Republished with permission from Built to Sell Inc.

Recurring revenue makes your company more predictable, extends the lifetime value of a customer and ultimately makes your business more valuable. If you’re unsure how to create these automatic sales, a simple service contract can be the place to start.

A service contract is an agreement to provide an ongoing level of service in return for a regular payment. It can be a way to transform an ordinary service company into a predictable subscription business.

For example, Walter Bergeron started a small company servicing circuit boards for large food processing plants. It was a classic service business where Bergeron offered his time to fix customer’s circuit boards when they broke.

The business model worked fine, but cashflow was lumpy. Bergeron had reached a point where he could no longer sell any more of his time, and his growth stalled. Knowing something had to change, Bergeron made a 90-degree turn.

The Switch

He began offering a membership model where, instead of contracting him when a circuit board broke, he asked his customers to subscribe to a plan enabling them to have their circuit boards serviced at any time in return for a fixed monthly fee. Bergeron’s customers paid monthly for access to his technicians when they had a problem.

The switch to a subscription billing model transformed the business, and Bergeron quickly grew the company to $7 million in annual sales, at which point he sold it for $10 million — a significant premium over a standard service company.

As the example of Walter Bergeron illustrates, most small businesses begin life using the “break/fix” business model where a customer has a problem, and you swoop in to provide a solution. This business model may make you feel valued as a problem solver, but it comes at the expense of the value of your company. In the break/fix model, you must create demand, sell your product or service, deliver it, and start all over again, which is why acquirers place a lower value on these transactional businesses when compared to subscription-based companies.

By contrast, with a service contract, you create an ongoing stream of income that has the potential to grow the lifetime value of a customer dramatically. When you can accurately predict how much money you will get from a subscriber, you can invest more in wooing them.

The most compelling reason to adopt a recurring revenue model is the impact it can have on your company’s valuation. Dollar for dollar, recurring revenue can be worth more than twice that of transactional revenue, depending on your industry.

Service contracts are a simple and effective way to transform a transactional business into a recurring revenue goldmine.

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.

Republished with permission from Built to Sell Inc.

A new decade always comes with a slew of predictions that can be scary. Will a new superbug take hold? Will the stock market crash? Will the economy tank?

These are all excellent questions, but without a crystal ball, you can feel helpless. However, there are three practical steps you can take to inoculate yourself from whatever the coming years will bring:

Inoculation Strategy #1: Stop Trying To Time The Market

Many founders try to time the sale of their business to coincide with the peak of an economic cycle, reasoning they will get the best price for their business when the economy is booming.

While this is true in theory, when you sell your company, you need to do something with the money. Perhaps you’ll consider investing in real estate or buying stocks. Still, most investments are impacted by the same macro-economic environment your business enjoys, which means you’ll be buying into just as frothy a market.

The alternative to timing the market is to consider selling when your business meets two criteria:

First, if your company is on a winning streak, it will command a premium compared with average performers in your industry. Pick a time to sell when your revenue is growing, gross margin improving, employees are happy, and customers satisfied.

Second never sell before you have all of the information you’ll need to survive due diligence. After you agree to terms with an acquirer, they’ll need some time to verify your business is as advertised. A sophisticated buyer will look into every aspect of your operations, including your financials, customer contracts, employee agreements, the way you produce your product or service your sales and marketing approach and just about every other facet of your business.

You can’t wait until due diligence to prepare this package of information. The volume of questions will suck up too much of your time. React slowly to an acquirer’s request for information and “deal fatigue” will set in. This malaise happens when an acquirer loses interest in closing an acquisition because it is taking too long.

The way to immunize yourself against whatever the economy may be in the years ahead is to sell when you’re on a winning streak, and you have the data assembled to skate through due diligence with ease.

Inoculation Strategy #2: Pick Your Lane

The global economy has been expanding for several years, fueled by low-interest rates and optimistic consumers, which can be a dangerous time for founders. When the economy is hot, it’s tempting to expand outside of your original product and service category as customers seem to be willing to buy just about anything from you.

The problem with diversifying too broadly is that you can become less attractive to an acquirer over time. Acquirers buy what they could not quickly build on their own. When you diversify too broadly, a buyer may pass reasoning, that it would be relatively easy to compete with your similar products or services. They know you’ll want to get paid for all of your business, yet they may only want a small part of it.

Remember that acquirers only buy what they could not quickly build themselves, so they place a premium on buying a business with a definite competitive advantage — for example, a proven brand that consumers prefer or a protected technology innovation.

No matter what the economy has in store for the years ahead, do one thing better than anyone else, and you’ll always have a ready pool of potential acquirers for your business.

Inoculation strategy #3: Create A Vision Board

A vision board is a display of images that illustrate where you want to be in the future. Creating one by grabbing a stack of magazines and cut out pictures that appeal to you and communicate the life you want to lead.

A vision board is a compelling way to immunize yourself from the inertia that sets in once the startup years of your company are behind you. When you’re no longer struggling to find the next customer or wondering how you’ll make payroll, running a business may become less exciting. When you no longer need to draw on your creativity and problem-solving skills, one day may flow into the next, and you can become content, but perhaps not truly happy.

Think about a time when you were happiest. You were probably doing something new, perhaps in a new place with new people, learning, contributing and growing. Most owners are happiest when they are starting and growing a business, but when a company matures, it can become stifling.

The problem is, it can be challenging to leave a successful business. Your lifestyle needs are satisfied through your company, so why go? That’s where a vision board can be handy. It allows you to decipher the difference between being happy and merely content. When you find yourself feeling comfortable but not necessarily happy, that might be the perfect time to sell – regardless of what’s happening in the economy at the 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.

Republished with permission from Built to Sell Inc.

As we enter the 21st century’s third decade, it’s fun to look back on the companies that have stood the test of time. Despite a few well-financed chicken-focused start-ups, mounting pressure to reduce our dependence on meat, and our growing addiction to fancy coffee, McDonald’s has managed to thrive. This year McDonald’s is celebrating its 80th anniversary with a market capitalization of around $150 billion—up roughly 10% over last year.

McDonald’s started when Maurice and Richard (Mac and Dick) were invited by their father, Patrick McDonald, to help flip burgers at his diner, the Airdrome, which the brothers rebranded in 1940 as their namesake.

The two spent almost ten years tinkering with their business before they introduced the “Speedee Service System”—techniques that were pulled from the factory assembly line to serve customers quickly.

The McDonald clan ran their single-location hamburger stand for almost 20 years before Ray Kroc came along, asking to franchise the concept. Mac and Dick had the skills to create a successful one-location business, but it was Kroc who took their modest restaurant and made it world famous.

What Got You Here Won’t Get You There

Three skills are essential to survival as a start-up that you must eventually “unlearn” to grow a business. While these talents are prerequisites for getting a business off the ground, they become a liability as time goes on.

1. Flexibilit

In the early days, when cash is scarce, you need to be flexible. Instead of hiring full-time employees, you may need to subcontract work to a partner. This arrangement works well as you pay subcontractors only when you have work, and they pay their expenses.

You also stay flexible when dealing with customers. If you’re just starting up, you’re likely not in a position to dictate to your prospects, so you listen carefully and adjust as necessary to suit their needs.

Instead of setting up a physical location, you may create a makeshift office by patching together a home office or working out of a coffee shop.

All of this bootstrapping allows you to get your business off the ground on a shoestring budget. The problem is that being too flexible can start to become a liability. Your contract employees may have other clients and can’t be at your beck and call when you need them. Your customers may start to ask for so much customization that the only person in your company with the technical skills to fulfill their special requests is you. And, eventually, a customer will want to see where you work and may think less of you if your office is your car.

Flexibility, a prerequisite in the beginning, actually becomes a liability as you grow.

2. Thrift

If you’re self-financing your business, you have no choice but to make it profitable from day one. If it doesn’t make you money today, you don’t do it.

This discipline of getting an instant return on cash invested allows us to get a business off the ground. Still, the problem with fixating on immediate profit is that it can undermine your ability to grow.

For example, redesigning your website won’t make you more profitable this month, but it could be a necessary investment to attract larger contracts from more significant customers in the future.

It’s true that you should never overlook profitability entirely, but it is a good idea to place an equal emphasis on top- and bottom-line results—even if the investment doesn’t pay off right away.

3. Self-reliance

With no money or people to delegate to, a new business owner gets things done on her own. Many of us grow to like the control of doing things our way and fear things might get messed up if we give them to someone else.

Since we can do every job in our company, we often just keep doing some things long after we should. But once you start generating more profit, a few extra bodies are necessary to ensure you’re managing your calendar appropriately and not wasting time.

If you’re not self-reliant in the early days, you won’t even get a business off the ground. But at some point, your inclination to roll up your sleeves and do it yourself can be what stops you from growing.

Overall, flexibility, thrift, and self-reliance are the essential ingredients of any start-up, and for your company to become a world-beater, you somehow have to unlearn those tendencies for a new set of skills. 

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.

Republished with permission from Built to Sell Inc.

If you find yourself in a position where your customers always insist on speaking with you directly instead of your employees, then you might want to consider shifting your structure so you can improve the value of your business.

Here’s why: a business that can thrive without the owner at the center of all its operations is more valuable because processes can run smoothly with or without you. If you’re too stuck in the weeds, you’ll have a difficult time improving or evolving – and your employees won’t have the opportunity to grow and become advocates for your brand.

To maximize the value of your business, you should set a goal to quietly slip into the background and let your staff take center stage. Here are five ways to make customers less inclined to call you:

1. Re-rank

If you display the bio of key staff members on your website, re-order the list so that it is alphabetical rather than hierarchical.

2. Re-brand

If your surname is in your company name, consider a re-brand. There’s nothing that makes a customer want to deal with the owner more than having the owner’s surname featured in the company name.

3. Hire a President

Giving someone the title of president conveys the message that they have real authority to solve customer problems.

4. Use an email auto-responder

Tim Ferriss, the author of The 4 Hour Work Week among other books, made the email auto-responder famous, and it can serve you well. Set up an automatic response to anyone sending you an email explaining that you are travelling or attending to a strategic project and unable to answer their questions immediately. Instead, train customers to direct questions to the person best suited to answer them quickly.

A word of caution using this strategy: if you continue to answer customer emails after setting up an auto-responder, it’s going to become transparent that you’re just trying to hide behind your autoresponder, which could diminish your credibility. If you set one up, you need to be ready to let others step in.

5. Play hookey

If you have the kind of business that customers visit in person, set up a home office so you can spend more time away from your location.

For a hard-charging A-type entrepreneur, the steps above can be complicated and feel counterintuitive. They may even have a short-term negative impact on your company’s sales, but once you get your customers trained to go to your team, you’ll be able to scale up further and ultimately maximize the value of your business.

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.

Republished with permission from Built to Sell Inc.

Walk down Nashville’s Lower Broadway any night of the week, and you can hear aspiring artists belting out cover tunes from Elton John to Garth Brooks.

In many cases, these musicians come to Nashville to be discovered but pay their rent using the tips they get by playing other people’s songs. Most are lucky to eke out a modest living while the stars they impersonate run thriving empires.

Forbes estimates that Luke Bryan, country music’s highest-paid star last year, earned 52 million dollars on the back of his stadium tour and duties as an American Idol judge and Chevy spokesperson.

What’s going on here? Is Bryan that much more talented than the dozens of artists playing his songs in Nashville every night?

Probably not.

The difference comes down to who controls the product. In Bryan’s case, he owns the music and the personal brand he has created to perform it. The cover artist is just reselling his stuff.

The Value Of Your Brand

The music business can be a helpful analogy in explaining why creating a unique brand is such a big contributor to the value of your company. Acquirers want what they could not easily copy. If you’re reselling other people’s products and services, an acquirer will likely argue that there are probably dozens of competitors driving down your margin next to nothing. Further, they may even conclude that they too could earn a license to resell whatever you’re distributing and will, therefore, place little value in the company you’ve built.

However, if you have something exclusive – a unique product or brand that makes people believe what you do is different – an acquirer will pay more, arguing it is difficult to reproduce what you have created.

If you find yourself reselling other people’s products or services, you can still drive up the value of your business by creating a brand around the way you do it. You could argue that Peloton is just selling a stationary bike. Still, it is the unique company they have created around the bike –including the community of riders that subscribe – that has recently driven Peloton’s value north of $7 billion (almost eight times trailing twelve months revenue at the time of their recent Initial Public Offering).

To drive up the value of your company, own the stuff you sell. If that’s not possible, create a unique brand that makes consumers feel as if you do.

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.

Republished with permission from Built to Sell Inc.

Most company founders are good at the first stages of entrepreneurship. But in the phases that follow, they may only be average. Just because you have a knack for starting companies, doesn’t necessarily mean that those skills translate well into growing one.

There are celebrated cases of founders who have successfully started and grown a business – Elon Musk and Bill Gates come to mind. There are, however, many more examples of entrepreneurs who perform well initially and then hold back their company as it ages. But, as a business owner, you can avoid this.

How One Founder Unlocked the True Value of His Company

Damian James grew up in Melbourne and learned a lot about the aging population in Australia. Realizing that healthcare could be a lucrative field, he discovered a sector ripe for disruption, podiatry. This is a branch of medicine devoted to the diagnosis, medical and surgical treatment of foot and ankle disorders.

At the time, most podiatrists in Melbourne worked from a retail location where the doctor owned and operated a private practice. The podiatrist would rent space, hire some staff, and charge patients per visit. At night, some enterprising doctors would also visit old age homes to offer care. Reasoning that many old people nodded off shortly after dinner, James saw an opportunity for a podiatrist to visit old age homes during the day when it was more convenient for patients.

The Million Dollar Idea

James, who had earned a bachelor’s degree in Podiatry in 1996, started Aged Foot Care. He approached old age homes with a compelling offer of removing the traditional overhead of an office.

Aged Foot Care went through a variety of growing pains over the years, including an expensive rebranding to the name Dimple. By 2015, Dimple was generating roughly $200,000 of profit on $2.5M in revenue.

Time to Grow

Despite his success, James was frustrated. The company’s growth had stalled. His management team seemed perpetually incapable of hitting its targets.

Quarter after quarter, he would set goals with his team, but they would fall short. James decided it was time to bring in outside help, so he hired a Chief Operating Officer.

To recruit the new COO, James knew he would need to give up some equity, so he commissioned a valuation for Dimple which came in at $2.5 million. He offered a salary, plus 5% of the company. James also offered another 3% of the business (up to a maximum of 20%) for every $1 million the COO would grow Dimple’s revenue past $5 million.

The new role was a success. James quickly promoted him to Chief Executive Officer and stepped back from the day-to-day operations. He decided to let the company thrive under the new CEO’s leadership.

Down to just one day a week, James limited his involvement to providing a vision and protecting the company’s core values. The CEO, on the other hand, ran the day-to-day business – pursuing James’ core strategy of contracting with aged care facilities.

The company hit $11 million in revenue by 2017.

The Big Bonus

Zenitas had a similar strategy of bringing healthcare to patients in homes or care centers rather than having them languish in hospital beds. The company was keen to add podiatry to its stable of services. The decision makers realized that acquiring Dimple would allow it to become an overnight market leader.

In July 2017, Zenitas announced they had acquired Dimple for $13.4 million. Under different leadership, the company had grown in value over 500% in less than three years.

Starting and growing a company require different skills which are rarely found in the same individual. This begs the question, ‘is it time to find someone else to run your business?’

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.