Great Strategic Leaders Always Think Twice

Most people let old ideas influence current decisions. But true strategic thinkers interpret situations from many angles and come up with better solutions. Every time.

Uncertainty can be scary – but what is even scarier is how insidious the human mind can be in the face of uncertainty.  To make sense of the continuous stream of data being pelted at us from every direction, our mind creates filters so that we can survive and function.
These filters are so effective that only about five percent of the stimuli trickle through. Your mind has become your worst enemy– it only lets through information that conforms to your current beliefs and expectations.  When faced with new data and important decisions, that can be really bad, deadly even.

Misinterpretation can lead to disaster.

Consider a classic example of misinterpretation at Pearl Harbor in 1941.  The captain of the destroyer USS Ward had just dropped depth charges on an unidentified submarine moving into Pearl Harbor, suspected of spying.  En route to port shortly thereafter, this captain heard muffled explosions and remarked to his commander, “I guess they are blasting the new road from Pearl Harbor to Honolulu.”  Operating from a peacetime frame of mind, the captain mistook the muffled explosions of the first Japanese air raids for road construction.  He failed to link his encounter with a suspect submarine that morning with the explosions he just heard.  His mind was insufficiently prepared to interpret the signals for what they really were all about, the start of the Second World War for the U.S.
Such misinterpretation, due to looking at new data through old lenses, is quite common in business as well. Instead of challenging our assumptions, we search for information that proves our old ideas right. Unfortunately, this confirmation bias further delays us coming to terms with a new reality. Instead, we should constantly test our assumptions and actively look for disconfirming information that would prove our old ideas wrong when they are in fact wrong.

Be a better interpreter.

Vigilant leaders must always be on guard for their evil twin who wants to interpret the world in terms of past realities rather than new ones.  For example, your competitor drops its prices – how do you view this and what would you do about it?  Your first interpretation might be that this is a desperate act to hold market share, a futile race to the bottom that will hurt all. But have you interpreted this situation correctly?  Perhaps you are basing this knee-jerk reaction on old knowledge. Here’s how you can tell:
1. Make a list of all the important things that have to be true for your interpretation to be correct. Arrange the list from assumptions that are easiest to verify information to hardest.  For example:

• Your competitor’s market share has been dropping.
• Lowering price can buy market share in this business. 
• The competitor cannot make money at this new price.

2. Look for disconfirming evidence starting from the top down. Finding market share data is relatively easy, but be sure to check trends within different customer segments and also consider lags or biases in the data.  Next, can you find examples where price drops did not result in higher market share?  Why did it not work?  Finally, challenge the assumption that your rival could not make money. Did it innovate its offering in a way that reduced cost?  Could it be using a lower price to generate volume for higher value parts of it business?
If you can prove any part of your interpretation wrong, you should rethink your view and response to the situation. A statue in Helsinki, honoring former Finland president J. K. Paasikivi (1870-1956), is engraved with his motto that “all wisdom starts by recognizing the facts.”

Three is the magic number.

When looking for evidence pro and con, try to find at least three sources for data about any new issue. Leonardo Da Vince believed that he would never understand a complex subject without looking at it from at least three angles (what we now call triangulation).
The Internet makes this rather easy, but don’t overlook traditional sources of information such as customers, competitors, suppliers, regulators, partners etc.  If there are differences in what you find, spend some time thinking about why those discrepancies exist and if they matter.  What other patterns can you see in the data?
Some organizations use scenario planning as a way to make sense of uncertainty and conflicting data.  The aim of this methodology is to generate competing views about the future and use a wide lens to capture new signals from the periphery.  Insights gained from this type of exploration and interpretation will not just help you avoid devastating pitfalls, but also highlight opportunities before your competitors see them as explained in our book Peripheral Vision or at our company's website.

Advertising Overload: Are You Guilty?

New research on how just many marketing messages it takes to completely turn off a customer.

Mae West said that too much of a good thing can be wonderful. Obviously Ms. West was never on the receiving end of the avalanche of marketing messages consumers now receive. And now recent research from Upstream and YouGov show just how bad an impression a deluge can make.
According to the 2012 Digital Advertising Attitudes Report, a study of adults 18 and over in the U.S. and U.K., a big percentage of people would stop using a product or service if they received too much advertising for it: 27 percent of those in the U.K. and 20 percent of the U.S. respondents.
It's a "major backlash," according to the study, that badly dovetails with the finding that nearly two-thirds of online consumers in both the U.S. and U.K. already feel that they are targeted by "excessive digital advertising and promotions."
In other words, people increasingly feel stalked and when they feel stalked they want to run in the other direction. That will likely only get worse as mobile marketing to cell phones and tablets begins to gear up. Roughly two-thirds of the people surveyed said they would dislike getting ads on their mobile devices.
The problems of perceived over-targeting doesn't stop with the 20 to 25 percent that say they would stop using a product or service, as you can see in this table:

Two-thirds of consumers say at the very least they would unsubscribe from a brand's promotions if the company delivered too many of them. About 28 percent of people in the U.S. and 37 percent in the U.K. would begin to respond negatively to further marketing from the company in question. One in 10 would take to protesting on social media sites.
This is just an extension of a similar problem in social media marketing. It's not difficult to understand. How often have you become frustrated with email newsletters, promotional tweets, daily deal alerts, and the mountain of marketing messages you receive in a day?
Each company wants to deliver its unique sale pitch and value proposition and with enough frequency that they won't be forgotten. But it's the corporate equivalent of the loudmouth at the cocktail party who won't stop talking. Eventually, people try to avoid eye contact, look for others to speak with, and otherwise do their best to avoid an annoying boor.
There are steps to take. In the U.S., 55 percent of consumers didn't want more than one message a month, although those between the ages of 18 and 24 were open to contact as frequently as once a week. When asked what would make them more likely to respond, 26 percent said marketing tailored to personal interests and 21 percent said that the material would have to be contextually relevant to what they were doing. At the same time, don't depend too heavily on those insights, because consumers could also react badly if they sense whiffs of cyber stalking.
The key is to communicate in moderation—enough to stay in touch, but not so much that your brand becomes the pariah in their inbox. At parties or in business, good taste goes a long way.

Negotiating for Wimps

How to ask for what you want -- and get it. Eleven tips for the confrontation-shy.

So if you’re like me—a negotiating sissy—here are a few ways to make negotiating a little less stressful, a little more fun, and a lot more successful:

1. Make the first bid. People hate to go first if only because going first might mean missing out on an opportunity: "If I quote a price of $5,000,” the thinking goes, “and he would have happily paid $7,000, I leave money on the table.” In the real world, that rarely happens, because the other person almost always has a reasonable understanding of value.
So set an anchor with your first offer. (The value of an offer is highly influenced by the first relevant number—an anchor—that enters a negotiation. That anchor strongly influences the rest of the negotiation.)
Research shows that when a seller makes the first offer the final price is typically higher than if the buyer made the first offer. Why? The buyer's first offer will always be low. That sets a lower anchor. In negotiations, anchors matter.
If you’re buying, be first and start the bidding low. If you’re selling, start the bidding high.
2. Use silence as a tool. Most of us talk a lot when we’re nervous, but when we talk a lot, we miss a lot.
If you make an offer and the seller says, "That is way too low," don't respond right away. Sit tight. The seller will start talking in order to fill the silence. Maybe he’ll list reasons why your offer is too low. Maybe he’ll share why he needs to make a deal so quickly. Most of the time the seller will fill the silence with useful information—information you would never have learned if you were speaking.
Listen and think more than you speak. When you do speak, ask open-ended questions. You can't meet in the middle, much less on your side of the middle, unless you know what other people really need.
Be quiet. They’ll tell you.
3. Expect the best. High expectations typically lead to high outcomes. Always go into the negotiation assuming you can get what you want. Always assume you can make a deal on your terms.
You can't receive if you don't ask. Always ask.
4. Never set a range. People love to ask for ballpark figures. Don’t provide them; ballpark figures set anchors, too.
For example, don’t say, "My guess is the cost will be somewhere between $500 and $1,0000." The buyer will naturally want the final cost to be as close to $500 as possible—even if what you are eventually asked to provide should cost well over $1,000.
Never provide an estimate when you don’t have enough information. Keep asking questions instead.
5. Concede for a reason. Say a buyer asks you to cut your price. Always get something in return by taking something off the table. Every price reduction or increase in value should involve a trade-off of some kind.
Follow the same logic if you are the buyer. When you make a second offer, always ask for something else in return for that higher price. And if you expect the negotiations to drag on, feel free to ask for things you don't really want so you can concede them later.
6. Never negotiate alone. While you probably do have the final word, being the ultimate decision-maker can leave you feeling cornered.
Always have a reason to step away and get a final okay from another person, even if that other person is just you.
It might feel wimpy to say, “I need to talk this over with a few people first,” but better to feel wimpy than to be pressured into a decision you don’t want to make.
7. Use time to your advantage. Even though you may hate everything about negotiating, never try to wrap a negotiation up as soon as possible just to be done with it. Haste always results in negotiation waste.
Plus there’s another advantage to going slowly. Even though money may never change hands, negotiations are still an investment in time. Most people don’t want to lose on their investments. The more time the other side puts in the more they will want to close the deal… and the more likely they will be to make concessions so they can close the deal.
While some people will walk away, most will hang in for much longer than you might think.
8. Ignore bold statements. Never assume everything you hear is true. The bolder the statement the more likely it is to be a negotiating tactic.
Strong statements are either a bullying tactic or a sign of insecurity. (Or, often, both.) If you feel intimidated, walk away. Otherwise, listen closely for what lies under all the bluster and posturing.
9. Give the other person room. You feel defensive when you feel trapped; so does the other party.
Push too hard and take away every option and the other person may have no choice but to walk away. You don't want that, because...
10. Don’t try to win. Negotiating isn’t a game to be won or lost. The best negotiation leaves both people feeling they received something of value. Don’t try to be a ruthless negotiator; you’re not built that way.
Instead, always try to…
11. Build a relationship. Never take too much from the table, and never leave too much. As you negotiate, always think about how what you say and do can help establish a long-term business relationship. A long-term relationship not only makes negotiating easier the next time, it also makes your business world a better place.

Tips to Manage a Successful Sales Team

Want to boost your business? It's time to set your salespeople free.
As economic times become more uncertain, companies are increasingly seeking to boost their sales operations to try to capture more market share. But properly running a successful sales department requires a special touch and technique.
Great salespeople also tend to be into solving problems and driving for results. They're positive in their attitude, powerful and authoritative.
The traits that make them so great at sales also can lead to traits that present difficulties for managers. They can be impulsive, demanding and unrealistic in their expectations. They may lack attention to detail and are often disorganized.
If you are more methodical, analytical or process oriented, you may get easily frustrated running a sales department. But those who are good at running a sales department learn how to manage around these issues.
There are certain styles of management that I've often found are a good fit for sales departments. Here are four tips for managing successful sales pros.

• Avoid rulemaking. Great salespeople generally want freedom. They want autonomy. Compliance doesn't work for these people. The better you're able to remove the obstacles and set them up to produce those results, the more successful they will be -- and you will be. Don't ever tell them what they can't do, because they will simply focus their creativity on finding ways to overcome your rules.
   
• Become a coach. That means asking, not telling your high performers what to do. Ask them to put themselves in your shoes over a particular issue, and discuss a variety of possible options. Let them own the solution to whatever obstacle is at hand.
   
• Let them do what they do best. In order to motivate and lead salespeople effectively, you want to think about what's important to them and what drives them. If you have employees who are not great at details and writing proposals but they're great at selling, then let them sell. Find someone else to compensate in some way to support them on the detail.
   
• Give them pats on the back. You need to recognize them. Especially with top-performing salespeople, money isn't often the main driver. It's really about being respected. It's achieving and getting those results.

If you adapt your management style to meet their needs, and understand the behaviors needed to do it, you'll have a lot fewer headaches. And your salespeople will thrive.

How Do I Build A Valuable Company?

My entrepreneurial journey has seen me start and exit a number of companies. I want to share three of my best tips for building a valuable – sellable – company.

Tip No. 1: Make it all about a number of clients, not one client

It's common for a business to be dominated by one or two important customers. It happens pretty naturally. You do a good job for one customer, and they buy again. You keep satisfying them, and they stop looking for other suppliers and start to bring more and more of their orders to you in hopes you can handle the increase in business while maintaining your amazing service.

Given their importance, you're probably also servicing this giant customer personally, which makes them even more profitable because you do not need to hire sales or service staff to support the account. This, of course, makes both the account and your business very profitable—which makes it harder to walk away. It's a cash cow.

Pretty soon, you have a codependency that can undermine the value of your company—and make it virtually impossible to sell. For example, an acquaintance of mine owns a business that supplies a product to the home improvement chain Lowe's. In some months, Lowe's makes up more than half of his revenue, which is why, when the U.S. housing market crashed and Lowe's slashed the size of its orders and slowed down its payment cycle, my friend's business teetered on the brink of insolvency.

Desperate for cash, my friend tried to sell his company to both strategic and private-equity investors, all of whom offered him pennies on the dollar (when compared to the value of similar businesses) because of his reliance on just one customer.

To build a valuable company—one you can sell if you choose—you need to winnow down your reliance on any one buyer. My suggestion is to strive to ensure no one customer represents more than 15 percent of your revenue.

Tip No. 2: Increase your customer base

We survive the early years of our business by listening to our customers and responding to their requests. The problem is, when all you're doing is reacting to customers, you end up offering way too many things—customizing too much—because everyone wants a slight twist on your offering.

If you offer an ever-expanding list of things, your staff will never get really good at making or selling anything. The broader your product or service line, the more your business will be reliant on you—the person with the most knowledge in your field—rather than your employees. If the business is too reliant on you personally, it will be hard to sell.

To pull yourself out of this quagmire, you have to sell less stuff to more people. That may seem like counterintuitive advice, but some of the fastest-growing, most valuable companies in the world do it.

Take Apple for example. Apple is really good at selling a few core products (iMac, MacBook, iPhone, iPod, and iPad) that offer the same basic user interface. As a result, the company can train its Apple Store employees on one basic operating system and a few core products.

By contrast, walk into a Best Buy, with thousands of technology products running hundreds of different operating systems. If you're actually able to find someone to help you, you'll be lucky if they can read the specifications on the back of the box, let alone actually know anything about the product.

Focusing on selling less stuff to more people will allow your business to scale up beyond you, which in turn will allow you to grow through the ceiling that holds back many owner-dependent businesses. Ultimately, you'll have a company you can sell.

Tip No. 3: People want to work with you because you are the BEST at what you do.

Quick—how do you explain your business in a social situation? Do you define yourself by your industry? For example, "I own a printing company." Or do you describe what makes your business unique? For example, "We've developed a process for printing annual reports that reduces the turnaround time to three days."

The problem with describing yourself as a part of an industry is that most industries are commoditized. You're sentencing yourself to a life of low margins and groveling for work. When there is nothing unique about your business, the customer has no choice but to rely on price as the only decision-making criterion.

And before you claim "customer service" as what makes you unique, remember that people don't buy wishy-washy claims as a point of differentiation. After all, service is in the eye of the beholder, and until your prospect makes the decision to become a customer, intangible claims about how well you treat your customers ("offering great customer service since 1977," "specializing in great customer service") will not sway them.

Instead of describing your business in terms of the industry you're in, accompanied by some vague description of your service, describe in concrete terms what makes your business different. For example, under Tony Hsieh, Zappos became a successful company (Amazon acquired it in 2009) not because it's a retailer of shoes but because it offers a two-way free-shipping policy.

One-way free shipping is standard for a lot of e-tailers, but Zappos offers to ship your shoes free and then if you don't like them not only refund your money but also pay to pick them up. "Great customer service" is a wishy-washy claim. "Free returns" makes Zappos special and is a big part of what sets it apart. A shoe retailer is a boring commoditized business with low margins and very little hope of being acquired. A company that allows people to return shoes if they don't like them, all from the comfort of their own home, is unique and a big part of the formula that allowed Zappos to scale up into a sellable business.

Stop describing the industry you're in and start describing what makes you irresistible.

Day 2: Understanding EBITDA: Seek Outside Opinions

You can tinker with the formula all you like. But how will you know what calculations are safe to assume and which aren't? How do you put a price tag on your company's competitive advantage, list of customers, and your brand as a whole?

There are endless variables and measurements that factor into your company's worth. One way to gauge interest is to approach potential buyers in your industry.

There are a number of other resources you can use to estimate the value of your company. Business Valuation Resources, for instance, provides you with comparative and historical information within your industry. Experts agree, though, that EBITDA does depict an accurate comparison across markets because of the exclusion of interest and taxes that vary by sector. Making the right changes – cutting unprofitable costs, expanding sales, or reaching new markets – can have a significant effect on EBITDA as a measure of your performance.

At this point a simple question remains: which year's EBITDA are we talking about, the current, past, projected, or a combination? Buyers, of course, will be pushing for a lower valuation and might look at an average of EBITDA over, say, three years as the base number. To get the highest valuation, you'll want to bolster gains in the present and future. To do so, be sure to exceed your business plan and monthly goals, create a solid sales stream into next year, and get clients on-board with long-term contracts. Don't exaggerate too wildy, though: sophisticated buyers will always cut through the grease.

How to Use EBITDA to Value Your Company

It's not the only number potential buyers look at, but EBITDA will give you a solid idea of how they'll start evaluating your business.

Looking to the future, can you envision a time when you might want to sell your business?

The best way to build a company is to build it as if you're going to sell it. It has to be built to last.

One place to start measuring your company's potential value in a sale is determining your EBITDA, or earnings before interest, taxes, depreciation, and amortization. It's certainly a mouthful, but the equation itself is really quite simple: subtract expenses from revenue (excluding interests and taxes) without depreciation and amortization (what you pay for tangible and intangible assets). The remaining number paints a basic picture of your profitability as well as your ability to pay off what it owes.

It's a quick way to assess the firm's ability to pay back interest or debts. EBITDA can be thought of as a "quasi-estimate" of your free cash flow, a more traditional and comprehensive assessment of a company's performance. You can get a more accurate reading of your free cash flow by subtracting out new capital expenditures for that year. Once you get this dollar amount, simply build upon the foundation to see how well you are doing.

Day 1: Understanding EBITDA: Add and Subtract Value

It's unlikely that you as the business owner would be fiddling around with your company's EBITDA. Still, before you sit down with the buyers or investors who will, it's important to understand what they'll be looking at.

Essentially, EBITDA on its own makes for a fairly futile statistic. There is, after all, a very good reason why you depreciate and amortize assets. To simply put those charges back in to earnings may give an unrealistic measure of your finances.

That's where the need for adjustments comes in. Since EBITDA is technically a non-GAAP figure, meaning it does not conform to generally accepted accounting principles, you can make these adjustments almost wherever you see fit. As just mentioned, you might need to devalue assets like old equipment within the overall number. Likewise, you also might have failed to collect some accounts receivables from clients. These result in a net-negative for your operating cash flow.

By the same token, you can also add both tangible assets (like equipment) and intangible assets (like your management team and employees) to the figure. It's typically through this addition process that you arrive at your company's value as a multiple of EBITDA. Let's say you pay yourself a $300,000 salary for a position that someone – like a buyer or competitor – could do for $150,000. That buyer would then add that extra $150,000 back into the value of your company once its absorbed. In this case, the number you arrive at is a form of adjusted EBITDA called "field" EBITDA, where you take into account subsidiaries and components of a company that can be absorbed for little to no cost. The term most often applies when selling the business to one in a similar field, in which case the management team, office space, and other business expenses may fall by the wayside during the takeover.

Groom Your Company with a Buyer in Mind

One of the reasons that so many companies are formed in Silicon Valley is that they are all groomed from Day One for sale to another Silicon Valley company. Proximity makes it just that much easier for a company to be sold, which makes it that much easier for the company to raise capital. When a company has a huge-market capitalization, it can use that stock or cash to go on an acquiring binge. For many years, we started companies with a specific buyer in mind, such as Microsoft, Oracle, or Cisco. More recently, Google, Groupon, and AOL have been active acquirers. The movie companies are also in the wings as they decide to get into or out of the game business. It is a good strategy to watch the IPO market this year and ask yourself what newly-public companies would like to buy. Groom your start-up from to be a fit into their portfolio. Then move fast and get something going quickly before they have spent their money or find out that some of the things they bought are crap. Your sale will make your shareholders rich and you get to work with these companies for a couple of years as part of the deal. After that, you can buy your boat (or perhaps an island) and live happily ever after.

What Goes Into the Sale Price of Your Business?

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Small business owners usually have an idea about how much they want to sell their business for—but they have no idea what it’s actually worth.

Why? They’re too focused on the blood, sweat and tears they’ve poured into the business over the years and not enough on what the market will bear. Coming to the realization that your business’ worth is not directly related to the amount of hard work you’ve put in is difficult. It’s also necessary to get the process moving.

While the ultimate value, or sale price, given to you by professionals may be much lower than you were expecting (and it usually is), the experts have their methods.

Here’s what goes into that final number:

The buyer. The sale price of your business is often determined by who’s buying. If a family member or top manager has agreed to buy your business over a 10-year period, for example, the deal could be structured where payment installments fluctuate based on the company’s performance.

If a buyer strictly wants to buy your business for its assets, though, and does not wish to continue operating the business, the sale price will likely be determined by the value of these assets.

A buyer’s biggest question is: how can I service my debt and get a reasonable return on investment?

The approach. If you decide to get an official value from a valuation professional—usually a certified valuation analyst—expect to hear terms like “market-based approach” and “income approach.” These terms indicate which appraisal method the professional employed when valuing your company.

The most common methods for a small business are:

• The income approach, which emphasizes your past, current and projected revenue and cash flow.
• The market approach, which derives value from historic sales of similar businesses
• The asset approach, which takes into account the fair market value of a business’ assets

The approach largely depends on the professional’s discretion and your company’s situation.

Typically, a small business valuation is based on a combination of the income and market approaches, he says.

Cash is king. Even so, most valuation professionals agree that cash flow is the top determinant when valuing a business for a third-party buyer. Why cash flow, and not revenue or assets? Because buyers are more concerned with how they’ll make money after the sale. “It’s pretty simple. Take the past 12 months of a small business’ cash flow—in my world, that’s every way the owner makes money—and the business will sell for two to three times that. That’s why many business owners see valuations drop off precipitously during a recessionary period.

If you’re thinking about selling your business, get going as soon as possible. The biggest mistake you could make is to wait too long to get a value and put the company on the market. Once you are “checked out”, motivation decreases, and its value follows suit.

Should You Develop a Business Exit Strategy?

Whenever you create something that's interesting and useful, you create something that's worth selling. And when you're thinking of selling something that's as vital to you as your business, it's best to have a well-developed plan firmly in place.

In business terminology, an ending for a business owner is called an "exit," while the planning of a defined ending is called an "exit strategy." Having an exit strategy tells others who have the occasion to view your business that you're in control of your business, that you're aware and goal focused, and that you have a plan for an organized and profitable ending.

Business owners who don't plan for ownership transition are often faced with the inability to receive enough money in an ownership change to fund a comfortable retirement. This doesn't happen because such owners failed to create value in their businesses; rather, it's because they failed to do the planning that would have allowed them to keep that value.

If you are just starting your business and intend to seek angel investors or venture capitalists, those investors will require that you have a viable exit strategy in place before they'll award you a dime. Business owners who are approaching retirement may want to sell their business to an outsider, a key employee, or to a co-shareholder or partner. Alternatively, they may want to transfer their interest intact to children or other family members. How can all of this be accomplished? You got it — with an exit strategy.

If you've been in business for years and are just now thinking of developing an exit strategy, don't despair. But do start your exit strategy today, keeping in mind that defining it is a process that requires careful thought. Rather than being something you'll finish in 10 minutes, this plan takes time, both now and in the future. Continue to revisit your exit strategy as your business grows.

All strategic exit plans should identify the following key topics:

• Current valuation of your business
• The factors that drive the value of your business
• Methods to increase your business value
• The potential future value of your business
• Your options for ownership change
• Likely tax implications of ownership change
• Tax-saving methods specific to your business
• Your likely proceeds from strategic ownership change

Set Up a Strategy

Let's say you accomplish the above imperatives and realize the current valuation of your business isn't what you thought it was, perhaps because you were off the mark when you originally determined the factors that drive your business's value. These two factors play into a third: your likely proceeds from an ownership change.

In cases like these, you'll need to amend your exit strategy or potential buyers won't be interested. Maybe expenses need to be reduced, better buying practices put into place, tighter controls placed on accounts receivable, improved service or focused sales and marketing initiatives need to be considered.

You get the picture. With a proper business valuation and some exit strategy planning, you can provide for a smooth transition and make the business more valuable and desirable. Alternatively, you can ensure that it will be turned over to family members on the most favorable terms to you, with the lowest tax consequences legally possible.

With your exit strategy in hand, work each day to make the decisions and moves that will position your business to reach your exit goal.

How Do I Choose the Right Broker?

This is the first and maybe the most important step you need to decide on prior to getting your business ready to go to market. The value of your business and the right time to sell are issues to be handled after a broker reviews your business information. But, right up front, there are some key points that you need to consider prior to signing a 9 month to a 12 month Representation Agreement or Marketing Agreement:

1. Do you like the broker? This may sound pretty basic, but it is important. You will be working on a weekly basis with your broker or intermediary, so you need to like them as a person since you will be working with them for up to a year.

2. Do you trust your broker? This will be one of the most significant decisions you make in selling your business. You want to make sure that the person you are dealing with is ethical, professional, and straight forward with you versus merely telling you what you want to hear.

3. Does your personality mesh with the brokers? If the broker is really loose and easy going (not necessarily a bad trait), but you like lists, details, immediate call-backs and regular updates, this may not be a good match. How the broker handles themselves at the first meeting will tell you a lot. Did they arrive on time? Did they call and confirm the meeting prior to coming? Were they prepared? Did they review the entire selling process and ask for any questions you may have? And, did they listen to you? Listening is a key strength for a broker.

4. How competent are they? Be sure and interview two or three people before making your decision. You want to make sure that they are comfortable with your industry. Were they prepared for your meeting? Are they an active member of the California Association of Business Brokers (CABB) or the business brokerage association for your state? Do they have the distinction of having their Certified Business Intermediary (CBI® ) and or their Certified Business Broker (CBB®) certification? The CBI® is held by less than 10% of all Business Brokers. This tells you that they are quite competent, have taken 60 extra hours of classes in their field and continue to stay current with the industry and market changes.

5. Are they giving your company the best exposure you can possibly get? Ask questions when meeting with them. How will they be marketing your business? How long does it typically take for a business like yours to sell? What is their average time with a listing before it sells?

6. Are they willing to give you a list of referrals who they successfully sold in the last 18 months?

Remember, this business broker is going to be representing you through out the entire sales process from listing to closing the sale. You need feel comfortable with your selected broker and able to trust this person with your business.

How does the softening economy affect business brokerage?

With the economy softening, you would think that business would be slowing down.

What I have noticed for the last few months is that there are fewer buyers calling; however, those who are looking at businesses are dead serious. The buyers know what they are looking for, or at least the criteria for the business. They are able to evaluate the Confidential Business Review or Offering Memorandum and move towards a Letter of Intent (LOI) in a timely manner.

The selling market is still strong.

Seller's want to take advantage of the low capital gains treatment on the sale of their company before the new administration plans to raise them. They also know that there will be a glut of available businesses on the market and a downward price pressure in the next few years. They would rather sell before it becomes more difficult to compete with so many others.

There is a Private Equity Boom happening as well.

The interest level of private equity funds in middle-market companies is still very strong. More players and abundance of capital continue to fuel the growth. For smaller private companies, private equity funds can deliver much needed financial resources such as liquidity, growth or acquisition capital, and greater access to lender markets. They can also provide liquidity for companies that are turning the business over to their children or a change of ownership.

Ultimately, for those thinking about selling their business, there is no time like the present before there is too much competition in the marketplace.