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The Conversation Behind Closed Doors

July 20, 2021 | By John Warrillow

There’s a meeting that happens when an acquirer is looking to buy your company.

You will not be invited to attend.

The meeting involves the senior executives from the acquiring company. The subject is whether or not to buy your business. The principal question at hand is whether they should buy your business or compete with you.

Suppose you are chasing revenue and bidding on jobs based on being the low-cost provider. In that case, most acquirers will conclude there is no point in buying your business when they could win the sales you’re getting by being the low-cost provider themselves. Moreover, given that most acquirers are five to 20 times the size of the companies they buy, acquirers will almost always outlast you in a price war.

However, if you have created something unique, like a brand that consumers are loyal to or a piece of technology people can’t get elsewhere, an acquirer may calculate that the cost of competing would be too great. As a result, they may conclude that buying your business is cheaper and easier.

That’s why having a point of differentiation (over at The Value Builder System™, we refer to it as cultivating Monopoly Control) is one of the eight factors driving your company’s value.

How Quantum Networks Became a Sellable Company

Co-founders Eytan Wiener and Jonathan Goldman started Quantum Networks as an Amazon reseller of technology gadgets. The business model was simple. Resell a semi-known brand’s product on Amazon, or source a trinket in China that people wanted and resell it on Amazon for a single-digit gross profit margin.

The company got off to a quick start, but Wiener & Goldman soon realized they were running on a treadmill to nowhere. Moreover, they weren’t building any long-term value because when another reseller came along willing to lower their price, they would be put out of business.

Wiener & Goldman decided to make three core changes to their business model:

  1. Brand: Instead of simply reselling other people’s products, they created a brand called Blucoil, which Amazon customers began to learn about and seek out.
  2. Exclusive agreements: Next, they forged exclusive contracts to distribute certain products on Amazon. This meant that if a consumer wanted a specific brand, they would need to buy it from Quantum Networks.
  3. Bundles: Finally, Wiener & Goldman took popular commodity products and bundled them into a more comprehensive solution. For example, a new podcaster might visit Amazon to buy a microphone. They might also need a microphone stand and a pop filter. Quantum Networks combined all three products into a desirable solution, making the bundle worth more in the consumer’s mind than the sum of the parts.

The result was that Quantum started gaining more control over its margins. They went from gross profit margins of around 5% to about 20% on many of their solutions. Quantum’s sales also blossomed to more than $30 million annually.

In January 2020, Advantage Solutions (NASDAQ: ADV) announced they had acquired Quantum Networks. The deal would likely have never happened had the partners stuck with their old model of reselling commoditized products.

The key takeaway: Acquirers will only buy your company if they determine that competing with you will be more expensive and take more time. Earn your Monopoly Control by creating a brand that consumers will seek out or a product that is difficult to match.