Entrepreneurs are defined by their desire for freedom, in terms of time, finances, and decision making. The ultimate freedom is having a sellable company, whether the owner is ready to sell in the foreseeable future or not. A sellable company allows the owner to:
- Scale the business, without it being dependent on them personally
- Step away from the day-to-day running of the business
- Pass the business on to family or a team member
- Sell the business at its maximum value
However, most businesses reach a plateau in sales because they are stuck in "The Owner's Trap". Business owners often start out by doing the selling themselves due to their extensive expertise in the industry. As they succeed, they are many times asked to sell more and more to existing customers, expanding and customizing their offerings. Employees typically aren’t as deep subject matter experts as the owner, especially as the offerings grow and become more customized, trapping the owner not only into selling but also into delivering and acting as the customer interface.
Our research shows that owners that know each of their customers by name are offered a much lower multiple than the average, while owners that don’t get involved in serving individual customers are offered a significantly higher multiple than the average. The key to achieving a business not personally dependent on the owner is to shift from selling a lot of things to a few customers, to selling a few things to lots of customers.
The Scalability Finder exercise will help your client climb out of The Owner's Trap, helping them to identify the offerings that have a durable competitive advantage. Using the Scalability Trifecta – Teachable, Valuable, and Repeatable – help your clients identify the products and services that have the potential to scale up the fastest.
Products and services that meet the Scalability Trifecta are:
- Teachable: Standardized products and services that can be taught to employees who can then sell, deliver, and support customers without the owner’s involvement.
- Valuable: Products and services that are highly valued by the customer, differentiated from competitors, and not commoditized.
- Repeatable: Products and services that customers will buy more than once, ideally on a regular basis.
The two most common barriers business owners face in progressing through The Scalability Finder exercise are:
- The most teachable products and services also tend to be the least valuable in the eyes of a customer. In this case, encourage your client to bundle together several products and services to create a product or service that offers greater value to the customer and greater differentiation from competitors.
- Products often become commoditized, with little differentiation. Wrapping the product in a service layer increases the value in the eyes of the customer and provides additional differentiation.
Use the results of The Scalability Finder as a road map to focus on the products and services your client can offer that will help them grow their company while minimizing its dependence on them personally.
The Scalability Finder (Module 2) is foundational to the Value Builder Engagement methodology, and you will build upon the work done here as you continue through subsequent modules. For example, in Customer Score (Module 3), the client will survey their customers to ensure they understand what customers value and why they buy. This in turn allows the client to design a growth plan (Module 4) based on the most differentiated products and services and create a differentiated nurturing message in Monopoly Control (Module 6). Once the offerings are focused on just those with a competitive advantage, and there is a clear understanding of why the client’s best customers buy, you can design a Recurring Revenue business model (Module 5) that addresses a specific pain point for a targeted group. To deal with customer concentration issues in The Switzerland Structure (Module 8) you need to have a smaller list of products and services that will be irresistible to many customers. Trying to figure out who the strategic acquirers are for your business (Module 11) before you rationalize your product and service offerings and identify what makes you unique, is going to render a list of acquirers who view you as a commoditized company.