November 17, 2020

Making Your Business Valuable During COVID-19: Pivoting a Service to a Product

Service companies are disproportionately impacted by the economic disruption caused by the COVID-19 pandemic. While consumers are cutting back on services to save on costs and avoid human contact, they are still buying products that solve problems and meet their needs. Businesses are purchasing products like Microsoft Teams for teleconferencing and internal communications. Individuals are purchasing home gym equipment instead of a service like a personal trainer. This has caused many service-based businesses to throw away the usual playbook and are pivot to provide a product to their customers.

Pivoting in Action

Rather than having customers visit their restaurant, we have seen restaurants have neighborhood deals to deliver to the consumers. By turning a “Taco Tuesday” into an “emergency burrito with a margarita kit”, customers can have the safety of their own home, but still have a product they desired. After spending all day in the home with their new co-workers (aka children), the taco and a margarita is answer to their unique need.

Making this pivot from a service to a product can help make your business more valuable and should be done strategically. Finding your product’s niche, identifying what problems it will solve and stating expectations to customers are important first steps.

Find Your Niche

One of the first steps is to determine your companies’ niche. This can be counterintuitive because your instinct in a down economy is to need more customers, not less, but it is a critical move in creating a product. Picking your niche helps you focus on a single type of customer and design a product to efficiently reach the target audience. Services are adapted and customized for a variety of customers while a product typically fits one type of buyer.  

Identify the Problem You’re Solving

Rank your services and focus on which can solve a problem. Be clear about what problem your product solves for your niche then brand it. With a service, you are hiring the right person for the job. With a product, you are selling a “thing”, so having a solid brand with a clear purpose is essential for turning your service into the product.

Clearly State Expectations

In order to turn your service into an everyday product, it must have the feel of other products. When you run a service you typically price everything out by the hour. A product has the price tag on it upfront. When you pick up any tangible product at the grocery store, there is a list of their ingredients. Show an itemized list of what your customers get when they buy from you.

Service providers have been hammered by the global pandemic. If you can pivot your service to look and feel more like a product, you can move your company into more stability in these uncertain times. Anders can help your business add value to build a more durable business coming out of the pandemic and help transition the business when you’re ready. Learn more about our Business Transition Planning or COVID-19 Business Recovery services or contact an Anders advisor below.

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September 17, 2020

How Businesses Can Add Value to Recover from COVID-19

If you’re like most business owners, the first quarter of the year was progressing like any other. Then, suddenly a world-wide pandemic hit. As the world started shutting down, some businesses had to start closing their doors and rethinking their sales strategies. Perhaps you’ve stabilized your company, or you might still be experiencing the worst of it. Either way, you’re probably a different person and business owner as a result of this pandemic.

While we all hope for a quick return to pre-coronavirus activities, it’s hard to estimate when that will happen. Below we discuss two constructive options business owners can consider to help overcome the virus stress.

Option #1: Rebuild a More Durable Business

Another constructive reaction to this crisis is to commit to building a more durable business that can better withstand shocks to the system in the future.

Option #2: Sell

Many owners—especially those that experienced the brunt of the 2008–09 global financial crisis—have been so traumatized by this pandemic that they don’t have the stomach for another disaster. As a result, they’ve decided to start planning their exit proactively. 

How to Add Value

If you find yourself choosing to rebuild or sell, your immediate action plan will be the same. There are some things you can do now that will make your business more durable in the long term as well as more sellable:

  1. Focus on the products and services where you have a point of differentiation. You’ll have more pricing authority in the short term, have better cash flow, and be more attractive to an acquirer in the long run.
  1. Create recurring revenue streams that generate sales while you sleep. These can be in the form of service contracts, subscriptions or maintenance plans. Aim to get the majority of your revenue automatically.
  2. De-risk your business, ensuring you’re not too reliant on a single customer or supplier. 
  3. Create an employee handbook and systematize your processes to lessen your dependence on a key employee, or you calling all of the shots.
  4. Clean up your bookkeeping.
  5. Generate as much cash as possible from customers up front to create a positive cash flow cycle.

Speaking to an advisor about how this pandemic has impacted your business can be therapeutic and help pave a way forward, and Anders is here to help. Anders can help your business add value to build a more durable business coming out of the pandemic and help transition the business when you’re ready. Learn more about our Business Transition Planning or COVID-19 Business Recovery services or contact an Anders advisor below.

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August 14, 2020

Christopher C. Schroeder

July 28, 2020

How to Beat the Odds and Successfully Transition Your Family Business

If you want to find examples of failed family business transition plans, you don’t have to search very hard. Less than 30% of family businesses make it to the second generation, and a small fraction of those make it to third or fourth generations. While the odds may be against family businesses, a successful transition can and does happen with proper planning.

Potential Hiccups When Transitioning to a Family Member

Too often the founder of a family business stays in control too long and doesn’t involve the next generation in management decisions. Disagreements between siblings often arise when the second generation does not have insight into how their parents made decisions and their vision for the future. 

Other times, an unexpected illness or death accelerates the transition time from one generation to the other. The next generation may lack maturity and the skillset necessary to take over the business.

Creating a Successful Plan to Transition

Effective planning and implementation of a transition plan is key to making sure the family business survives and thrives. Future leaders should be designated and developed over time to give them the best chance of taking over the company. There are some steps business owners can take now to create a smoother transition.

Start the Conversation

Identify who will be part of the next leadership group and talk with them about it to make sure they see their future role in the company in the same way you see it.

Put Contingency Plans in Place

If a family member is unwilling or unable to run the business, is there a trusted third-party who can step in to fill the void, at least temporarily? Sometimes an outsourced CEO or other executive-level person can be brought in to fill a gap and help until the next generation is ready.  If you have a relationship with someone you think could fill a role like this, it may be worth discussing it with them now in case they are ever needed.

Begin Stepping Back

Involve the designated successors in decisions and start stepping away earlier than your retirement date so the next generation gets an understanding of what it takes to run the business. They get the benefit of having you available for guidance and support and can start to get comfortable with leading the company with a safety net.

Set Expectations

Establish responsibilities for siblings to help to control future disputes. Disagreements can always happen when siblings have competing goals and different management styles. However, when the first generation can lay out their vision, the sibling disputes can be lessened. Siblings have a plan to follow and can have some ideas to fall back on rather than struggle to find their roles and compete for the best way to move forward.

Put it in Writing

Document strategic plans, key relationships and other information that you know that would help in the transition. If you’re out unexpectedly, these resources can be invaluable and help prevent the successors from learning things the hard way.Planning for the eventual transition of the management of your business is key to the future success of the business. Having open, honest discussions with the individuals who will one day succeed you in the business can give your family business a greater chance of outperforming the current statistics. Anders Business Transition Planning advisors can help your family business configure a personalized plan to transition now or down the road. Contact an Anders advisor below to discuss your specific situation.

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July 2, 2020

Did You Miss the Perfect Time to Sell Your Business?

Stockholders have been on a rollercoaster for much of 2020. The market was chugging along pretty nicely, continuing its steady and calm rise we saw from 2019…then COVID-19 hit. The Dow Jones at one point lost more than 38% in less than 40 days. Followed by market uncertainty and wild swings, the average investor was left reeling. Valuations of privately held business have also been turbulent. For the second quarter of 2020, we expect to see the average profit multiple decrease for the first time in many years.  

Have I missed the opportunity to sell my business at the peak?

The answer to this question is: maybe. But should you care? Probably not. The thing many of us forget is that when you sell your company, possibly your largest asset and the biggest wealth-creating event of your lifetime, you have to do something with the money you make.

These days, that means you’ll have to turn around and invest your windfall into an asset class that is arguably somewhat bubbly in historical terms. The current stock market is unsettled. The price of residential real estate has been continuously growing in many major centers, but what will the future hold? The near-term expectations for commercial real estate are murky, with many companies realizing their workforce may not need the typical office space anymore.

How will all of these aforementioned realities affect your decision to sell or hold on to your business? Perhaps a look at recent history can shed some light on this difficult decision.

How does market timing affect the sale?

Let’s look at a hypothetical example. Two imaginary business owners are each running a company generating a pretax profit of $500,000. Rebecca sold her business during a down year, say 2015, for 3x her pretax profit. She would have walked away with $1.5 million pretax to invest in the stock market.

Now let’s imagine business owner Scott, who decides to try and time the market. Scott waited out the downturn and sold his business at the end of 2017 for 4x pretax profit, walking away with $2 million before deal costs. At first glance, Scott looks like the winner because he sold at the peak and got 4x profit instead of Rebecca’s 3x. But when we take a closer look, Rebecca would be better off today. Assuming she had invested her $1.5 million in the stock market, she would now have roughly $2.125 million based on the Dow returns for 2017 and 2018 of 13.4% and 25.0%, respectively. 

What should I focus on instead of economic timing?

Timing the sale of your business on the basis of external markets is often a zero-sum game, because unless you’re going to hide the proceeds of a sale under your mattress, you’re probably buying into the same market conditions from which you’re selling out.

A better approach is to optimize your business against the eight things acquirers look for when they buy a business, regardless of what’s happening in the economy overall. Those eight key drivers of company value are:

  • Financial Performance
  • Growth Potential
  • Switzerland Structure
  • Valuation Teeter-Totter
  • Hierarchy of Recurring Revenue
  • Monopoly Control
  • Customer Satisfaction
  • Hub and Spoke

To many business owners, these drivers, without explanation, seem confusing at best. To better understand their meaning and to find out how you score on the eight factors that drive your company’s value, we are pleased to offer access to the Value Builder questionnaire. Learn more about Anders Business Transition Planning or contact an Anders advisor to find out how to add value to your business before selling.

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March 5, 2020

Scott H. Iverson

March 5, 2020

Kevin P. Summers

March 5, 2020

Erin E. Prest

March 4, 2020

Brent E. McClure

March 4, 2020

Lucas A. Luckett

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