This is a guest post from John Warrillow, the author of Built to Sell.
There are 27 million businesses in the United States and just 300,000 of them change hands each year. That means only 1 in 100 company owners successfully sell their business each year.
You can increase your odds for selling your business by separating yourself from your company. The trick is to pick a product or service that scales. The three attributes of a scalable product or service are as follows:
For a product or service to scale, it needs to be something you can teach relatively inexperienced people or machines to create. If delivering your product or service is reliant on the dynamic decision making of you or a senior, very experienced/educated employee, your business is going to be tough to scale. Focus on creating an operations manual so a relatively inexperienced employee (or machine) can deliver the same product or service. Design it once and stamp it out. Said another way, build once, sell many times.
Having a scalable product or service doesn’t guarantee you have a scalable business. For that, you need to have customers who want to buy what you’re selling. The business graveyard is overflowing with scalable products that nobody wanted to buy. Compare, for example, the Apple Newton with the Apple iPhone. Newton (originally called “Message Pad”) is the failed personal handheld organizer Apple launched in 1993 to great fanfare. It was a scalable product the company could assemble inexpensively, but customers didn’t find it valuable. Its handwriting-recognition software was unreliable. Scalable, yes. Valuable, no. Graveyard.
For a business to scale quickly, it needs to rely on both winning new customers and earning the repeat business of existing customers. It’s too costly and time-consuming to build a business on new customers alone. You need the compounding effect of new customers joining a loyal group of existing customers—that’s when you get the snowball effect. Here’s where Apple starts to earn its market capitalization. Not only is the iPhone a scalable product that customers want; it has a consumable long tail of content in the form of music, TV and applications that customers buy regularly.
Teachable, valuable and repeatable—that’s your valuation trifecta.