she adds the most value .
Will a potential buyer do a deep analysis of whether you have the right person in place as your marketing manager or in accounts payable ? Probably not . What an acquirer will do , however , is look at the results of the business , which is where the quality of People decisions manifests . Buyers place premium valuations on companies that can operate and grow independently without the involvement of a charismatic founder / entrepreneur .
Strategy : A fantastic team of people who lack a clear strategy might survive for a while , but the failure to make sound strategic decisions frequently results in stagnant growth . Companies that lack the right strategy lose their ability to leverage opportunities and maximize profit . That failure will depress your valuation when the time comes to exit .
Third-party buyers ( be they strategic or financial ) look for growth , and they place higher value on companies that demonstrate consistent , profitable growth . If your business has not demonstrated the ability to post industry-leading growth over a period of years , then it is likely time to reexamine your strategy . By coming up with a strategy that generates consistent growth rates that outpace your peers , you will strengthen your position when the time comes to sell .
Execution : No matter how strong your strategy , prospective buyers know it won ’ t get you anywhere if your team isn ’ t capable of acting on it . By leading a culture that cultivates good execution habits , you will ensure that your company efficiently produces consistent , predictable gross margins and profitability for a future buyer .