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SELLING A BUSINESS

Why You Should Avoid the C-Word (and 7 Others)
 

If you want to build a valuable company–one someone will buy down the road–consider re-positioning your company out of the "consultancy" box.

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The first step in avoiding the consulting company valuation discount is to stop using the lingo.

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A lot of businesses start off providing a service and then fall into the trap of using the buzzwords of the consulting world. The problem is, consultancies are not usually valuable businesses because acquirers generally view them as a collection of people who peddle their time on a hamster wheel. The typical way to sell a consultancy is for the consultants themselves to trade their equity for a job in the form of an earn-out that may or may not have an upside. 

If you want to build a valuable company–one someone will buy down the road–consider re-positioning your company out of the "consultancy" box.  Depending on your business, you may need to change your business model and "productize" your service. One of the first things to do is to stop using consulting company terminology and replace it with the terminology of a valuable business:

  • Consultancy

    Defining your company as a "consultancy" will announce to the market you are a collection of people who have banded together around an area of expertise. "Consultancies" rarely get acquired, and when they do, it is usually with an earn-out. Replace "consultancy" with "business" or "company."

 

  • Engagement

    An engagement is something that happens before two people get married; therefore, using the word in a business context reinforces the people-dependent nature of your company. Replace the word "engagement" with "contract," and you'll sound a lot more like a business with some lasting value.

 

  • Deck

    A deck is something you drink beer on. It's not a word to use to describe a PowerPoint presentation unless you want to look like a "consultancy."

 

  • Consultant

    Instead of describing yourselves using the vague term "consultant," describe what you consult on. If you are a search engine optimization consultant who has developed a methodology for improving a website's natural search performance, say you "run an SEO company" or "help companies improve their ranking on search engines like Google."

 

  • Deliverables

    Consultants promise "deliverables." The rest of the world guarantees the features and benefits of their product or service.

 

  • Associate, engagement manager, partner

    If you refer to your employees with the telltale labels of a consultancy, consider changing "associate," "engagement manager" and "partner" with titles like "manager," "director" and "vice-president," and  you'll lessen the chance of your customers expecting a bill with 10-minute increments.

 

  • Clients

    The word "client" implies a sense of hierarchy in which service providers serve at the pleasure of their client. Companies with "clients" are usually prepared to do just about anything to serve their needs, which sounds great to clients but also telegraphs to outsiders that you customize your work to a point where you have no leverage or scalability in your business model. Would your "clients" really care if you started referring to them as "customers"?



It's easy to get stuck in a low-growth consulting company. "Clients" expect to deal with a "partner" on their "engagements," so the business stalls when the partners run out of time to sell. If a company ever decides it wants to buy your consultancy, acquirers will know they have to tie up the partners on an earn-out to transfer any of the value. When it comes to the value of your business, optics matter and the first step in avoiding the consulting company valuation discount is to stop using the lingo.

Last updated: Aug 5, 2011

JOHN WARRILLOW is the founder and CEO of The Sellability Score, a self-assessment questionnaire that lets business owners evaluate the “sellability” of their business.
@JohnWarrillow




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