You’ll be more attractive if you’ve reached “critical mass”

You’ll be more attractive if you’ve reached “critical mass”

Last time I wrote about the importance of grooming your internal management team (and possibly your own replacement) as a universally accepted way to build your business and increase its value. Now let’s talk about some ways in which you can increase the “attractiveness” of your business. While some of these ideas may be harder to quantify, there’s plenty of experience that shows they can make a business more likely to sell and/or command a higher selling price.

Critical mass is a term adapted from physics to describe the existence of sufficient size in a system (or business) so that the momentum becomes self-sustaining and creates further growth. In a business, critical mass may involve the amount of revenue and the level of organization and communication that are required to support it. In short, once a business has reached a certain size, it is more likely to survive and grow.

It’s well known to M&A advisors and brokers that larger businesses are more likely to be sold if they are put on the market. The national business-for-sale statistics support this rule of thumb: less than 25% of small companies (under $1 million in annual revenue in all industries) that are put on the market are sold, but over 50% of larger companies (over $10 million annual revenue) that are offered for sale are sold. There’s nothing magical about $10 million, but if you can grow your company to that size, you’ll have more options and attract better buyers.

Another way to reach critical mass is to be well-known in your niche. In a previous post I mentioned the idea of growing your sales though niche marketing. If you become a big fish in your pond (your particular vertical market) and that segment is big enough to attract serious buyers and investors, you will increase your market value. Therefore one strategic option for you to consider is to make your company a “collection of niches” rather than trying to be all things to all prospects.

In my next post, I’ll write about gross margins and operating margins and how they can help distinguish you from the other companies in your market.