Monday, August 29, 2016

Lesson #243: What is Your Digital Business REALLY Worth?

Posted By: George Deeb - 8/29/2016

I was recently reading a great blog post from Digital Exits , a business broker based in Los An...

I was recently reading a great blog post from Digital Exits, a business broker based in Los Angeles that has expertise selling digital companies.  Their president, Jock Purtle, has been compiling exit data from 712 digital businesses that were sold over the last four years.  In Jock's post, which he graciously allowed me to reshare with all of you below, I found the results very eye opening.

Most of the time, we are talking about high flying, venture capital backed startups shooting for the moon and "Unicorn level" valuations.  Even when we are doing early stage venture financings, big multiples like 10x revenues can be used to value early stage businesses.  But, what happens if you don't raise a lot of capital and you are growing a lot slower, or are running a lifestyle business.  The exit multiples for digital businesses are materially lower.

In Jock's analysis below, we see that the average sale multiple for the digital businesses he studied was only 2.4x profits (not revenues).  And, it ranged from 2.0x to 3.4x based on the type of digital business you had, where software businesses with recurring revenues getting a lot more than a simple mobile app business, as an example.  This reflected the full gamut of companies from $0 to $10MM in revenues, where a small business would average around 2x profits and a large business could get closer to 4x profits, showing size clearly matters.  Only 17 of 712 businesses were sold for over 6x profits (yet alone revenues).

Wow!  What a reality check.  If you don't strike it big, which you most likely won't as a risky startup, make sure your expectations are clearly managed in terms of what your business is really worth.  The only silver lining here:  If you are thinking about pursuing a rollup strategy, there could be a big arbitrage opportunity between the 2x-3x revenue multiples most successful, big digital companies achieve, and the 2x-3x profit multiples they could be paying for acquisitions along the way.

Thanks, Jock, for sharing your wisdom with our readers.

Monday, August 22, 2016

Lesson #242: Top 50 Content Marketing Strategies

Posted By: George Deeb - 8/22/2016

I have been wanting to write a how-to lesson on how best to optimize your content marketing ...

I have been wanting to write a how-to lesson on how best to optimize your content marketing efforts, and I was fortunate to stumble on a great post from my good colleague Andy Crestodina, Strategic Director at Orbit Media Studios, a content marketing agency who is expert on the topic. So, instead of writing a very similar lesson from scratch, Andy was kind enough to let me repurpose his wisdom as a Red Rocket lesson and guest post.

Thursday, August 11, 2016

Stop Cherry Coating Your True Opinion!!

Posted By: George Deeb - 8/11/2016

Too often in business, people want to be nice, avoid conflict or not upset their boss or co-work...

Too often in business, people want to be nice, avoid conflict or not upset their boss or co-workers by stating their true opinions.  All that does is create problems for all involved.  You get frustrated that the business is not going in the direction you think is most logical.  And, the listener is provided an opinion from you, which they think you are supportive of, that is potentially the wrong direction for the business and not truly what you feel is the right thing to do.  Hence, keeping the listener headed in the wrong direction.   In business, and particularly in startups where you cannot afford to waste time or resources heading down the wrong direction, there is only one mandate to live by:  always call it like you see it, regardless your role or title.

Read the rest of this post in Forbes, which I guest authored this week.

For future posts, please follow me on Twitter at: @georgedeeb.

Friday, August 5, 2016

Sales Not Closing? Know When to Panic!

Posted By: George Deeb - 8/05/2016

Most B2B businesses are sales driven organizations, often with a team of expensive sales people i...

Most B2B businesses are sales driven organizations, often with a team of expensive sales people in the market trying to hunt down and close new clients. This is typically a really stressful process for early-stage startups, as they typically are incurring the costs of the sales team, well ahead of the sales actually closing and funds running through the income statement. The key is learning what the normal sales cycle should be for your specific business, and when the sales slowness is due to the normal cycle versus a weak salesperson or conversion process. It is critical to learn when you have a real problem on your hands, and when you don’t, so you do not unnecessarily panic when sales are slow to materialize.

Read the rest of this post in Entrepreneur, which I guest authored this week.

For future posts, please follow me on Twitter at: @georgedeeb.

Wednesday, August 3, 2016

Lesson #241: Successful Selling Only Begins With the Sale

Posted By: George Deeb - 8/03/2016

Let’s face facts.  Sales people love to close sales, because that is how they are incentivize...

Let’s face facts.  Sales people love to close sales, because that is how they are incentivized, through sales commissions.  Call it the thrill of the hunt.  And, most sales teams, sales managers and sales pipeline reports are all built up around closing the sale.  But, the sad reality is, closing the sale is only the first step in hopefully maintaining a long-term recurring relationship with that customer, which is going to require impressing them time-and-time-again throughout the course of the relationship.  Which means:  you never really end the sales process at all.  Let me further explain.

Getting from Pilot Programs to Long Term Contracts

Most enterprise scale contracts never start at the full level.  Customers typically like to “try before they buy”.  As an example, maybe they will commit to running a $50,000 pilot program with you, before handing over $500,000 for the full cost of the annual license.  So, what does that mean?  Your salesperson most likely got the adrenaline lift from closing the pilot program, and they are on to hunting the next big deal.

But, that is a huge mistake.  This customer needs their hands held more than ever during the pilot program.  It is critical the tests go well.  And, customers don’t feel like their primary sales executive has disappeared.  The sales executive needs to stay all over the fulfillment team to make sure everything goes perfectly “as advertised”.  Because if they don’t, they are risking the customer not pulling the trigger on the bigger ticket multi-year contract, based on dissatisfaction with their first experience with your company.  So, the pilot is not the finish line for the first sale, the long-term contract is.  Especially, since most VC’s won’t give you credit for clients, until they are out of pilot stage and into long-term relationships.

Fending Off Hungry Competitors

And, just because you closed a long-term contract with a customer doesn’t mean you own that relationship in perpetuity.  Your competitors will be continuing to fire bullets in your direction.  Their sales people will be pitching and romancing your customers over and over again, until they ultimately win the business.  Which you need to prevent, as best as you can.

Your sales team needs to “protect your turf” at all times.  Figure out which competitors are sniffing around the accounts.  Learn what they are pitching your customers.  Pitch your similar solutions.  And, if you don’t have similar solutions, tell your product team, so they can add the request into their future product roadmaps.  And, maintain great personal relationships with your customers.  Because, at the end of the day, you are in the “people business”, and the happier you keep the “people”, especially at the personal level, the more they are going to want to keep working with you.

Putting in Required Face Time Throughout the Year

At the time of the sale, you need to put your annual plan of attack in place on what you need to be doing with these customers over the course of the year.  Think about setting up quarterly business reviews with your customers—not to “sell” them anything, but to inform them of key industry trends and to provide updates on how everything is going with the relationship.  Provide suggestions for areas of improvement and be open with them on how things are progressing.  Show that you “have their back”, and are more interested in seeing them succeed with your product, as opposed to simply trying to sell them something.  Of course, you will be intently listening for upsell opportunities, but don’t sell them during those meetings.

For quarterly business reviews, I would vary up the breadth and depth of those meetings based on the relationship’s importance to your business.  So, think $100,000 accounts gets the updates from their sales executive once a quarter.  And, $500,000 accounts, add in key executives from the company, in rotation, to those meetings (to show the company’s cares enough to send them).  And, $1,000,000 accounts, gets a visit from the CEO at least once a year.  That kind of stuff.

Getting Customers to Renew

And, as I have said many times in the past:  closing the first sale is less important than closing the repeat sale.  The repeat sale proves customers like your product and are happy with their experience with your business.  And, it is materially more economical to drive revenue growth through customer retention, than it is to try to drum up new customers in the first place. 

Imagine if you were a $5MM revenue business and you were losing half of your customers each year.  Instead of adding $2.5MM in sales for 50% growth in year two, your sales team is spinning its wheels just to see revenues stay flat.  So, track your customer churn, and keep it to an absolute minimum.

The key message here: never take off your “sales hats”.  Selling is an ongoing process, and needs to be built into your companies DNA throughout the entire customer lifecycle—over and over again!  But, in a way, that the customer doesn’t feel like they are being “sold” anything at all.  So, carefully walk that line.  And, don’t forget, selling responsibilities doesn’t start and stop solely with the sales team.  Make sure you create an “everyone sells culture” throughout your entire employee base, for maximum success here.

For future posts, please follow me on Twitter at: @georgedeeb.

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