groupon screen capture
It seems counterintuitive, but to get the highest price for your business, you may need to focus less on what you have built and more on what someone else is building.
If you look strictly at the numbers, deal-of-the-day website Groupon is nothing more than a promising young start-up. With projected sales this year of around $500-million, it's off to an amazing start. But it's hard to see – if you look strictly at the numbers – how Groupon could be worth the $6-billion Google was rumoured to have offered the company.
Why would Google offer more than 10 times revenue for a two year-old company in a category with virtually no barrier to entry? That's for Google to say and Groupon to understand as they continue to play cat and mouse in their negotiations.
Right now, it's a buyer's market for small businesses, and if you're going to sell your company based on the cold hard numbers, you may get only a percentage – not a multiple – of your sales.
To get a premium, think in terms of what your business is worth in the hands of an acquirer. Bob Burg, co-author of bestselling book The Go Giver, says, "Your true worth is determined by how much more you give in value than you take in payment."
What kind of value does your company offer the acquirer? In the case of Google, Groupon would have positioned it to sell directly to Internet users – in this case, coupons for small businesses – and increase its chances to win the race for local advertising dollars; currently a hotly contested battle between Facebook, Yahoo! and Google. Google would have gotten a database, complete with credit card information and historical buying behaviour from Groupon's 12 million strong customer database. To Google's CEO, Eric Schmidt, that must add up to at least $6-billion in value.
To start thinking about what value your company might bring to another, try answering the following questions:
- Will adding your product to its lineup help the other company sell more of its cash cow product?
- Will your product allow the company to revitalize an aging offering?
- By bundling your service with its product, will the company sell more or lower its customer attrition?
- Can you help the company reach a demographic category?
- Will your product allow the company to access a market it’s not in today?
- Can you help the company compete against a rival it is losing ground to?
- Do you give the company access to a geographic market where it is weak?
- By buying you, can the company reduce the costs of making what it sells?
According to Mr. Burg, "money is the thunder to value's lightning. The focus must be on the value, not the money. When you focus on the money, people know it, and they're less likely to want to do business with you."
Special to The Globe and Mail
John Warrillow is a writer, speaker and angel investor in a number of start-up companies. He writes a blog about building a valuable – sellable – company.