Owners should think twice about spending their time selling

Owners should think twice about spending their time selling

In many small businesses the owner is involved in selling and may be the leading or only salesperson.  That sounds like a recipe for profitability, plus the owner is the most passionate and knowledgeable advocate for the business.  Therefore it’s understandable that if you are trying to maximize your company’s profitability you have decided to spend most of your time selling, leaving the “dirty work” of operating your business to your employees.  However, if your goal is to build a valuable company—one you can sell when the time comes—you don’t want to be your company’s number one salesperson.  In fact, the less you know your customers personally, the more valuable your business.

The proof is in the numbers

The proof comes from a recent study conducted by our colleagues at The Sellability Score.  They asked 14,000 business owners if they had received an offer to buy their business in the last 12 months, and if so, what multiple of their pre-tax profit the offer represented.  They then correlated the offers with four possible answers to this question:

Which of the following best describes your personal relationship with your company’s customers?

·        I know each of my customers by first name and they expect that I personally get involved when they buy from my company.

·        I know most of my customers by first name and they usually want to deal with me rather than one of my employees.

·        I know some of my customers by first name and a few of them prefer to deal with me rather than one of my employees.

·        I don’t know my customers personally and rarely get involved in serving an individual customer.

The average offer received among all of the businesses was 3.7 times pre-tax profit. Companies where the founder knows each of his/her customers by first name received offers of 2.93X, or 21% less than the average offer.  However, for businesses where the owner does not know his/her customers personally, the offer multiple went up to 4.49.  That’s a whopping 53% premium for not being involved with individual customers.

When profit is the enemy of value

Who you get to do the selling in your company is just one of many examples where the actions you take to build a valuable company are different than what you do to maximize your profit.  If all you wanted was a fat bottom line, you probably wouldn’t invest as much in your infrastructure or spend as much time thinking about strategy, structure, and company culture.  Of course it’s important to make money, but in the long run how you earn that profit will have a greater effect on the value of your company.

Republished with permission from Built to Sell Inc.