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How First Impressions Can Impact Your Company’s Value
When potential acquirers first evaluate your business, most will quickly categorize it into a specific industry. This initial classification can significantly impact the value they place on your business. Some industries are inherently perceived as more valuable than others, and if your business is placed in a less favorable category, it can be challenging to change that perception.
When Jeremy Parker was raising money for Swag.com, he ran into investors who were left with the impression that Swag.com was a simple distributor of promotional products, which is an industry plagued by low valuations.
Parker tried to make the case that Swag.com was more than a middleman, but investors weren’t buying it. They lumped Swag.com into the promotional products category and offered Parker a low single-digit multiple of EBITDA for a slice of his business.
Parker regrouped and began positioning the business as an e-commerce play with an unforgettable domain name, world-class merchandising, and one of the most elegant direct-to-consumer (DTC) buying experiences online. Investors began to see the company differently. No longer a simple distributor of “trinkets and trash,” Swag.com began to be seen as a technology company and a digital commerce leader. Instead of a low single-digital multiple of profit, Parker attracted an acquisition offer valuing his $30 million company at a healthy multiple of revenue.
Once an acquirer has categorized your business into a particular industry, it can be challenging to shift that perception. If your business doesn’t fit neatly into their preferred categories, it can be difficult to change their initial impression.
Additionally, acquirers often compare your business to others within the same industry. If they have already placed you in a less favorable industry, they might use lower benchmarks and valuation multiples from that industry, making it harder to argue for a higher valuation. Furthermore, the initial narrative you present about your business can stick. If this narrative places you in a lower-valued industry, subsequent efforts to reframe your business may be met with skepticism.
How to Look Like a Valuable Business
To ensure your business is categorized favorably from the start, consider these strategies:
- Clear Positioning: Clearly articulate your business’s value proposition and industry position. Avoid ambiguous descriptions that might lead to misclassification. Be explicit about where your business fits and why it should be valued accordingly.
- Highlight Industry Trends: Emphasize positive trends in your industry and how your business is positioned to capitalize on them. Use data and market analysis to back up your claims and shift perceptions.
- Put Your Best Foot Forward: If your business spans multiple industries, highlight the most favorable one. Demonstrate how your company leverages the strengths of high-value industries, and downplay associations with lower-value ones.
- Leverage Third-Party Validation: Use endorsements, industry awards, and analyst reports to support your positioning. Third-party validation can lend credibility to your claims and help shift acquirer perceptions.
When selling your company, perception is everything. The category investors place your business in can make or break the deal.
To learn more about our program and see how we can help you prepare for the sale of your business go to www.Biz2Beach.com
https://www.forbes.com/profile/andrew-arnold/?list=best-in-state-wealth-advisors Data provided by SHOOK® Research, LLC – Data is based on information from a 12 month period ending 6/30/23 and awarded April 2024. (#45 in Kentucky – Andy Arnold, MBA, AIF®, CEPA®. Centerline Wealth Advisors, Louisville, KY. Minimum Household Size for New Business: $1MM. Typical Size of Households: $350k-10MM. Typical Net Worth of Relationships: $1.5MM-50MM. Team Assets (Custodied): $264MM) Forbes Best-in-State Wealth Advisors ranking was developed by SHOOK Research and is based on in-person, virtual, and telephone due diligence meetings to measure best practices, client retention, industry experience, credentials, review of compliance records, firm nominations; and quantitative criteria, such as: assets under management and revenue generated for their firms. Investment performance is not a criterion because client objectives and risk tolerances vary, and advisors rarely have audited performance reports. SHOOK’s research and rankings provide opinions intended to help investors choose the right financial advisor and are not indicative of future performance or representative of any one client’s experience. Past performance is not an indication of future results. Neither Forbes nor SHOOK Research receive compensation in exchange for placement on the ranking. For more information, please see www.SHOOKresearch com. SHOOK is a registered trademark of SHOOK Research, LLC.
