The Art of Strategic Focus: Maximising Your Business's Value for Acquisition

In the business world, growth is often considered the ultimate achievement. Entrepreneurs pride themselves on the scale of their workforce, while many founders aspire to be known for winning all those growth-related awards.??

Yet, when the ultimate goal is to sell your enterprise to a strategic buyer, chasing unchecked revenue growth might significantly affect your company's worth. In some cases, it could even diminish its appeal.

Strategic buyers, typically the ones willing to offer top dollar, are on the hunt for businesses that are challenging for them to replicate. They are attracted to unique solutions that would be too time-consuming or costly for them to develop in-house. However, adding non-essential services to drive revenue could make your business less attractive to these buyers.

Consider the case of Michael Lieberman and his venture, Datastay, a software firm that transformed the brake manufacturing sector with its product lifecycle management software. Datastay became a household name among brake manufacturers, with Lieberman becoming a key industry figure, known for his close relationships with executives and presence at industry events.

When Autodesk, a giant in the software industry known for its indispensable tools for designers and builders, noticed Datastay's dominance in the brake manufacturing sphere, they saw an opportunity to extend Datastay's software across various industries they served.

Recognising Datastay's unique value, Autodesk proposed an impressive offer to Lieberman: ten times the company's revenue for his small but impactful team.

Had Lieberman diversified his services within the brake manufacturing niche, he might have diluted the essence that made his company attractive to Autodesk. The industry needed various software solutions, but Lieberman focused on product lifecycle management tools.

Expanding into other sectors could have weakened Datastay's stronghold in the brake industry and opened the doors to competitors. Lieberman's strategy was clear: to create the finest product lifecycle management software for the brake industry.

Private equity buyers typically base their valuations on a multiple of EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortisation). In contrast, strategic acquirers assess the inherent worth of your product or service in their ecosystem.

Strategic buyers, often more extensive and more resource-rich than the companies they acquire, don't require you to diversify on their behalf. They are searching for the one piece of the puzzle they lack, and the more focused your offering, the higher the premium they are willing to pay.

Strategic buyers have a specific strategy, and acquiring your business will help them achieve that strategy. Simply chasing revenue at any cost may get in the way of that goal, and you could end up looking like a less desirable acquisition. 80% of all businesses fail to sell, and the primary reason is a need for more planning. The owners should have planned for their eventual exit.

I help business owners create more profitable businesses that are less stressful to operate and easier to sell. Feel free to reach out to me if you have questions.

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