In an analysis of more than 14,000 businesses, a new study finds the most valuable businesses take a contrarian approach to the boss doing the selling.
Who does the selling in your business? My guess is that when you’re personally involved in doing the selling, your business is a whole lot more profitable than the months when you leave the selling to others.
That makes sense because you’re likely to be the most passionate advocate for your business. You have the most industry knowledge and the widest network of industry connections.
If your goal is to maximise your company’s profit at all costs, you may have come to the conclusion you should spend most of your time out of the office selling, and leave the dirty work of operating your business to your employees.
However, if your goal is to build a valuable business — one you can sell down the road — you can’t be your business’s number one salesperson. In fact, the less you know your customers personally, the more valuable your business.
The Proof: A Study of 14,000 Businesses
The Sellability Score has just finished analysing their pool of Sellability Score users for the last quarter. The Sellability Score questionnaire is the first of twelve steps in The Value Builder System, a statistically proven methodology for increasing the value of a business.
The Sellability Score asked 14,000 business owners if they had received an offer to buy their business in the last 12 months, and if so, what multiple of their pre-tax profit the offer represented. The offer made was then compared to the following question:
Which of the following best describes your personal relationship with your company’s customers?
- I know each of my customers by first name and they expect that I personally get involved when they buy from my business.
- I know most of my customers by first name and they usually want to deal with me rather than one of my employees.
- I know some of my customers by first name and a few of them prefer to deal with me rather than one of my employees.
- I don’t know my customers personally and rarely get involved in serving an individual customer.
2.93 vs. 4.49 Times
The average offer received among all of the businesses analysed was 3.7 times pre-tax profit. However, for businesses where the owner does notknow his/her customers personally and rarely gets involved in serving an individual customer, the offer multiple went up to 4.49.
Businesses where the founder knows each of his/her customers by first name get discounted, earning offers of just 2.93 times pre-tax profit.
When Value Is the Enemy of Profit
Who you get to do the selling in your business is just one of many examples where the actions you take to build a valuable business are different than what you do to maximise your profit. If all you wanted was a fat bottom line, you probably wouldn’t invest in upgrading your website or spend much time thinking about the squishy business of company culture.
How much money you make each year is important, but how you earn that profit will have a greater impact on the value of your business in the long run.
If you want to chat more about it, comment below and start a discussion with me.