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.