A mentor of mine taught me the only reason to start a business is to sell it one day. Otherwise, you just created a job for yourself. And you can’t sell a job. For a business owner, the payoff of the blood, sweat, toil and tears of growing a business is selling it one day.
Face it, you can’t own a business forever.
However, for many business owners selling is just a dream. To make that dream a reality, a business owner needs to get their business house in order with systems and then grow the business.
The good news: Growth can come by leaps and bounds. The big business world knows the benefits of growth by acquisition. It is time the world of not-so-big-business learn this strategy.
“Do you want to sell your business and shave years off your timeline while getting the maximum price?” asks growth strategist Alex Nghiem. “Then consider buying other businesses to grow faster.”
Call it the buy-then-sell strategy.
Nghiem says the main advantage of achieving growth by buying other businesses is speed to scale and also having more buyers when you sell. That is how you can sell your company three to five years faster and at a higher price.
“In many industries, growing at 10-20% per year is considered a healthy rate,” says Nghiem. “This organic growth comes from acquiring one customer at a time.”
Not fast enough. Not if you want to sell it.
“Thus, it's quite common for a business to take 10 or more years before it's grown to a sufficient size to be even worth selling,” says Nghiem. “At under $1 million, it is difficult to get a high enough price to make it worthwhile to sell the business.”
Nghiem and his team help business owners accelerate their growth via acquisitions. We met through a client of his I helped with a book project.
We both will be speaking at the UC Irvine Center for Applied Innovation at the June 13, 2019 Growth U Summit. The focus of the interactive summit is business leader discussions on new strategies for recurring revenues, scaling, and refreshing brands.
“The other challenge is that when a business is too small, the pool of available buyers is usually limited to the local geography,” says Nghiem, whose website is www.GrowthThroughAcquisitions.com.
Nghiem says using acquisitions can address both of these issues. Instead of adding a customer at a time, you can add hundreds or thousands of customers at once.
“One of my clients (and now partner) grew his business from $2 million to $44 million in 28 months by using mostly acquisitions,” says Nghiem. “Whereas his competitors were growing at 10-15% per year, his business grew at over 300% per year. Along the way, he used banks, seller financing and arbitrage to fund his acquisitions.”
This rate of growth attracted institutional investors including private equity firms and major corporations. Nghiem says the firm was then bought by a private equity firm, and the owner also got a premium valuation because of his rate of growth.
To start looking at acquisitions, Nghiem says you need to identify possible candidates. To do so, ask yourself these three questions:
1. "Who else is my customer / client using before me and after me?"
2. "Who am I referring a lot of my business to?"
3. "Who am I spending a lot of money with?"
“Asking these three questions can produce an initial list of possible acquisitions that you can use to accelerate your growth so you can shave years off your exit timeline and maximize your exit price.”