You may be planning to sell your business, but your business may not be sellable. These two rules can get you back on track.
"There are two rules in preparing your company for sale," said Steve Kimball, principal of the Chasm Group, speaking to about 300 attendees during a breakout session at this year’s Inc. 5000 Conference in Phoenix. "First, you need to focus on reducing the risk to the buyer. At the same time, you have to demonstrate the business’s growth potential."
The session was devoted to one of the most daunting challenges a business owner can face: What do you do when you decide it’s time to sell and you discover that your company is not sellable? Joining Kimball on the stage was Ashton Harrison, whose company—Shades of Light, a retailer of lamps, lightshades, curtains, and rugs, based in Richmond, Virginia—wasn’t even profitable, let alone sellable, when she met him in the spring of 2008. During the session, she and Kimball described the path they followed to turn around and grow the business and then to find a buyer.
It involved doing various things that Harrison admitted she should have done earlier but didn’t, mainly because of a condition endemic to entrepreneurs—attention deficit disorder. (She has written a book about her experience called From ADD to CEO.) She was constantly becoming infatuated with new ideas that she would then pursue, never stopping to analyze which ones actually made the most sense. So she and Kimball began with a thorough review of the company’s sales and profits aimed at determining the profitability and growth potential of each activity and product line. That analysis led Harrison to expand some lines of business and drop others—at a time when her company was already losing money.
The turnaround was far from painless, coming as it did in the midst of the housing crisis and the Great Recession, which hit businesses like Harrison’s particularly hard. Harrison was forced to lay off 20 percent of her workforce and temporarily reduce everyone else’s hours by 20 percent. Meanwhile, with Kimball’s help, she changed the way she ran her business, introducing focus and discipline that had been lacking up to that point. In the process, she did those two things Kimball had said were necessary to prepare the company for sale—reducing the risk to the buyer and demonstrating the potential for growth. And, sure enough, she wound up selling the business in 2011. The ultimate buyer turned out to be one of the brokers she contacted about handling the sale.
There’s a moral to the story, which was impressed on the conference participants in attendance: It’s a good idea to build any business as if you’re planning to sell it, whether or not you do so in the end. By reducing the risk to a potential buyer, after all, you’re also reducing the risk to yourself should you later decide not to sell. In that case, you’ll also be the one best able to take advantage of the growth potential you’ve demonstrated.
BO BURLINGHAM: Burlingham joined Inc. in 1983. An editor at large, he is the author of Small Giants. Burlingham is also the co-author with Norm Brodsky of The Knack; and the co-author with Jack Stack of The Great Game of Business. @boburlingham