The "Platform Boom" …everyone these days has a big idea bubbling away in their mind to be the next "big thing". This could be a platform, a technology or even a unique innovation or product in your industry that will take the world by storm.
I was recently interviewed by "The Goto Retail Show" to discuss what business owners need to consider before they plan their exit.
In this podcast we talk about:
How does a business valuation come about.
Why all business owners should have an exit strategy.
Where does your business value really lie?
Why profit isn’t the only way to profit!
Common mistakes business owners make
Click the image above to listen to the podcast from Kristian Mahony "The Retail Guy".
Well I admit it. I am old enough to remember the "Dot.Com boom" and the spectacular bust that followed. Like many of my colleagues, I rode that wave to the dizzying heights and had my share of spectacular falls on the downside as many of our investments came crashing down.
Likewise I took a punt at the lowest point of the market and started yet another business which I rode all the way through to the GFC and learnt some valuable lessons along the way.
Booms and busts go in cycles and we have seen recent IT based "land grabs" such as domain squatting and the rush to bring apps to the market in a hurry to ride the smartphone boom. Each bubble and bust has lessons we can learn from and gives us insight in to the next ones to emerge.
Which brings us to today and the trends that are rapidly emerging. Economic markets are a bit all over the place right now. Greek debt defaults combined with declining consumer demand, historically low interest rates and a general uneasiness in the market. But one phenomenon is emerging at every turn....the rise of the "Platform Boom".
The Platform Boom is all around us but you may not have given it a name yet. It is the rise of platform systems that are changing the way markets are operating. No longer do you need to be a player in a market to be able to participate in it. In fact it is the innovative thinkers that are using technology to turn markets upside down and change everything we know about them.
Think Uber, AirBNB and the countless websites and apps that are springing to life about as fast as you can imagine them. These are the high profile ones, but the possibilities to capture entire new markets are still boundless and many are happening behind the scenes within smaller industry circles. The Platform Boom is all about bringing new technology ecosystems to traditional markets to change the way we think about consumption of these goods and services.
This is NOT about "Apps" anymore.
As a Business Strategist and Tech Investor I really don't want to hear another pitch for "the next big app". That ship has sailed people and we are now playing a much bigger game. The next gold rush is Platforms. These will not be built in your garage in your spare time. They will require investment, focus, commitment and an intricate knowledge of the ecosystem that you are planning to play in. These are big land grabs for entire sectors and will leave many traditional players left shaking their heads wondering what happened to their business models. That's not to say that they will no longer exist, but they will be forced to re-think old models and chose to either play a new game or innovate further to change the game even more.
The exciting news for consumers is that this is all working in our favour. Better utilisation of resources, more access to what we want when we want it and greater visibility and transparency in to previously controlled and monopolised markets.
The Platform Boom is creating new playing fields for new entrants and entrepreneurs and lowering the barrier of entry for startups with new ideas.
And as with every boom comes cash. Smart investors are now seeking out the next platform gold mines, but head this warning. Great technology alone never wins these battles. More than anything the team must understand the industry problem intricately and be able to articulate this in a way that clearly shows how the technology will solve the industry problems both simply and elegantly. They must be able to innovate quickly and capture a broad audience in a short space of time. And finally they must have deep enough pockets to rapidly develop and deploy.
"Who is going to influence your market?"
New platforms need advocates and they will come from within the current ecosystem, either from the users or the suppliers. So ask yourself, are the industry influencers on your team or competing with you? A platform in an existing ecosystem will require the a shift in behaviours within the ecosystem. Without this you can have the best technology and idea in the world but will fail unless people want to use. it.
Where is the gold?
Well I have already stated that this is not about apps. In fact it is not even about the subscription service or user pays model. The gold will ultimately be in the data and Platforms are the path to the gold.
Platforms change behaviour and their use will require large scale adoption. With that comes masses of data about consumers, suppliers and behaviours. The gold is not in the app or the platform itself, it is in what you attract and how well that data can be used for your next evolution of the product or who is attracted to the data you create. Ultimately this is building a massive longer term asset.
Exciting times ahead but this is now a big game to be played. Those who truly invest in playing the big Platform game will be the winners, those stuck trying to just build an app will miss this boat.
One of the first questions I ask business owners is “What do you want to do with your business?” Unsurprisingly the response is typically “To sell it one day”, but that is about as much thought as they have actually devoted to the idea.
Most businesses I come across are income business. The owner has originally set out to replace their income generally from a job they didn't enjoy and, as a result, have built a business around their skills, which has allowed them the freedom to work for themselves and create a modest and comfortable living. The business owners have however spent their time building an income based business and often the excess cash has been invested in real estate and superannuation. Rarely do they build the inherent business assets required to add value for the next business owner and this is just leaving money on the table especially once we start applying multipliers to the valuation.
So I ask them….”Why would I buy your business”?
This is where I just love the entrepreneurial spirit. I hear them passionately tell me why the business is valuable "to them". How they have locked in some great deals, made good money in the past and of course how wonderful the future looks if I were to buy the business. In fact even after toiling away for the past 5, 10, 15 or even 20 years, and somehow it is now about to triple in growth, in the next 12 months, unlike any period before that. Always the optimist, always looking at the bigger picture, but often just not quite hitting the mark.
The number one reason why investors wouldn't want to buy your business today is because you had your goals wrong in the first place. If your goal is to sell your business one day, then the end game has always been the transaction. An investor is not interested in how much money you make when you sell out, they are interested in how much money they will make after they buy your business.
So from the outset, the goal must always be “How can I build a business that is valuable to someone else”?
The business must be able to grow well beyond where you have taken it and this must be perfectly clear to the buyer. If you leave it up to them to work this out then it will all be just too hard and they will quickly look elsewhere.
The best businesses to sell are those who have already mapped out their exit strategy with the buyer in mind.
This helps you set a clear goal on who would buy the business so you can build it for them. Then when the time is right the business will be compelling for the right buyer.
To help set you up for success, I look at 5 key areas with business owners that will build value into the business that investors will recognise and be prepared to pay for.
This is not necessarily what you think. A business asset that I would value highly is not the bricks and mortar or stock. These are easily bought and sold and rarely leveragable unless they are truly unique.
The truly valuable business assets are the intangible assets that make the business unique.
A leveragable asset is one which is not owner dependent and allows the business to highly scale a unique capability into new and existing markets to scale.
Valuable business assets are hard to replicate and will have been proven in current markets to show the buyer that by just doing more of what you have done in new industries, sectors or regions that this asset can be scaled to much greater profits for the new buy.
Acquirers look to buy other companies is to get something that they are not good at. Culture plays a massive role in these decisions, especially when the acquirer is a large corporation. Smaller more nimble companies are regularly sought for their ability to innovate, respond rapidly to consumer needs and, of course, their dynamic culture.
But can your business leverage the culture into a large organisation. Is this considered an asset and can it exist as an asset even if a few of the key management team and yourself are no longer there to manage it?
This will determine whether culture is, in fact, an asset of your business.
If your business has been built around you and your skillets then the value of your business will be heavily impacted at the time of sale and potentially even scrapped by most buyers as the proposition is just too hard so they will look elsewhere.
A bigger plan, specific know-how, proven execution and ability to replicate are the key factors in determining if your business has the capability to move to the next level. Just doing what they do in a new area is rarely enough to convince someone to buy your business.
Your capabilities need to be both unique and strategic. The buyer will want to know that you have the unique capability which can be strategically leveraged back into their existing business. I am sure there are other companies in your sector doing what you do and so if you have not been able to show your unique and strategic capability then your multiple is likely to be industry average at best. At worst they will decide to just do it themselves.
How will the market perceive the acquisition? This needs to look good from the acquirers side and one to the critical assets in this area is referenceable customers and new channels to market. Ideally, this will be 2-way.
The best deals will open up new channels and new products for both businesses, meaning that each business gets to sell their products in to the others channels.
Deals like this have the greatest chance of success if the product match and markets are right.
Systems are not just Computer Systems. These refer to any kind of system that makes your business run efficiently. These can be manual or paper-based systems, they can be cultural or process systems, but generally they are unique to how you do your business.
For private business owners, these systems will have grown up over time and may not be as well thought through as if they had been designed from scratch knowing what you know now. They may be an asset or they may be a liability, so be clear on whether you are selling this as a value to the acquirer or whether in fact you are seeking to be acquired to get access to their systems.
This is all about maximising the equity value in your business well before you are ready to sell it. When you sell a house, you can slap a coat of paint on it, fix a few broken items and put it up for sale. The difference between maximum and minimum selling price is negligible when compared to businesses. Planning to sell your business is not something you do when you are ready to sell it. A coat of paint doesn’t help and it can take years to get a business ready for sale at the maximum price.
The difference between 2 identical business with and without these 5 items in place could be quadruple the price. That’s a lot of money to leave on the table which, with the right planning and preparations, could mean a very different retirement or exit outcome.
This is your life's work. Create an asset that you are proud to sell to the next buyer so it can continue to flourish in new hands.
Keep an eye out for future blogs where I will discuss each of these 5 Assets in more detail.
Ross Hanson is a Business Builder who helps private business owners to Grow, Fund and Exit their businesses. Ross works with business owners to grow their business assets, fund their growth and exit their businesses through either a Trade Sale or Management Buy Out (MBO).
It was a nice surprise to be nominated in the recent "Top 25 Best Business Coaches in Brisbane" article by Jacob Aldridge.
Apart from being mentioned in the list it was also good to see that LinkedIn is recognising Coaching as a profession. But really what do coaches do? It is an issue faced by the industry which currently lacks formal regulation and a problem with a title that is widely misunderstood and overused.
It seems anyone these days can call themselves a coach. Health coaches, career coaches, executive coaches, marketing coaches, sales coaches the list is endless. So when you are looking for the right advice in your business how do you sort through the plethora of coaches and find one that suits.
In fact do you even need a coach?
The first step is to consider what help you need in your business. Behind coaching is many key concepts and misnomers so let's look at them here:
The fundamentals behind coaching is to help develop new skills and to hone existing skills to help someone become a master at their trade. In finding a coach, it is best to look for someone who has a true understanding of what you are trying to achieve and who you respect and feel you can learn from.
Let's take the example of James the Business owner who wants to grow his business. He needs more sales and he thinks he needs better marketing. If James chooses a Marketing Coach the assumption is that he wants to hone his skills in marketing. The reality is that James needs to know how to grow his business and needs a coach who knows how to grow businesses. Marketing will be addressed at a higher level and the business coaching process may uncover fundamental business or sales issues before marketing is even considered.
Coaching is all about developing your skills so if you are a business owner you most likely need a business coach. It makes no sense to employee a marketing coach to fix your marketing if you have no interested in doing marketing yourself.
Most of all your coach should be someone who you feel you can have a relationship with that will allow them to challenge you and help you to question beliefs that may have become the norm but may be due for revisiting.
Coaching helps to get the best from what you already have as long as you are prepared to be challenged.
In a different context to coaching, Business Consulting brings new information to the relationship. Consulting typically assumes that the consultant has knowledge, skills and know-how which the client is paying for. Like coaches, there are just as many different types of "consultants" in the marketplace.
Where this becomes confusing is that clients are not sure how to tell the difference between coaching and consulting.
This can be quite dangerous when a coach moves in to the realms of consulting and starts to give opinions and ideas when this is not their core strength.
For the client this is a key area you need to consider when selecting a coach. Are you expecting them to give you consulting advise as well as coaching and if so are they qualified to do so. Also, what tools are they bringing in to your business to improve it? Do they come with frameworks, models, systems or other specific intellectual property. If so this is likely to be consulting but this is where the lines blur. The way this is implemented in your business will define if they are pure consultants or hybrid coach/consultants. The way to tell is how this IP is implemented in to your business. A hybrid coach/consultant brings these new frameworks in to your business and coaches you on embedding them in to your business for your own use in a way that suits you.
Above all, if you are choosing consulting, have they been in business before and do they have the experience that you would like to learn from?
When it all boils down, businesses are a collection of people and interactions. As a business owner or manager it can be an isolated and lonely journey. Having a confidant to share your struggles is often very helpful. A great number of coaches come from a background of personal development and life coaching. The key to finding a personal coach is finding someone whose core values are aligned to yours. Whilst this can offer you some great personal insights, be sure that you are clear if your coach is working with you on Personal Coaching as distinct from Business Coaching or Consulting so that you expectations are clear and your have a realistic understanding of what to expect. Personal coaching works on the basis that getting you aligned will ultimately benefit your business.
Whilst all the above is fine if you have an existing business, what if you are still in the early stages of growth. Can your coach help you to create something from a very low base. Coaching, consulting and counselling alone will not help if you are in fact looking for someone to help you create a new business. This is yet another unique skill set as there could be some key gaps in your business and you may be looking for a coach to help fill these gaps. Beware that very few coaches have in fact built their own successful business from scratch, raised capital and then sold it. If this is what you are looking for then make sure your coach has experience in creating businesses that are aligned to what you are trying to create.
Coaches need to specialise. Either an industry, a niche or a style there must be something they are particularly suited to. Ask your potential coach where they specialise and ask for examples of clients they have helped. If they tell you they can offer you everything then think carefully about what they are really offering.
The best coaches know where they specialise and where they will refer. Personally I like the fact that I work with a collective of like minded coaches utilising the same frameworks for businesses which can be used at various stages of business growth from startups to $250M, however within the team we each bringing our own skill-sets and specialities to the client including personal skills, industry niches and business size focuses.
Coaches Give Clarity....... I recall after my initial work as a Business coach from 2002-2003, I decided to get back to build another IT business. Having formally trained as a Business Coach/Consultant and with a kit back full of IP I had all the tools at my fingertip. However, I still made the decision to get myself a coach from day one of going back in to business for myself. Why? This was someone I had worked alongside in the coaching business who could work with me as my outside eyes and ears as I knew that once I was consumed in my business again, it doesn't matter how much I already know, I would be blinded to so may parts of my business as I was now consumed in it again.
You Can't Know Everything.
Even coaches have coaches so if your coach does not have their own coach then you should look elsewhere immediately.
The most important aspect of choosing a coach is to be clear about the outcome that your are seeking. Coaching for the sake of coaching will feel great for the first 3-6 months, but before long the relationship will stall. Clear outcomes should be agreed early in the relationship and progress checked along the way. Sure the direction is likely to change as the journey unfolds but having a clear outcome goal upfront will create rigour in the relationship and keep everyone focussed on what they are in the relationship for and to be sure that you are getting your outcome.
Coaching is a relationship not just a transaction, so choose wisely and with the right coach you will also be getting a business partner with your best business and personal interests at heart.
About the Author : Ross Hanson is a Business Strategist and Tech investor who has built and sold numerous technology businesses over the past 20 years. What does this mean in the context of this article? Coaching, consulting and creating for innovative companies who are looking to Grow, Fund and Exit their business. Working with clients in Brisbane, Sydney, Melbourne, Gold Coast and New York.
If you would like to find out more about how coaching can help your business, Ross can be contacted here.
