Secrets of getting top valuation for your eCommerce Business
Ecommerce businesses that sell at the top valuation in marketplace are not the ones where owner invested the last year or two of their time preparing the business and it’s systems for sale. In reality, they are the businesses where the owner has planned, created and perfected the auto-pilot systems over the entire life of his or her business. These businesses are the ones that are run by the systems and are not dependent on the owner.
One of the eCommerce businesses I have recently listed has many characteristics of a systems based business. This absentee owner owns and operates highly profitable B2B and B2C eCommerce businesses in the US that is run by only few employees and generates millions of dollars in revenue. Products are shipped to his warehouse from suppliers in US and Asia. Owner lives out of country and manages all operations with an integrated “cloud based” infrastructure providing ecommerce, ERP, Financials, and Customer Support applications under a single architecture.
In his hugely successful book The EMyth Revisited – Why Most Small Businesses Don’t Work and What to Do About It, author Michael Gerber shares significance of Turn-Key Revolution. Turn-Key Revolution is a way of doing business that has the power to dramatically transform any small business from a condition of chaos and disease to a condition of order, excitement, and continuous growth. It is the Turn-Key Revolution that provides us with that illusive key to the development of an extraordinary business; the ultimately balanced model of a business that works.
Michael Gerber goes on to describe the success of Business Format Franchise that provides the franchisee with an entire system of doing business. Most business founders believe that the success of a business resides in the success of the product it sells. The Turn-Key Revolution and the Business Format Franchise is built on the belief that the **true product of a business is not what it sells but how it sells it.
Ray Kroc built the McDonald’s franchise based on a Business Format Franchise. Given the failure rate of most small businesses, he realized a crucial fact: for McDonald’s to be a predictable success, the business would have to work, because the franchisee, if left to his own devices, most assuredly wouldn’t! Armed with that realization, he set about the task of creating a foolproof, predictable business. A systems-dependent business, not a people-dependent business.
A business that could work without him
The business-as-a-product would only sell at a top dollar if it can be demonstrated that it works without any significant contribution from the owners. And the only way to make the new owner 100% comfortable with purchasing your business would be to build it out of perfectly predictable components that have been tested and proven successful over the years. This is true for any business and not just the eCommerce business.
I believe the secrets for business owners who are interested in building a business that can be sold at a premium actually lie in following a franchise model that has revolutionized American business. This model works so well that people buy a franchise every eight minute of every single business day and only 15% of franchise fail over a 3 year period as compared to the 80% failure rate in first three years of independently owned businesses.
Michael Gerber advises to work on your business rather than in it. To think of it as something apart from yourself, as a world of its own, as a product of your efforts, as a machine designed to fulfill a very specific need, as a mechanism for giving you more life, as a system of interconnecting parts, as a package of cereal, as a can of beans, as something created to satisfy your consumers’ deeply held perceived needs, as a solution to somebody else’s problem.
When you have built a business that is system-dependent and not person-dependent, you will be able to answer the following questions positively and confidently. Therefore, you would have built a business that can be sold for top valuation.
- How can I get my business to work, but without me?
- How can I get my people to work, but without my constant interference?
- How can I systematize my business in such a way that it could be run by anyone even a college kid as smoothly as when it is under my ownership?
- How can I own my business, and still be free of it?
- How can I spend time doing the work I love to do rather than the work I have to do?
If you are interested in learning how to build such a system-based-business, I recommend reading Part III of the book The EMyth Revisited – Building a Small Business That Works.
Melissa Chelist says:
Thank you Manny for the informational article. I am going to read the recommended book. Although I am not planning on selling StorkGifts, I do understand the importance of having a system in place for the business to run without me. In addition to adding value to the company for selling purposes, if something were to happen to me and I was out of commission, the company would still need to operate.
Manny Shah says:
Thanks Melissa for your comment - and yes, the book is worth every penny and there is somthing for every business owner in this book. In fact, the first review by Erika Mitchell on Amazon for this book provides an excellent summary of this book. http://www.amazon.com/The-E-Myth-Revisited-Small-Businesses/dp/0887307280/ref=sr11?ie=UTF8&qid=1360441411&sr=8-1&keywords=The+EMyth+Revisited
David-Dj Bryant says:
Great article. Can you give any suggestions for great cloud based architecture? Our company last year moved to a great order management software suite and it really changed our business, so I'm looking for more 'business changing software'. Any tips especially for customer support applications?