Tag Archives: scott plaskett cfp

Why Companies are Adopting Subscription Billing Models

Republished with permission from Built to Sell Inc.

Volvo recently announced they will make their cars available on a subscription model where consumers will pay one fixed fee per month for access to a car which includes insurance and maintenance.

Everything from tooth brushes to flowers are now available with subscription billing.

Could you offer some sort of recurring plan to your customers? Here are six reasons to consider offering your customers a subscription:

  1. Predictability: When you have subscribers, you can plan what your business needs in the future. For example, the average flower store in America throws out more than half of its inventory each month because it’s too rotten to sell.At H.Bloom, a subscription-based flower company that sells flowers to hotels and spas, say they throw out less than 2% of their flowers because they can perfectly predict how many flowers are needed to fulfill their orders.
  1. Eliminate Seasonality: Many businesses suffer through seasonal highs and lows. In fact, a whopping thirty percent of a typical flower store’s revenue comes on Mother’s Day and Valentine’s Day – ultimately leaving them to scramble and make a sale in November.By contrast, H.Bloom has a steady stream of subscribers that pay each month. At Mister Car Wash – where they offer a subscription for unlimited car washes – they receive revenue from customers in November and April even though very few people in the Northern east wash their cars in rainy months.
  2. Improved Valuation:Recurring revenue boosts the value of your business. Whereas most small companies trade on a multiple of profit, subscription-based businesses often trade on a similar multiple of revenue.
  3. The Trojan Horse Effect: Once you subscribe to a service, you become much more likely to buy other things from the same company. That’s one reason Amazon is so keen to get you to buy subscriptions to things like Prime or Subscribe & Save. Amazon knows that once you become a subscriber, you are much more likely to buy additional products.
  4. The Sale That Keeps On Giving: Unlike the transaction business model where you have to stimulate demand through advertising to get customers to buy, with a subscription based model, you sell one subscription and it keeps giving month after month.

Data & Market Research: When you get a customer to subscribe, you can start to see their spending and consumption habits. This data is the ultimate in market research. It’s how Netflix knows which new shows to produce and which to kibosh.

For more free information on Creating A Business Owner’s Dream Financial Plan, you can listen to a free, eight part series we did exclusively for business owners. The show is also available to subscribe to for free via iTunes.

The Big Thing Holding Back Small Businesses

Republished with permission from Built to Sell Inc. This article has been edited from its original version.

Small businesses stay small either by choice, or because they start chasing growth in the wrong places.

When you strip away the layers, it all comes down to darts.

Imagine a dart board with a bull’s eye, and around it is a series of wider and wider circles. The bull’s eye is where the people just like you hang out. They are the people (or businesses) who feel the problem your company has set out to solve. They are usually your first customers and raving fans.

The further you go outside of your bull’s eye, the less these prospects feel the exact pain you’re addressing.

Why do entrepreneurs go outside their bull’s eye? When you’re a self-funded startup, you’re scrambling — just trying to bootstrap your way to a company. You don’t have a lot of money to invest in formal marketing, so you rely on word-of-mouth and referrals, which also means you’re often talking to people outside your bull’s eye.

These prospects may experience the problem you’re trying to solve, but they are slightly different (that’s why they’re not in the bull’s eye). They like your product or service but want a little tweak to it: a customization or a different version. You don’t see the harm in making a change and start to adjust your offering to accommodate the customers outside your bull’s eye.

Your new (slightly-outside-the-bull’s-eye) customer tells her friends about how great you are, and how willing you are to listen to your customers, and she refers a prospect even further outside your bull’s eye, who again asks you for another tweak.

Making these changes to your original product or service to accommodate customers outside your bull’s eye seems innocent enough at the time, but eventually it undermines your growth.

Why?
To grow a business beyond what you can do individually, you need to hire employees (or build technology) that can do the work. As humans, we are usually lousy at doing something for the first time, but can master most things with enough repetition.

Think about teaching a toddler how to tie his shoes. The first few attempts are usually rough. It’s a new skill and his tiny hands have never had to make bunny ears before. You break it down for the child and show him how to master each step. It can take weeks, but eventually he gets it. As adults, we don’t even think about tying our shoes — we’ve mastered the skill by repetition.

The same is true of your employees. They need time to truly master the delivery or your product or service. Every time you make a tweak for a new customer outside your bull’s eye, it’s like changing the instructions on tying your shoes. It’s disorienting for everyone and leads to substandard products and services, which customers receive and are less than enthusiastic about.

When there are unhappy customers, the owner will often step in to “fix” the problem. While some founders can indeed create a customized product or service for their new, outside-the-bull’s-eye customer, they are making their company reliant on them in the process.

A business reliant on its founder will stall its growth when the founder runs out of hours in the day.

The secret to avoiding this plateau, and continuing to grow, is to be brutally disciplined – to only serve customers in your bull’s eye for much longer than it feels natural. When you want to grow, the temptation is take whatever revenue you can, but the kind of growth that comes from serving customers outside your bull’s eye can be a dead end.

For more free information on Creating A Business Owner’s Dream Financial Plan, you can listen to a free, eight part series we did exclusively for business owners. The show is also available to subscribe to for free via iTunes.

The One Number Owners Need to Stop Focusing On

Republished with permission from Built to Sell Inc. This article has been edited from its original version.

The value of your business comes down to a single equation: what multiple of your profit is an acquirer willing to pay for your company?

profit × multiple = value

Most owners believe the best way to improve the value of their company is to make more profit – this means finding ways to sell more and more. Owners are experts in their industry, so it’s natural that customers want to personally engage with them, which means spending more time on the phones, on the road and face-to-face to increase sales.

With this model, a company can grow a little, but the owner’s life becomes much more difficult: customers demand more time and service, employees begin to burn out, and soon it feels like there are not enough hours in the day. Revenue flatlines, health can suffer and relationships get strained – all from working too much. Does this feel familiar?

If you’re spending too much time and effort on increasing your profit, you could find yourself actually diminishing the overall value of your business. The solution? Focus on driving your multiple (the other number in the equation above). Driving your multiple will ultimately help you grow your company’s value, improve your profit and redeem your freedom.

What Drives Your Multiple?

Differentiated Market Position

Acquirers only buy what they cannot easily create, so expect to be paid more if you have close to a monopoly on what you sell and/or are one of the few companies who have been licensed to provide the specific product or service in your market.

Lots of Runway

Most founders think market share is something to strive for, but in the eyes of an acquirer, it can decrease the value of your business because you’ve already absorbed most of the opportunity.

Recurring Revenue

An acquirer wants to know how your business will do once you leave – recurring revenue assures them that there will still be a thriving business once the founder hits eject.

Financials

The size and profitability of your company matters to investors. So does the quality of your bookkeeping.

The You Factor

The most valuable businesses can thrive without their owners. The inverse is also true because the most valuable businesses are masters of independence.

For more free information on Creating A Business Owner’s Dream Financial Plan, you can listen to a free, eight part series we did exclusively for business owners. The show is also available to subscribe to for free via iTunes.

The Surprising Way Companies Like Netflix and Amazon Conduct Market Research

Republished with permission from Built to Sell Inc. This article has been edited from its original version.

Companies like Netflix, UrthBox and Amazon are leveraging the subscription business model to discover what their customers want next.

In a traditional business, customers buy your product or service once, and it is up to you to try to convince them to buy again in the future. You often have no idea if they liked what they bought and what would have made them buy more, so you’re left having to guess or invest in costly market research.

In a subscription business, you have “automatic customers” who agree to purchase from you into the future, as long as you keep providing your service or product.

Long-term, direct relationship
Unlike a transactional business model, subscribers are opting into a long-term, direct relationship with you. You know who your customers are and which of your products and services they use, so you have a much better understanding of their preferences than an industry competitor relying on a traditional business model.

A subscription business gives you the ability to track customer preferences in real time. It’s how Netflix knows which television series to produce next and how Amazon figures out what products their Prime subscribers are dreaming of buying next.

But you don’t have to be a sophisticated media giant or billion-dollar e-tailer to track customer preferences through the subscription model.

Success stories

Look at subscription-based ContractorSelling.com, run by Joe Crisara. In return for a fee of $89 per month, you can subscribe and get information, tips and advice on how to run a successful contracting business. Plumbers and electricians subscribe to ContractorSelling.com for Crisara’s insight, and as they start to read articles and contribute to the forums, Crisara can see what’s on his subscribers’ minds.

That’s important because Crisara also makes money from conferences. Seeing which articles are most popular and controversial among his members gives Crisara insight that helps when he’s picking speakers and topics for his live events.

It also works for product lines.

For $20 a month, UrthBox offers a monthly selection of hand-picked, natural, GMO-free goods to try. UrthBox asks subscribers what they think of the products in each box and rewards them when they respond or refer a friend. Each referral earns points that the subscriber can use in the online store.

UrthBox then offers the manufacturers of the samples a custom online portal where marketers can see how UrthBox subscribers rated each product. UrthBox uses the data to select merchandise for its online store and prominently displays the products customers like best.

One of the hidden benefits of turning customers into subscribers is the ongoing, direct nature of a subscription relationship. It allows you to watch your customers and ask them for feedback, ensuring they stay subscribers and buy more over time.

For more free information on Creating A Business Owner’s Dream Financial Plan, you can listen to a free, eight part series we did exclusively for business owners. The show is also available to subscribe to for free via iTunes.

Creating Sticky Customers

Republished with permission from Built to Sell Inc. This article has been edited from its original version.

Repeat customers are the lifeblood of your business, but customers can be fickle. Here’s how to make them “sticky.”

In a traditional business, customers buy your product or service once, and it is up to you to try to convince them to buy again in the future. However, in a subscription business, you have what is called an “automatic customer” who agrees to purchase from you in the future, as long as you keep providing your service or product.

Feeding Rover Automatically

One of the reasons subscribers are such attractive customers is that, once they subscribe, they become less price-sensitive. To illustrate, imagine that you live in England and own a 100-pound Pyrenean Mountain Dog who eats two hearty bowls of dog food a day. Feeding the love of your life is an expensive proposition, so you’re always on the lookout for a deal on dog food. Once every two weeks, you trudge down to the local pet supply store and cart a case of kibble home. In the meantime, if you see dog food on sale at your local grocery store, you’ll buy it. If you get a coupon for a buy-one-get-one-free offer from another store, you’ll take advantage of it.

Eventually, you get tired of last-minute trips to the store, so you subscribe to petshop.co.uk, which offers a “Bottomless Bowl” subscription service. Now you know you’re going to get a shipment of dog food every two weeks. The part of your brain that scans the flyers for dog food starts to shut down, knowing that the convenience of having dog food shipped automatically far outweighs saving a few dollars on kibble.

Integration Drives Stickiness

Beyond the simple convenience of automatic service, subscribers become even more loyal when they start to integrate their subscriptions into their daily lives. Subscribers knowingly enter into an agreement in which the convenience of uninterrupted, automatic service is exchanged for their future loyalty. Rather than buying once without returning, subscribers stick around—hopefully for years. That’s why subscribers drive up the value of your company so dramatically.

For more free information on Creating A Business Owner’s Dream Financial Plan, you can listen to a free, eight part series we did exclusively for business owners. The show is also available to subscribe to for free via iTunes.

Exiting Tips From One Of The Top 40 Under 40

Republished with permission from Built to Sell Inc.

Wind Mobile founder Anthony Lacavera has started 12 businesses, six of which he has exited. His exits have ranged in value from the $6 million he got for one of his recent start-ups to $1.3 billion when he sold Wind Mobile. He did it by following two key tips.

  1. Understand what kind of company you are running

Lacavera has owned hyper-growth unicorns and lifestyle businesses and urges entrepreneurs to be clear about their long-term prospects. Lacavera started a business supplying hotels with internet access and understood the company would be a good cash generator, but would never sell for a mint. He ran the business for almost two decades and used the cash it generated to fund various other ventures. Recently, he finally sold the business, which was generating $1.5 million in pre-tax profit, for $8 million—a relatively modest 5 times earnings, which was fine by Lacavera, because it had served its purpose of funding other companies along the way.

  1. The role of CEO and owner are not the same

Lacavera encourages entrepreneurs to separate the role of CEO and business owner. Even though they may be the same person, they have different functions and, at some point, your business may be better served by separating the two roles. Entrepreneurs who are comfortable handing the reins to a professional manager may do better in the long run than those who need to control everything.

Lacavera had great success, which is visible in the fact that he has won just about every business award there is, including 2010 CEO of the Year, Top 40 Under 40, Deloitte Technology Fast 50, and Canada’s Fastest Growing Company. One of the top secrets to Lacavera’s success — knowing when to bring in a CEO to replace himself in any of his ventures.

 

 

For more free information on Creating A Business Owner’s Dream Financial Plan, you can listen to a free, eight part series we did exclusively for business owners. The show is also available to subscribe to for free via iTunes.

The Biggest Mistake Owners Make When Selling

Republished with permission from Built to Sell Inc.

One of the biggest mistake owners make in selling their company is being lured into a proprietary deal.

The Definition Of A Proprietary Deal

Acquirers land a proprietary deal (or “prop deal”) when they convince owners to sell their businesses without creating a competitive marketplace. Acquirers running a proprietary deal know they don’t have any competition and tend to make weaker offers with more punitive terms because they know nobody else is bidding.

Many founders become the target of a proprietary deal without even knowing they have been duped. First, someone senior from the acquiring company approaches the founder, complimenting them on their business. The acquirer suggests lunch, and then high-level financials are exchanged. Soon, the owner starts going down a path that is difficult to come back from.

As the parties in a proprietary deal get to know one another, founders often share information with the acquirer that puts them in a compromised negotiation position. The interactions are set up as friendly exchanges between two industry leaders, but many founders reveal key facts in these discussions that end up being used against them when negotiations turn serious. Business owners also become more emotionally committed to selling the more resources they invest in the process and the more time they spend thinking—perhaps dreaming—of what it would mean to sell their business.

How To Avoid Getting Taken In By A Proprietary Deal

Savvy sellers avoid the proprietary deal by creating a competitive process for their company. Take for example Dan Martell, the founder of Clarity.fm, among other companies. When Martell decided to sell Clarity, he knew the likely buyer was one of five New York-based companies. Instead of negotiating with one, he invited all five to an event he hosted in New York. The five CEOs—all of whom knew one another—saw a room full of their competitors and realized that if Clarity went on the market, they would have to out-bid the other buyers in that room.

Hosting the event was Martell’s way of communicating to all the potential buyers that a proprietary deal was off the table and that if they wanted to buy Clarity, they would have to compete for it.

It’s flattering to receive a call from an executive at a company you respect. Just know that if you accept their invitation of lunch, you run the risk of becoming the latest casualty of the proprietary deal.

 

 

For more free information on Creating A Business Owner’s Dream Financial Plan, you can listen to a free, eight part series we did exclusively for business owners. The show is also available to subscribe to for free via iTunes.

Which Is Better, a Financial Buyer or a Strategic Buyer?

Republished with permission from Built to Sell Inc.

If you decide to sell your business to an outside acquirer, you’re going to have to decide between a financial and a strategic buyer—understanding the different motivations of these two buyers can be the key to getting a good price for your business.

A financial buyer is acquiring your future profit stream, so they will evaluate your business based on how much profit it is likely to make and how reliable that profit stream is likely to be. The more profit you can convince them your company will produce, the more they will pay for your business.

But there is a limit to how much they will pay, because financial buyers are playing the buy-low, sell-high game. They do not have a strategic rationale for buying your business. They don’t have an army of sales reps to sell your product or a network of retailers where your product could be merchandised. They are simply trying to get a return on their investors’ money, so they tend to buy small and mid-sized businesses using a combination of this investment layered on top of a pile of debt, and they want to buy your business as cheaply as possible with the hope of flipping it five or ten years down the road.

Because financial buyers are usually investors and not operators, they want you and your team to stick around, so they rarely buy all of a business. Instead, they buy a chunk and ask you to hold on to a tranche of equity to keep you committed.

A strategic buyer is a different cat—usually a larger company in your industry, they are evaluating your business based on what it is worth in their hands. They will try and estimate how much of their product or service they can sell if they added you into the mix. Because of their size, this can often lead to buyers who are willing and able to pay much more for your business.

Tom Franceski and his two partners had built DocStar up to 45 employees when they decided to shop the business to some Private Equity (PE) investors. The PE guys offered four to six times Earnings Before Interest Taxes Depreciation and Amortization (EBITDA), which Franceski deemed low for a fast-growing software company.

Franceski was then approached by a strategic acquirer called Epicor, which is a global software business with a lot of customers who could use what DocStar had built. Epicor offered DocStar around two times revenue—a much fatter multiple than the PE firms were offering.

 

For more free information on Creating A Business Owner’s Dream Financial Plan, you can listen to a free, eight part series we did exclusively for business owners. The show is also available to subscribe to for free via iTunes.