As a homeowner, you consider the impact of a significant renovation on the value of your home. You know that a new kitchen will be a worthwhile investment, whereas a swimming pool may bring you enjoyment but less of a bump in resale value.
In the same way, the savviest entrepreneurs also think about how investments they make in their business today will make their business attractive to a strategic acquirer in the future.
It starts by knowing who is on your shortlist. Your shortlist is a small collection of companies (usually more than two and fewer than twenty) with a compelling reason to buy your business. For example, look at the story of Haroon Mohktazarda. In 2001 Mohktazarda and his brothers started Webs.com, which allowed anyone to build a professional website. The business was growing, but Mohktazarda knew the company lacked a clear direction. In a recent Built To Sell Radio episode, Haroon Mohktazarda told John Warrillow, “The business served everyone, meaning the business served no one.”
Determined to create a clear roadmap for the company, Mohktazarda and his brothers went on a company retreat. After analyzing their customer segments, the brothers discovered that most of their premium subscribers were small business owners. Enlightened by their findings, they began creating a list of potential acquirers who served small business owners, like Intuit and Vistaprint.
Creating a list of potential buyers allowed the Mohktazarda brothers to start viewing their business through the eyes of an acquirer. They deprioritized features that were important to consumers and implemented five critical changes to their business model to make themselves more attractive to small business owners and, by extension, the acquiring companies that served them:
- Firstly, they implemented a new product integrated with Business Pages on Facebook. At the time, Business Pages was a new feature that Facebook had launched specifically for business owners.
- Secondly, they implemented a CRM widget that allowed business owners to capture the contact information of potential customers who visited their website.
- Thirdly, they added a premium package specifically for small businesses.
- Furthermore, after noticing business owners’ weak adoption of their social features, the brothers dropped them from the Webs.com small business product.
- Lastly, they decided to shut down their ad business. Unlike consumers who were willing to host advertising messages embedded within their website in return for a lower price, business customers were willing to pay more for a product devoid of advertising.
Focusing on one target segment led to immediate improvements in customer loyalty and satisfaction among the small businesses Webs.com served. The focus on small businesses also captured the attention of a few companies on their shortlist, including Vistaprint, who offered the Mohktazarda brothers $117.5 million to buy Webs.com.
Creating a list of potential acquirers years before selling allows you to start making strategic decisions now that may make your company irresistible to an acquirer in the future.