I’ve taken a departure from my usual, interview based column to talk about a concept that has been recurring a lot in my discussions with entrepreneurs who build fast growth companies. It’s a foundational growth strategy – a way of building your business that attracts capital and creates stability while fostering growth at the same time. It’s called Capital Market Readiness, and it can dramatically alter the trajectory of your business.
Many of the entrepreneurs that I meet own businesses in transition. They’re past the start up stage, experience success that supports their owners’ lifestyles, but have not grown into large companies worth tens of millions or more in revenue. Doug Tatum, advisor to CEO’s of emerging middle market companies and an expert in capital markets calls this transition “No Man’s Land.” In his award winning book, aptly titled No Man’s Land, Doug talks about this difficult phase where many companies go to die, and what it takes to push through.
“To survive this phase [transitioning from a small company to a large one] in a company’s life cycle, entrepreneurs must step away from the day-to-day and subject their businesses to a rigorous, objective analysis.”
A capital market readiness strategy is part of that objective analysis. My long time mentor (who sold two businesses for a combined $270 million), serial entrepreneur, Norm Brodsky, describes the concept in one sentence:
“You should build [your company] as if you were going to have it forever and yet, at the same time, build it so that you could sell it tomorrow for as much money as possible, even if you don’t intend to.”
Building to sell means growing in a very intentional way that constantly adds to your company’s enterprise value. As a thought exercise, determine the answers to these questions:
- What is your company’s valuation today?
- If you sold your business today, could your payout support your current lifestyle for the rest of your life?
- How vulnerable is your revenue to economic shifts or customer attrition?
- Do you have legacy practices that interfere with growth?
- How involved are you in the daily operations of your company? Can it function without you there?
The answers to those questions often reveal the challenges your company faces as it moves through the treacherous territory where companies either stay small, die, or scale to the moon. Now consider how you can eliminate weak flanks and add value.
- How can innovation or automation improve revenue flow?
- Do you have the right management team to handle massive growth and the complexity that comes with it?
- Does your current business model scale as your company grows? How can it be transformed to generate fast growth?
In many ways capital market readiness is a guiding philosophy for fast growth. And whether you intend to sell quickly or keep your business for many years, putting this concept into action, and building as if you’re putting your company up for sale tomorrow will ensure that it holds the highest value today.