The Holy Grail Of Business Success –
The sale price of any business is based on a multiple of trailing net profits, (or losses).
All you need to do to locate a great deal when you go to buy a business is find one with a good product and poor controls.
When you find it, (and there are plenty of them) you found a deal because every single business in the world, no matter how big or small operates the same exact way. They all need FIVE points to operate.
- Lose One, and the business will be shaky.
- Lose Two and the business is about to fail.
- Lose Three, and failure is imminent.
There Are No Exceptions To This Rule … None What-So-Ever.
Let me paint you a picture before we get into it, so you can easily understand it:
Think of a 5 cylinder airplane engine. It is shaped like a star, and when all 5 pistons are firing, the engine runs smooth as silk.
As long as the engine is firing on all 5 cylinders, the engine is balanced, operates smoothly, produces power and pulls the airplane at a speed where it can fly high into the air. (and in some instances, do lots of tricks)
- If it loses a cylinder, the engine is off balance, it vibrates and begins to lose power. It might continue climbing, but not at the rate and speed it was.
- If it loses a second cylinder, all hell breaks lose and the plane is going to have a hard time maintaining altitude.
- If it loses a third, it’s all over – the plane is all of a sudden on a one-way-trip to the ground. The pilot help in determining the force of the landing, but make no mistake. The plane is going to STOP flying.
The same exact thing happens to all businesses, except the pistons are different.
They have a name and a function.
- Customer Identification
- Front End / Customer Service
- Back End / Product Fulfillment and Delivery.
Like an engine, all cylinders are created equal, and all are of equal importance.
The exact same thing holds true for a business.
- Lose 1, the going gets tough …
- Lose 2, It’s difficult to maintain …
- Lose a third, Game-Over. It’s just a matter of time before the business STOPS operating.
Here Are The 5 Critical Points That Every Business Needs to Operate, And What is Critically Important For You To Identify Before You Buy.
Every business needs someone driving the bus! Vision for a business is key –
Vision comes from the person in charge looking at the business from a 30,000ft view. Looking at the big picture and identifying competition and opportunities.
Further the direction of the company and coming up with a strategy to get there. Many business owners simply lose their vision for one reason or another and the business begins to falter.
When it comes to business Vision, you need to know where the business is now,
What is it and what does it stand for, where do you want the business to be and when, and of course, what are you willing to do to get the business to where you want it to be.
Look at the business greats …. John D Rockefeller, JP Getty, Henry Ford, Steve Jobs, Jack Welch, Michael Dell, Bill Gates and Donald Trump. They all had or have vision.
2. Customer Identification:
The amount of business owners who have no clue as to who their customer is, or who they want them to be is stunning. It is so vitally important for you to know who your customers are.
Lets take a quick look at a restaurant for example. If you owned a high-end steak or seafood restaurant, you wouldn’t be advertising in the projects would you? Of course not.
If you owned a fried food restaurant, you wouldn’t be wasting advertising dollars in the high-end neighborhoods either.
If you don’t know who your customer is, how in the world can you go out and reach them?
When you own a business, you also want to identify the exact type of customer you want and then go after them.
Just look at the business Donald Trump built. He knew early on that he wanted to attract the wealthiest people in the world, so he developed some of the highest end and most expensive real estate in the world.
You absolutely need to know who your customer is – so you can market to them appropriately.
Most businesses fail because they lack the understanding of exactly who their customer is and what they want. (Yes, it is really that simple)
Here is the rub …. If the business doesn’t have vision, and doesn’t know who their customer is, they have no idea and even less of a chance of getting the marketing message out to their prospective customers!
Small business cannot afford to advertise on a blimp like Good-Year tires. Brand marketing is way to expensive for the small business owner.
Unfortunately, most business owners are clueless as to who their target customer is and know even less about marketing.
This gives you, the new owner an enormous opportunity to increase revenue and profit almost overnight because you will have the knowledge to “look” into the already developed customer database and identify almost scientifically the main customer type and begin to craft the appropriate marketing message to them.
Marketing is key to any business, and there are hundred of ways to get the word out …. but you need to know the “Who” before you can market the “What”.
I am constantly bombarded by advertising executives who are completely clueless of what they are selling and are only interested in making sales commissions. I hate those guys!
If your target customer is in their 60’s you wouldn’t want to spend advertising dollars on social media marketing as much as you would on direct mail or other print advertising because it wouldn’t reach them. If, on the other hand your customer were the millennial generation, you would be wise to invest your advertising and marketing dollars on social media and other internet forms of marketing because they rarely if ever read print media.
4. Front End / Sales:
Welcome to McDonalds, may I take your order? Would you like to super-size that?
Front-end sales are ever so important.
When a customer calls or visits, your front-end sales better be operating the right way.
Nothing will destroy a sale or a customer relationship faster than crappy front end sales.
Think about it yourself –
- Do you go back to the restaurant where the hostess was rude?
- Do you frequent the hardware store that ignores you?
- How do you remember your last visit to the Post Office or DMV?
McDonalds has a script book all front end people must follow.
My dad had a script book on exactly how the phone was to be answered in the family business, and I have always had a written out script on the exact words a person must use when answering a phone.
If you operate a company’s front end like the Post Office or DMV, you’ll be liquidating the business so fast it will make your head spin!
5. Back End / Product Delivery:
Product delivery is key here. Once you’ve identified the customer, gotten to word out and received a phone call or visit and taken the order, the next step in the process is delivering the product.
No matter what that product is, it must be delivered timely, professionally, and in good working order. Miss out on this and you can kiss your ass(ets) goodbye.
Have you ever gone to a restaurant, been greeted properly, seated quickly, ordered quickly, and then waited forever for your food and when it finally came it was uncooked or cold?
That’s because the back end / product deliver part of the business sucks.
Obviously no system, or a really bad one at that. Have that happen more than once to you in a restaurant and I can pretty much guarantee you won’t be going back …. That is, if you even give them a second chance.
One of the main reasons franchise restaurants do so well is because they have systems in place for everyone to follow and the food comes out consistently the same no matter where you are in the state, country or world.
Back end systems and product delivery is of enormous importance.
I remember last year I wanted a MAC monitor. The Friday day before Christmas Eve, I ordered it online figuring with the Christmas rush, it might be delivered sometime before the new year. It was delivered the very next day!
Guess what ….. EVERYTHING I order from Apple comes within 48 hours without any extra delivery charges. Needless to say, I switched my entire office over to Apple products because whenever I need something I can get it within 48 hours.
I am perfectly wiling to pay a premium for a superior product with superior service and delivery – especially when I know I’ll be treated with appreciation and respect when I need to speak with customer service.
How about you?
For the business buyer, when looking for an opportunity, it is critical for you to look at the 5 most important points of a business.
Identify what is working and what isn’t and then come up with a strategy to correct the wrongs and get the business firing on all 5.
Do that, and you can pretty much guarantee success in any business you get involved in.