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What sporting event offers the best analogy for building a business? Some might say the closest game to building a company is football because of the strategy involved in drawing up plays. Others may say a team sport like cricket offers the best parallel because of the importance of individual performances rolling up to a team result.
In my mind, it’s the marathon.
The marathon is a grueling endeavor that takes disciplined training to compete. Much of the hard work is done in private, and it ends with one spectacular triumph as you cross the finish line of a race, which is analogous to the day you sell your business.
When you sell your business, you want to be judged for what you have done, but when it comes to the value of your company, an acquirer is just about to begin their race. They are pacing the starting line with all of the nervous anticipation of attempting to do something hard — maybe even something they’ve never done before.
They are looking to the future and are imagining the course ahead. While you may want to point out all of the great things you’ve done in the past, the acquirer is looking at the horizon.
That’s why your company’s Growth Potential is one of the eight drivers we look at over at The Value Builder System™. We measure your Growth Potential based on what your company could do in the future, not what you have done in the past. (We measure your past performance by giving you a score on Finance Performance, one of the other eight drivers.)
Your Growth Potential score comes down to how quickly you could grow your company if given more resources. An acquirer is looking to understand your potential growth rate at scale, by which they mean growth that is not contingent on you. Many founders try to make the claim that their business could grow much larger, but if you do not have an efficient way to win new customers and your growth is contingent on your personal salesmanship, don’t expect to score well on Growth Potential.
What you need is a growth engine that scales without you.
Why Fresh Meal Delivery Has Growth Potential
For example, Marc Elkman built Fresh Meal Plan, a Florida-based meal delivery service for healthy eaters.
Elkman is a fitness enthusiast who was keen to eat well on the go. He subscribed to a meal delivery service but was uninspired by the food. Elkman joined forces with a local chef and started offering delivery of fresh and healthy meals.
Elkman and his partner launched the business with just $20,000 in start-up capital, so they didn’t have a lot of money to invest in acquiring subscribers. Instead, they decided to bootstrap by approaching local gyms with an idea. Elkman offered free samples of his healthy meals to gym members in return for the rights to sell them a meal plan.
The gyms were pleased to promote healthy eating options to their members, and Elkman got a cheap way to sign up subscribers. The strategy worked, and Elkman started signing up gyms all over the state. He began offering the gym owners and managers a free meal plan for their personal consumption which deepened their loyalty to Fresh Meal Plan.
As the strategy evolved and the competition caught on, Elkman stayed one step ahead by offering gyms a 10% royalty for as long as their members stayed Fresh Meal Plan subscribers.
Fresh Meal Plans successfully signed up hundreds of gyms, enabling the business to grow to $20 million in annual sales in just three years, good for 70th place on the Inc. 500, the list of the fastest-growing companies in America.
Best of all, the strategy of collaborating with gyms had the potential to scale because according to Statista, there are more than 40,000 gyms in America, meaning Elkman had signed up less than 5% of the universe of potential partners.
Fresh Meal Plan’s growth — and its potential to grow a lot bigger — was one reason Elkman was able to sell the majority of Fresh Meal Plans to New Heights Capital in 2016 for a “high single-digit multiple.”
The takeaway for you is that while you should be proud of where you’ve been, an acquirer is going to value your business based on the potential of where it can go. Finding a scalable growth strategy, that doesn’t rely on your personal involvement, is an essential ingredient in your journey to becoming a value business.