As a Sales Xceleration Advisor, I often work with small companies that were started by “boomers” who are now thinking about retirement. No two businesses are identical but they do seem to have many similarities, and most need to “Tie a BOW” around their sales department to prepare the company for sale.
Owner is the Salesperson
All too often, I find that all or most of the sales revenue has been generated by the owner. If the owner retires, the relationships with the existing customer base also “retire” and there is no succession plan in place to cultivate new customers.
To “Tie a BOW,” the first thing that we need to do is hire at least one sales representative, (hunter, farmer, inside/outside – depending upon the specific situation) and start shifting the existing customer base and new sales efforts to the new salesperson, as well as hire other sales resources, as needed. Second, we need to train the new salesperson in the company’s “value proposition,” capabilities, technologies, industry, etc. We then need to develop and implement the required sales tools or infrastructure (forecast, funnel, pipeline, metrics, compensation plan, CRM, etc.) to streamline the sales department, allowing the owner to properly manage the new sales team and provide a foundation for future success.
Once the sales process, infrastructure, and team are in place, sales will grow, and the “BOW” tied around the sales organization will position the company for sale – the organization no longer relies on the owner for current and future sales efforts.
Sales Have Been Stagnant for Years
When a company has not shown growth for years, the ability to attract a buyer is severely limited and the value envisioned by the owner is nearly impossible to achieve. Often, stagnant sales can be attributed to the sales team or a lack of investment in sales and marketing.
To “Tie a BOW” we need to focus our analysis on the sales team’s efforts – where are profitable sales found (products, industries, geography, applications, etc.), compensation plans (do they encourage the right behavior), sales processes (is it documented, sales steps, funnel questions, CRM usage, etc.), sales representatives (do we have the right type of sales people and are they put in a position to be successful), etc.
Once the analysis has determined what needs to be “fixed,” we can purposefully focus on change and pivot the company towards growth. Again, once the company can demonstrate consistent growth for a few years, the “BOW” will position the company for sale at a significantly higher value.
The “One Customer” Company
This is actually the rule vs. the exception for most small companies, and many have never found a path to move beyond their one or two very large percentage customers. I often find small companies that have 50%, and even 75%, of total sales attributed to one or two key customers. The risk is great when a single customer is greater than 10% of annual revenue, but when a buyer finds that a company has 50% to 75% tied up into a few customers, it is a situation that is so untenable and too high a risk to not discount the value of the company.
To “Tie a BOW” on this type of company we have to become tactical and implement a very structured plan without killing the “Golden Goose” that is currently paying the bills. This is not an overnight plan or solution, but will take time and patience. First, stop taking marginally profitable business from your key customer(s) just because they are your key customer(s). Second, focus your sales team on new customers that are similar to your key customer, but NOT their competitor – don’t kill the Golden Goose! Identify why your key customer selected you to determine how you can find similar companies to do the same thing in different industries. Often, we need to have the owner or existing sales representative concentrate on existing customers and focus a new sales person on finding new opportunities.
Given these type of efforts, you can reduce your reliance on a few key customers, diversify your customer base and expand the industries you serve. When this is accomplished, you will have a “BOW” tied around your sales organization and your company will be prepared for sale at a much higher price, since the risk has been reduced to the potential buyer.
Good Sales, but Minimal Profit
We have to always remember, it’s not about sales it’s about PROFIT! We need to look at each customer and each product to determine which are profitable or where we are actually losing money. It still surprises me how often the profitability of a particular “sale” is unknown and how difficult it is for many owners to determine. It is also surprising to learn, much too often, that prices have not been raised for years and in some cases, never!
To “Tie a BOW” we may need to make some drastic changes that most business owners often resist. Some products may have to be eliminated if they cannot be produced at a profitable cost, when compared to the competition. Prices may need to be raised to accommodate the increase in materials and labor costs – don’t worry, customers will understand as long as you remain competitive. Unfortunately, some customers may need to be “fired” if they can’t accept the new pricing – remember, we don’t want revenue for the sake of revenue only – if we are losing money selling to them at the current pricing, you are better off without them.
Once you have aligned your prices with your costs, you can focus on new sales that are profitable, and the “BOW” will be tied on your company so that it can be sold.
If you don’t “Tie a BOW” around your sales department, you may have difficulty finding a buyer who is ready and willing to pay the price you want for your company. If you take the time to do the necessary analysis, fix what needs to be changed, increase profitability and diversify your customer base, you can “Tie a BOW” around your company and potentially find that elusive buyer.