One vs. Four Times Revenue

Most founders aim to grow sales, but if focusing on your top line attracts the wrong kind of revenue, it may do more harm than good.

This week’s Built to Sell Radio guest, Mike Winnet, provides an excellent case study on the importance of prioritizing your company’s value over its size.

In 2015 Winnet started U.K.-based Learning Heroes after recognizing that most e-learning programs were long and boring. He saw an opportunity to transform the industry by selling large companies a subscription to his short, engaging, animated training courses.

Why Mike Winnet Turned Google Down

Although his company was growing, it was still thirsty for cash. Winnet was drawing a salary of just £500 a month when he received a lucrative offer from Google. The giant search firm offered Winnet £90,000 to create a custom course for them. The course would have taken his team just three months to develop, and Winnet would have welcomed the injection of cash.

But accepting Google’s offer didn’t sit right with Winnet.

As he shared in a recent Built to Sell Radio episode, “[Google’s offer] didn’t fit the plan. I know loads of people who would have taken that £90,000 contract, but we didn’t because it didn’t fit the model. We used to have a sign on the wall that said, ‘Does It Make the Boat Go Faster?’ and if the decision didn’t make the boat go faster, we wouldn’t do it.”

Not only was Winnet concerned Google’s offer would slow their journey to becoming a subscription-based e-learning juggernaut but he also knew it had the potential to undermine the value of his company.

Winnet started Learning Heroes with the intent of selling it within three years for £10 million. He knew he would need to position the company as a product-based subscription business to garner a premium offer.

Winnet understood that a simple service company would be lucky to garner an offer of one times revenue. In contrast, a subscription-based product company could command a much higher valuation from an acquirer.

By accepting the Google project, Winnet ran the risk of appearing to be a project-based consultancy and accidentally falling into the service business category in an acquirer’s mind.

In the end, Winnet’s discipline paid off. In 2017 he accepted an acquisition offer from Litmos of £8 million, representing roughly four times his revenue.

Had Winnet been viewed by an acquirer as a traditional service company, he would have likely been offered a quarter of what he received.

Rather than focusing exclusively on revenue growth as a goal, I’ve noticed that the owners who sell for the highest multiples concentrate on growing value, even if that occasionally comes at the expense of short-term sales.

 

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