Why did you start your business? Business owners start their businesses for a whole host of reasons. I have come across people who have started their business when they:
- thought they could do better on their own, rather than stay with their employer;
- were made redundant and rather than go back into employment they took a risk and went on their own;
- had an idea to make or do something new and different. A new niche or market encouraged them to take a risk.
For many business owners, that initial reason for starting up is wrapped up with a sense of having more freedom. That could be freedom to make their own decisions, take their own risks. Equally it could be the freedom to work where and when it suits their lifestyles.
Typical Business Owners
Unfortunately, for far too many business owners, that freedom doesn’t come in big measures. That work / life balance is always round the next corner. There’s never enough money to buy free time. The business demands more time and effort than expected. That freedom to make decisions turns out to be regularly reacting to problems that seem to get in the way of growing the business.
And that probably describes the world for many business owners, call them ‘typical owners’. Especially with COVID and a recession, they are aspiring just to survive.
Value Builder Owners
But there are some business owners who aspire for more. The research done by the folk at The Value Builder System, shows there are owners, let’s call them ‘value builders’, who apply 9 principles of business that build solid companies and personal wealth. Over my next few blogs I’m looking at those principles in greater detail.
Principle 3: Own your product
Value Builder companies that own their product command a premium over businesses that provide a service or resell someone else’s products. Value Builders understand that a sophisticated acquirer would be unlikely to make an acquisition offer to a reseller of someone else’s product when they could negotiate a reselling agreement of their own.
This is the real difference between Value Builders and normal businesses: don’t be generic, make your product or service as unique as possible.
Those Value Builders pursue one of two strategies to take ownership of their offering to make it unique. You can develop your products and legally protect them. Whilst that might sound beyond your reach, consider how you can create a unique service wrapper around what might be a generic product. That could mean having your own unique product / service delivery process.
Alternatively, you can take ownership of a product you are reselling in the mind of the consumer. You would do this by investing in a brand that stands out and convincing buyers you are offering something unique.
Wrapping your product in a powerful brand makes your company more difficult to imitate and therefore more valuable to a buyer looking to enter your space. Emphasising both your company and product brands also beats the personal brand many service company founders develop in the absence of anything else for customers to remember.
A Service Wrapper Approach
You may remember Andrew Park from Swan Energy, I’ve mentioned him in a few previous blogs. Swan Energy, provides consultancy support to large organisations that are obliged to report under the EU Emissions Trading Scheme (EU ETS). As the scheme requires annual reporting and external verification, they work with their clients throughout the year in readiness for the external verification visit. There is an enormous amount of data and calculation to prepare for an external auditor.
Swan can collect the data and do the calculations just as well as many other good consultants. There are rules to follow and the data analysis is very rational. Where Swan differentiates from the rest of the market is that they have built a reporting pack that they market as the ‘power of the pack’. Here are the words from their website:
Power of the Pack
Our unique evidence pack, produced individually for each client, enables a quick and easy process for the verifier to approve. The pack makes understanding complex research and actions easier for the client and so reduces the amount of time that you need to devote to this process.
I have lost count of the number of times Andrew has recounted stories about auditors loving the pack, and clients being satisfied by a clean, smooth audit.
For me the folk at Swan have taken ownership of their product. They have made a generic consultancy service unique and emphasised the benefits it offers clients. They also own the product in that they are constantly improving it – collecting and processing data faster, updating the pack for changes in legislation, etc.
Owning the product
Jeffrey Feldberg, Waleuska Lazo, and Stephen Wells co-founded Embanet in 1995, a company that helped Universities take their courses online. Very topical now with COVID making this form of education the norm. In the beginning, Embanet was a classic service business. Like most consultants, Feldberg, Lazo and Wells were personally in demand and paid handsomely for their time.
A few years after starting, they were approached by an acquirer who offered them around three times their profit for their business. The 3 guys rejected the offer and decided to change their business model – they took real ownership of their product. They went from offering commoditized web design service, limited by the number of hours in the day to owning a share of the sales of the online courses they developed and helped market. Suddenly the founders were no longer restricted by selling their time and could offer their courses to as many people that signed up.
And sign up they did. Embanet became a leader in the burgeoning e-learning category. This enabled them to attract an offer of more than 13 times EBITDA just two years after their business model change.
You can hear the guys’ full story in their interview from John Warrillow’s Built to Sell Radio, a regular podcast revealing the stories and advice of business owners who have sold their businesses. To hear the full interview click here.
So, are you building value in your business?
Now you have had time to think about the stories above, are you building value in your business or selling generic product or services? If you want to be a Value Builder, consider these 2 questions:
- Can you create your own unique product like they did at Embanet?
- If you have a generic offering can you create a differentiating brand or service wrapper?
Even though you may be years away from selling, make a list of potential strategic acquirers for your company. Consider major strategic decisions through the lens of their impact on your list. Commit to focus on owning your products or services that make you unique.
You can also take the value builder assessment to see where you are in your business now and identify where you need to make improvements.
In the meantime, please get your free copy of the eBook, Famous Or Rich: 9 Ways Value Builders Prioritise Wealth Over Recognition.