Pledge Allegiance to the Investor

HI,

Slight change of tack today..

Courtesy of List25.com…

“Have you ever heard of Robert G. Heft? You know, the dude who designed the American flag back in 1958? No? We’re not surprised!

Believe it or not, Robert created the most famous flag design in the world as part of a school project when he anticipated Alaska and Hawaii joining the United States (bold mine).

Ironically, he only got a B- for the assignment and a reprimand from his teacher for having too many stars. As he would state later, his teacher told him, “You don’t even know how many states we have.”

Not discouraged from his teacher’s reaction, Robert sent his design to the White House. His design was chosen out of more than 1,500 designs that were given to President Dwight D. Eisenhower.”

I love this story and there is actually a lesson for those of you who might want to think about selling your business one day.

A big advantage you can have is to anticipate and think ahead of what would make your business more attractive to a potential buyer or investor.

Imagine, for example, that you want to sell the company in three years, but in the meantime, you have two business investment options in front of you today.
1) Launch a high-end product that can command a higher margin per sale, but it’s a one-time purchase, or
2) launch a subscription program for a medium product with lower margin per sale but is regular and repeatable.

Option 1 will bring in more money the first 12 months and then revert back to average growth. Option 2 the subscription will start slower but will grow slowly and consistently the entire 3 years.

What would you choose and why?

Option 1 might put more money into your pocket over the next 3 years but Option 2 most likely will be valued higher by an investor or buyer due to its predictability. They might consider $1 in subscription profit worth 3 times more than a $1 one-time profit.

So when it comes time for the sale, you might end up earning significantly more on the closing date if you had chosen option 2 over option 1.

And it comes from proactively thinking from the perspective of a buyer and anticipating that he would value subscription profits higher than One Off profits (unless, of course, the one off profit is significantly larger and has a much higher growth path for it under the buyer’s control).

Incidentally, Robert Heft’s teacher later changed his grade to an A.

 

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