Before Jeff Bezos & Co. blew up traditional distribution channels, there was some value in being the local guy or gal. Being the local product retailer was a good business, and being a regional distributor of a popular line could make you a mint. Those days are almost over. In a world where anything is available at the click of a mouse, the fact that you are local means very little. To build a valuable company, you need to go beyond your physical location as a point of differentiation and cultivate a new value proposition. We refer to this process as improving your “Monopoly Control.” The name is inspired by Warren Buffett, who likes to invest in companies with a broad “competitive moat” — essentially a defendable point of differentiation. While being a local provider may have gotten you into business, it’s not going to be enough to get you out for a decent multiple. To build a valuable company someone may want to buy one day, you need a fresh sales angle. Take a look at the journey of Mehul Sheth, who went from a middleman to the owner of an eight-figure business. Sheth started VMS Aircraft in 1995 as a distributor of airline parts. He offered a “one-stop-shop” for airlines and their maintenance crews to find parts and accessories. VMS was the local distributor and survived on gross margins of 22–23%. It was a subsistence living, and Sheth was determined to build a more valuable company. He decided to evolve his value proposition from just being the local warehouse for distributing other people’s stuff to a sophisticated provider of advanced materials. Sheth chose to focus on the materials that airlines need to be stored and handled meticulously. If the safety of your metal tube flying 300 people 40,000 feet in the air is determined by the quality of a seam of metal, you want that steel to be handled carefully. You also wish the sealant that joins the sheet of metal kept at a temperature that maximises its adhesiveness. You may also want your rivets stored with the same care a surgeon uses to put away her scalpel after performing life-saving surgery. Sheth invested in a clean room that minimised dust at his facility. In addition, he bought dry ice containers to store certain materials in a cold environment, maximising their effectiveness. He also repackaged materials into smaller containers so that an airline that only needed a small amount of a particular material didn’t need to buy an entire tub. Sheth’s evolution from simple reseller to value-added provider fuelled his 60–70% gross margins. Along the way, Sheth attracted a French company that wanted to enter the U.S. market. Rather than set up shop to compete with Sheth, they realised VMS had created a unique offering with a layer of value-added services that would be difficult to imitate. As a result, they decided to acquire VMS for 7.4 times EBITDA. If you find yourself clinging to the “one-stop-shop” sales message, consider evolving to something that truly differentiates you in a world where Amazon (and its various e-tailing competitors) will ship you just about anything, anywhere, overnight.

Is it better to own a big chunk of a small business or a minority stake in a big company? It’s one of the fundamental questions all owners must wrestle with. Owning a relatively small slice of a big pie has worked out well for both Elon Musk and Jeff Bezos, who recently traded places on the list of the world’s wealthiest people. Musk still owns around 20% of Tesla, and Bezos controls about 10% of Amazon, so they both have chosen to sell most of their company to fund their ambitions. The success of their bet has been amplified lately, given the stock market’s run over the last 12 months. However, selling part of your business comes with some significant downsides. So let’s take a look at four reasons it’s better to own a big slice of a smaller pie. Operational Freedom The most obvious benefit of keeping all of your shares is that you get to decide how to run your company. Nobody can tell you what products to launch or markets to enter. You are the king or queen of your kingdom and can decide the rules. No Pressure to Exit Tim Ferriss, the author of five books, including the wildly popular New York Times bestseller The 4-Hour Workweek, recently urged his Twitter followers to consider their endgame before investing in a business: “Before you get into an investment position, get to know how and when you're going to get out, or at least how and when you will reevaluate. Getting in is the easy part….” Once you accept outside investment in your business, you must try to earn your shareholders a return. For your investors to realise a gain, you must sell your company (or part of it). Needing to sell so your investors can realise a return means you give up the option to run your business forever and need to start thinking about how your shareholders will get liquid. Some will pressure you while others will wait patiently, but the exit clock starts ticking once you take outside investment. Nobody Ahead of You in Line Sophisticated outside investors often demand preferred returns when they invest in your company, which can undermine your take from a sale. For example, Ana Chaud started Garden Bar to offer fast-casual salads to Portland hipsters. The first store was a success, but the restaurant industry’s thin margins inspired her to grow to get some economies of scale. She raised two rounds of outside capital, including one from a group of convertible noteholders. Chaud skimmed the term sheet but trusted her investors, so she didn’t think much about a clause that gave noteholders 2.5 times their money if she sold the business before the note expired. Chaud continued to grow to nine locations, with a tenth on the way, when she attracted an exciting offer from Evergreens, Seattle’s fastest-growing salad restaurant. Things were going according to plan right up until Chaud’s lawyer pointed out the investors' clause, which had the potential to wash out all her equity. Chaud agreed to give the proceeds of her acquisition to investors. She negotiated an earn-out, which she hoped would allow her the possibility of a return on her years of sacrifice. Then COVID-19 hit, Portland restaurants were closed, and Chaud ended up with nothing. Avoid a £60 Million Mistake The most apparent reason to hang on to your shares is to avoid dilution. When your company is not worth very much in the early days, it can be tempting to give away equity to attract a key team member, but it could cost you dearly if you’re too generous. Take a look at the story of Greg Alexander, who started Sales Benchmark Index (SBI). Alexander started the sales consultancy at his kitchen table and, early into his tenure, gave two employees a quarter share in his business. Ten years later, Alexander sold SBI for £123 million, prompting him to refer to easily giving up half the company as an '£60 million mistake'. Given the runaway success of some high-profile stocks of late, it can be tempting to consider raising money to fund your growth, but there are still several benefits to owning a big slice of a small pie.

Survey a group of founders about the personality traits that made them successful, and they will be quick to use words like determination, sacrifice, and hard work. Others will show more humility and chalk their success to personality traits like curiosity. Still, others will credit dumb luck. However, there is another personality trait that many of the most successful founders have in common: discipline. They have the discipline to stick to their original vision despite the temptation to veer off course. The discipline to stick to their original product or service offering despite clients asking for different things. The discipline to ignore whatever shiny ball demands their attention and instead focus on what they set out to do. Steve Jobs, the legendary co-founder of Apple, said it best: "People think focus means saying yes to the thing you've got to focus on. But that's not what it means at all. It means saying no to the hundred other good ideas that there are. You have to pick carefully. I'm actually as proud of the things we haven't done as the things I have done. Innovation is saying no to one thousand things." Andy Cabasso studied law at university but never really practiced. So instead, he co-founded JurisPage in 2013, an agency specialising in helping law firms with their marketing. Cabasso understood the marketing services lawyers need, and his partner, Sam Brodie, knew how to build websites that ranked on Google. Their service was popular among lawyers and attracted the attention of other service businesses that needed a website that ranked organically. Cabasso and Brodie were tempted to wander outside of their niche. Still, they ultimately turned down the opportunity to work with other types of companies, knowing they had something unique to offer lawyers. They also knew the importance of recurring revenue, so insisted that their clients use JurisPage for website hosting, which gave the partners a base of recurring revenue. Prospects offered JurisPage thousands of dollars to build a website for someone else to host. Still, Cabasso turned them down, knowing that the recurring website hosting revenue was fundamental to building a valuable business. In the end, Cabasso and Brodie's discipline paid off because they attracted the attention of Uptime Legal, an Inc. 5000 business specialising in technology and practice management software for law firms. The two companies fit together like peanut butter and jelly, so Uptime Legal acquired JurisPage in a seven-figure deal that closed in 2016. The moral? While curiosity and grit are important personality traits for any would-be founder, the ability to remain disciplined in the face of opportunity may be the most important attribute of all.

As a business owner, you’re likely proud of the results you’ve achieved in the past, but when it comes to the value of your business, your future is critical. That’s why your growth potential is one of eight factors that drive the value of your business. One metric that acquirers may use to evaluate your growth potential is your revenue per employee. Alphabet (Google’s parent company) generates around $1.3 million in revenue per employee. Compare that to the advertising agency WPP Group, whose average revenue per employee is around $100,000. For every dollar of revenue, WPP needs more than ten times the employees than Alphabet does. It takes time to recruit, train, and motivate people, which is why WPP has grown more slowly and suffers much lower valuations when compared to a less people- heavy company. Measuring your revenue per employee is just one of many ways an investor may evaluate how quickly they are likely to grow your company. For an example of some of the other ways acquirers assess your growth potential, take a look at Verizon’s recent acquisition of Skyward. Jonathan Evans started Skyward in 2012 when he spotted companies like Amazon and Walmart using drones for package delivery. Evans was working as an air ambulance helicopter pilot and realised widespread use of drones would eventually create air safety issues. Evans saw an opportunity where others hadn’t and launched Skyward to develop software that could safely route drone traffic. While he wasn’t a programmer, his extensive aviation experience enabled him to understand how the current airspace management guidelines could be turned into applications that created “digital train tracks” for drones. Early adopters like utility, construction, and media companies used Skyward’s software to manage their drone fleets. Investors also came calling. Within a few years, Skyward had raised approximately $8 million. One of those investors was Verizon. Drones would require fast and reliable Internet connectivity to operate safely, and the telecom giant wanted a piece of the future. Airbus came calling too, and when Verizon heard of the aerospace corporation’s interest, they leaped into action and offered to buy the company. For Evans, marrying his nascent technology to the country’s largest telecommunications giant was an ideal match. Within days, Evans had sold Skyward to Verizon for top dollar. Investors enjoyed returns of between three and five times their original investment. Given the growth of the industrial drone market, Verizon knew Skyward had the potential to expand quickly as significant companies started to adopt drones. Verizon also understood that as Skyward grew, so too would the customer’s need for Verizon’s data because drones rely on a data connection to communicate with the ground. No matter what business you’re in, the critical takeaway is to remember that the value of your business is determined less by what you have done in the past and more by what you will likely do in the future.

If you were to draw a picture that visually represents your role in your business, what would it look like? Are you at the top of a traditional Christmas-tree-like organisational chart, or are you stuck in the middle of your business, like a hub in a bicycle wheel? As anyone who has tried to fly United when O’Hare has been hit by a snowstorm knows, a hub-and-spoke model is only as strong as the hub. The moment the hub is overwhelmed, the entire system fails. Acquirers generally avoid hub-and-spoke managed businesses because they understand the dangers of buying a company too dependent on the owner. Here’s a list of nine warning signs you’re a hub-and-spoke owner and some suggestions for pulling yourself out of the middle of your business: 1. You sign all of the checks Most business owners sign the checks, but what happens if you’re away for a couple of days and an important supplier needs to be paid? Consider giving an employee signing authority for checks up to an amount you’re comfortable with, and then change the mailing address on your bank statements so they are mailed to your home (not the office). That way, you can review all signed checks and make sure the privilege isn’t being abused. 2. Your mobile phone bill is over £200 a month If your employees are out of their depth a lot, it will show up in your mobile phone bill because staff will be calling you to coach them through problems. Ask yourself if you’re hiring too many junior employees. Sometimes people with a couple of years of industry experience will be a lot more self-sufficient and only slightly more expensive than the greenhorns. Also consider getting a virtual assistant (VA), who can act as a first line of defence in protecting your time. 3. Your revenue is flat when compared to last year’s Flat revenue from one year to the next can be a sign you are a hub in a hub-and-spoke model. Like forcing water through a hose, you have only so much capacity. No matter how efficient you are, every business dependent on its owner reaches capacity at some point. Consider narrowing your product and service line by eliminating technically complex offers that require your personal involvement, and instead focus on selling fewer things to more people. 4. Your vacations suck If you spend your vacations dispatching orders from your mobile, it’s time to cut the tether. Start by taking one day off and seeing how your company does without you. Build systems for failure points. Work up to a point where you can take a few weeks off without affecting your business. 5. You spend more time negotiating than a union boss If you find yourself constantly having to get involved in approving discount requests from your customers, you are a hub. Consider giving front-line, customer-facing employees a band within which they have your approval to negotiate. You may also want to tie salespeople’s bonuses to gross margin for sales they generate so you’re rewarding their contribution to profit, not just chasing skinny margin deals. 6. You close up every night If you’re the only one who knows the close-up routine in your business (count the cash, lock the doors, set the alarm), then you are very much a hub. Write an employee manual of basic procedures (close-up routine, e-mail footer to use, voice mail protocol) for your business and give it to new employees on their first day on the job. 7. You know all of your customers by first name It’s good to have the pulse of your market, but knowing every single customer by first name can be a sign that you’re relying too heavily on your personal relationships being the glue that holds your business together. Consider replacing yourself as a rain maker by hiring a sales team, and as inefficient as it seems, have a trusted employee shadow you when you meet customers so over time your customers get used to dealing with someone else. 8. You get the tickets Suppliers’ wooing you by sending you free tickets to sports events can be a sign that they see you as the key decision maker in your business for their offering. If you are the key contact for any of your suppliers, you will find yourself in the hub of your business when it comes time to negotiate terms. Consider appointing one of your trusted employees as the key contact for a major supplier and give that employee spending authority up to a limit you’re comfortable with. 9. You get cc’d on more than five e-mails a day Employees, customers and suppliers constantly cc’ing you on e-mails can be a sign that they are looking for your tacit approval or that you have not made clear when you want to be involved in their work. Start by asking your employees to stop using the cc line in an e-mail; ask them to add you to the “to” line if you really must be made aware of something – and only if they need a specific action from you.