The Big Shift: When Your Business Becomes a Product

There is a time when you need to shift your mindset away from managing a business of products to the idea that your business is a single product.

By STS Capital

As an entrepreneur, your entire career is dedicated to understanding your markets. This encompasses everything from building your products and services to developing your operations and setting long-term goals. But what most entrepreneurs never plan for is the inevitable day when all of that will change: the day you choose to sell your company.

When selling your business, a shift in thinking must occur that may be counterintuitive to an entrepreneur. You must transition your mindset away from managing a business of products to the idea that your business is a single product that you are now tasked with selling. If you don’t embrace this new mindset, you will be psychologically unprepared for the process of selling. Worse yet, it may prevent you from achieving maximum potential value at the time of sale.

Define Your “Product”

When you begin marketing your business as a product, performing a market segmentation exercise will be essential if you want to attract the right buyer. Ask yourself if your business has a technology, process, team, patent, or another valuable component that a buyer would see as a competitive advantage to acquire. Think of your business as a “product” that needs to be priced at either a discount or premium.

A financial buyer will look at your business as a discount product because they want to pay as little as possible to acquire it. These buyers see your business for its current value and aren’t invested in exploring its potential. In contrast, when you position your business as a premium product, you will attract strategic buyers. These buyers will pay more than expected since they have the ability to see the holistic value it offers beyond the numbers.

In a famously referenced paper by economist and professor Theodore Levitt published in 1960 by the Harvard Business Review, Levitt highlights the need to establish marketing as a goal throughout the business life cycle rather than focusing on selling alone as your goal.

Levitt explains that the downfall of legendary railroad companies is due to management maintaining a limited market view that inhibits growth. The failure of such companies was due to defining their industry incorrectly, since many saw themselves as a part of the railroad business and not the transportation business. This was an opportunity we all know they failed to capitalize upon since the transportation industry is vibrant today.

Taking a critical review of your business through market segmentation will allow you to define broader industry subsets that your business actually falls within. More importantly, performing a market segmentation review will help you identify core strengths and areas of opportunity in your “product” that could appeal to a strategic buyer.

Consider Your Business Structure

As a CEO, you have been integral to developing and establishing your business. But when you start thinking about your business as a product to sell, your business structure suddenly becomes an important factor–and in some cases, even a differentiator. A key aspect to consider is whether or not your team will have a learning curve to overcome without your presence, and if you have the right team already set in place for selling.

Additionally, your business must be structured in a way that ensures its finances will remain in order even after you leave. Maintaining an objective perspective is critical for reaching maximum value from a sale and to achieve an Extraordinary Exit. You must position yourself from the perspective of a potential buyer, identify the strengths and weaknesses of your company, and even create a checklist to develop and prepare your business.

Separate Yourself Emotionally

The process of preparing to sell your business is also an emotional journey as an owner. If you want to release your business to the right buyer, it is key to detach yourself from the personal ties you may still hold. The most crucial but often overlooked step when preparing for an exit is facing the challenge of defining and uncovering why you are selling.

Upon reflection, you have to ensure that your business doesn’t determine self-worth, or you simply won’t be ready to sell. Achieving detachment allows you to take an external and logical perspective of your business, which you will need if you want to effectively market your “product” to the right buyer.

Your Journey with STS Capital

Managing Director at STS Michael Smith says that business owners preparing to sell should look inward through the process. “The key to unlocking your “why” lies in in one life’s journey towards significance. Some people find that their work life is all they need to feel honored, worthy, and important. But when an entrepreneur succeeds in exiting a business, all that changes,” says Smith.

Headshot of STS Managing Director Michael Smith “A great CEO success can be tied to the impact they had on the lives of their employee, vendor, and customers. That need grows after a successful exit along with one’s ability impact more people, make the world a better place, and give back to honor the luck and success they have achieved. That is why the work we do at STS helps owners in their transition from success to significance.”

Throughout the process of preparing your organization for an exit during your M&A journey, the owner needs to remove themselves from the business to allow the opportunity for the company to run on its own and establish its value. Your deal team becomes an integral part of this process.

At STS Capital Partners, we are your expert guides. We have stood where you have, in both entrepreneurial journeys and achieving Extraordinary Exits. We can guide you through this shift to ensure you and your business are positioned strategically to achieve an Extraordinary Exit. If you are interested in these insights and learning about the opportunities available for you, please get in touch with us at ExpertGuides@stscapital.com.

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