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May 31, 2024

May 31, 2024

Growth is often worshipped. We, as entrepreneurs, measure our success by how many people we employ and often dream of making lists that rank us solely on revenue growth. However, if your ultimate goal is to sell your business to a strategic acquirer, indiscriminate revenue growth may not lead to a corresponding increase in your company’s value; in some cases, it may even detract from it.

Strategic Buyers Value What They Cannot Replace

Strategic acquirers—the buyers who typically pay the most—are looking for something they can’t easily replicate. They crave that unique offering that would take too long or cost too much for them to duplicate. But the more extraneous offerings you add, the less valuable you become in their eyes.

Let me share an inspiring story about Michael Lieberman, who co-founded a software company named Datastay. His company revolutionized how brake manufacturers cataloged their design drawings with its product lifecycle management software. Datastay became synonymous with the brake manufacturing industry. Michael was on a first-name basis with almost every brake manufacturing executive in the industry. He was the person to know, the one who hosted dinners at trade shows—he was the guy.

Then Autodesk came into the picture, seeing Datastay as their gateway to the product lifecycle management software market. Autodesk, a billion-dollar serial acquirer renowned for software tools essential to designers and builders across various sectors, acknowledged Datastay’s dominance in the brake industry. They saw the potential to market Datastay’s product lifecycle management software across the myriad industries Autodesk served.

Autodesk offered Michael an extraordinary ten times revenue for his nine-employee company. Imagine that!

Had Michael prioritized broad revenue growth, he might have diversified his offerings to the brake manufacturers, diluting the core value that attracted Autodesk. Brake manufacturers need all sorts of other software, but Michael remained disciplined and focused exclusively on product lifecycle management tools.

Michael could have branched out to other industries, but spreading his attention to other industries would have weakened his connection to the brake industry and invited competition. Instead, he stuck to his knitting: Make the world’s best product lifecycle management software for the brake industry.

Private Equity and Strategic Acquirers See Things Differently

Unlike private equity acquirers who typically base their valuation on a multiple of your Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA), the typical strategic acquirer is trying to calculate what your product or service offering is worth in their hands.

Strategic acquirers are often much larger and better resourced than the companies they target. They don’t need you to diversify for them. Instead, they want the company that has the one puzzle piece they want, and the less diversified that offering is, the higher the premium they’re prepared to pay.

So, my fellow entrepreneurs, let’s remember that sometimes, focusing on what makes us unique and indispensable is far more valuable than chasing after every growth opportunity that comes our way. Stay focused, stay valuable, and the right opportunities will find you.

Business Value Amplifier - Sept 18
Wendy Brookhouse

Wendy Brookhouse

FOUNDER OF BLACK STAR WEALTH™

Wendy has been getting people to their financial goals faster and easier than before for over a decade. She has known what it’s like to control cash flow from childhood, where her first job was raking blueberries for ten cents a pound.

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